Managing Online Money

Cybercash has had a difficult birth. Its developers have faced one formidable challenge after another. Privacy and security concerns have made it harder to convince a skeptical public that it can trust a virtual money form flowing invisibly through computer networks. Right from the start credit-card companies managed to establish a commanding lead in B2C transactions which left less room for online-payment alternatives in that segment of e-commerce. A first generation of experiments proved the technical feasibility of key cybercash designs (e-checks, smart cards, digital coins), but was unable to make a decisive dent in the dominance of credit cards. Then e-commerce, the principal force driving the development of online-payment systems, was hit by the bursting of the dot-com bubble on Wall Street. The sudden deterioration in the financial condition of internet-based firms undermined the commercial viability of a second generation of cybercash experiments. Their large set-up costs necessitated significant revenue creation which failed to materialize in the wake of the crisis hitting the internet sector. A third wave of monetary innovation is now under way, building on the proven design ideas of the first experiments and digesting key lessons from the failures of the second round. While still struggling amidst unfavorable market conditions, these latest experiments may generate the critical mass for a successful launch of cybercash — seven years after its first appearance.