When dollars go digital

Online commerce was just the beginning. The evolution of money may be under way.

The Internet is about to poke George Washington in the eye ... and Abraham Lincoln and all those other famous men peering out from the front of America's legal tender.

Thanks to online commerce, new kinds of currency will some day challenge those greenback paper giants.

No one's quite sure what they'll look like: virtual nickels and dimes people spend but never see, or frequent-flier miles, Disney dollars, or some other creation that was never minted on a government printing press. But something is coming.

"The exchange of value on the Internet is not going to be necessarily tied to any particular piece of plastic or any particular piece of paper," says Bill Melton, chief executive and chairman of CyberCash, an online payment pioneer in Reston, Va.

"I think we're going to head into a world very quickly where you're going to see people's own currency emerge," adds Tony Fernandes, "vision guy" and cofounder of Market Systems, a San Jose, Calif., firm that helps companies set up electronic-money programs.

Of course, the clink of coins and shuffle of bills have long been giving way to the beeps and blips of more modern payment systems: credit cards and, more recently, debit cards, which immediately charge purchases to a consumer's bank account.

Poor track record

Yet previous predictions that a new e-money would challenge those innovations have proved disastrously wrong so far. E-money pioneer DigiCash declared bankruptcy last year. CyberCash and another early player, FirstVirtual, have changed their business focus.

Nevertheless, e-money experiments are again mushrooming online. If these new companies answer real consumers' needs, they could go a long way toward transforming the dough America spends, several observers say.

And this time, entrepreneurs seem more realistic. Instead of trying to change Americans' spending methods singlehandedly, they're targeting specific audiences with more familiar instruments.

For example:

*Buying or selling something online for as little as a nickel. Traditional credit and debit cards won't mess with such a paltry sum because they're too expensive to process. But FirstNet Financial in Los Angeles is pioneering an Internet credit card that dramatically lowers transaction costs.

"We've tested it down to 2 cents a transaction," says Eric DePrano, the company's chief executive. By relying on the power of the Internet, the company keeps costs low by eliminating the middlemen used by traditional credit cards, sends customers their bills online, and doesn't even issue any plastic. The "card" exists only as a number and an account.

*Splitting a restaurant bill using only credit cards. Today, at least one of you has to have cash. But Peter Thiel, chief executive of Confinity Inc. in Palo Alto, Calif., is rolling out a system in September that will allow individuals to pay each other by credit card.

Using its PayPal software, consumers will be able to beam credit-card payments to each other via a popular electronic organizer known as the Palm Pilot.

Even if only one person has the software, he can beam that over to the other Palm Pilot too.

"As people use it, the software spreads," says Mr. Thiel, who hopes to develop versions of PayPal for other organizers, cellular phones, and even pagers.

*Providing more convenient forms of coupons. Several firms are busy putting an Internet spin on the old green and yellow stamps grocery stores used to hand out.

New York-based beenz.com Inc., for example, offers a currency called "beenz" that people earn for, say, buying something online or dropping by a Web site. When they've accumulated enough, they can spend them toward merchandise at any of the 190 participating companies worldwide.

Netcentives Inc. in San Francisco offers a similar service called ClickRewards, which rewards consumers with frequent-flier miles.

Flooz.com, also in New York, offers a slightly different twist: gift-certificate currency called flooz that consumers can use toward merchandise at some two dozen online merchants. Each flooz equals $1.

All these services are free to consumers.

Big firms not far behind

Of course, today's financial giants - MasterCard, Visa, Citibank, and others - are also gunning to create the new currency of cyberspace. They're trying various concepts, including the "digital wallet," which you pay for before using online much like a prepaid phone card. These companies will probably be joined by Internet powerhouses, such as Yahoo! and America Online (AOL), which have already created brand loyalty among large groups of consumers.

In the new world of Internet commerce, that's enough of a platform to create new currencies that members can earn and trade for discounts on service or merchandise.

"You'll see additional forms of those currencies," predicts Paul Herman, chief executive and cofounder of iCanBuy.com Inc., a San Francisco-based online payment system for children. (See online services, page 14.) "The question is how restricted they are.... The more places you'll be able to use them, I think you'll see accumulations of these currencies."

Who will win out? Many observers point to today's big brand names in finance and the Internet to carry the day.

But Mr. Melton of CyberCash thinks smaller "affinity" groups, such as the Girl Scouts or a charity that command intense loyalty, may be the long-term winners. Already, these groups are beginning to offer their own credit cards; online, they may attract so much traffic to their sites that merchants will pay them to use their currency.

"The Yahoos and the AOLs may be the Tyrannosaurus rex of the Internet space," he says. "The little furry mammals who are moving along the cracks are the affinity groups."

(c) Copyright 1999. The Christian Science Publishing Society