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9/13/94 Company Plans Payment System For Shopping On The
By Jared Sandberg
Staff Reporter of The Wall Street Journal
As millions of computer users browse the Internet for a
burgeoning array of goods and services, most can look but not
That may soon change.
A new company called CyberCash Inc., formed by executives from
the Internet and the electronic-payment industries, plans to
introduce a system that will allow on-line browsers to pay for
an item, either by credit card or through bank transfers, over
the global computer network. CommerceNet, a new on-line system
funded by Apple Computer Inc., BankAmerica Corp. and others,
expects to adopt the CyberCash system by year's end. The company
has talked to America Online Inc., which has one million
subscribers and to which it has close ties.
By clicking a "buy" button, CyberCash users could approve
electronic transfers to merchants from checking and credit-card
accounts. Companies could pay invoices, and e-mail penpals could
settle bets with the point of a mouse.
But to do that, CyberCash must first persuade banks that the
system is secure from on-line theft, which may be its toughest
challenge. "I don't think there's a system that is adequately
secure that has been placed on the table," says Sholom Rosen, a
vice president for Citicorp, who says he isn't familiar with
CyberCash. Even if one emerges, he adds, "it's going to be tough
to get everybody to agree on the same system."
While some companies, including Citibank, are planning their
own business-to-business electronic payment systems on the
Internet, CyberCash is aimed at the millions of consumer and
business users who browse the Internet. "We want to make the
Internet safe for commerce," says CyberCash's co-founder and
president, William N. Melton, and "provide safe passage from
cyberspace into the banking world."
Private on-line services use proprietary software to move
funds, which reduces the risk of thieves breaking into the
system. But only subscribers are permitted to make on-line
purchases, and then only from participating merchants. For
example, fewer than 3% of the people who frequent the CompuServe
"mall" each month buy anything.
The Internet, by contrast, is an unsecured free-for-all that
uses "open" software to let tens of thousands of computers link
up. That means more computer jocks know how it really works,
increasing the chances of a break-in.
Mr. Melton is in a good position to overcome the banks'
security concerns. He founded Verifone Inc., which makes the
devices retailers use to authorize credit-card charges. He sits
on the board of America Online and helped launch Transaction
Network Services Inc., a data transmission network for six of
the 12 largest credit-card processing centers. TNS is expected
to be part of CyberCash's private banking network.
CyberCash's co-founder is Dan Lynch, founder of Interop Co., a
trade-show subsidiary of Ziff Communications Co. that hosts the
biggest Internet gatherings. Other partners include Stephen D.
Crocker, one of the Internet's architects; James Bidzos,
president of RSA Data Securities Inc., a leading
software-security firm; and Bruce Wilson, a former Nynex Corp.
executive and one-time board member of the Electronic Funds
Transfer Association, a banking trade group.
(END) DOW JONES NEWS 09-13-94
6 06 AM
9/13/94 Company Plans -2-: A "Digital Purse" For Internet
The Internet today is one big yard sale of computers, t-shirts,
books, compact disks, rope sandals, legal services and hundreds
of other products -- with almost no way to buy. An estimated 500
companies, from travel agencies and art galleries to real-estate
brokers and a Volvo dealership, have put up storefronts. Most
offer only product information and customer support. To make a
purchase, a browser must phone a vendor.
"It's a very clunky way of conducting electronic commerce,"
says Jayne Levin, editor of the Internet Letter, a newsletter
aimed at business users. She estimates the current value of
Internet transactions at a "piddling" $10 million.
A few pioneers have passed credit-card numbers safely on the
Internet. In July, an electronic bookstore received its first
payment over the network. Last month, a small startup retailer
in Nashua, N.H., sold its first compact disk on-line. Almost no
one, however, has been able to automate payment by bringing
banks directly on-line, which is CyberCash's goal.
Its approach would let users punch a few keys to ask their
banks to set aside money in a "digital purse." When the customer
clicks on a "buy" icon, the merchant's computer would pass the
request to CyberCash's network, which would forward it to the
bank. If funds are available in the "digital purse" or a
credit-card account, the money would get tranferred from bank to
CyberCash to merchant. CyberCash would receive a small fee for
each transaction from the banks.
"The transaction is processed instantaneously -- while you
wait," says Mr. Crocker of CyberCash. He says the company is
working to secure the system, "but there's no question we will
have people trying our `front door.'" CyberCash plans to spend
$20 million on a private network of computers, which will
separate Internet merchants from users' bank accounts. To
protect sensitive account information, RSA Data Securities will
provide encryption to scramble the data, allowing only those who
have a special software "key" to read it. Customers and their
banks will hold the keys.
In addition, Cybercash is discussing licensing with David
Chaum, president of Digicash Inc., a key patent holder for
digital-cash technology. Digicash emphasizes anonymity: A
merchant is told only whether the cash is available, not who is
Other security measures must be taken. On the Internet, users
can veil their identities or steal access accounts masquerading
as someone else. Backers of RSA and CommerceNet, which posts
business and product information on the Internet, are working on
tools to verify user ID and keep payment requests private and
tamper-proof. Even with those measures, however, CyberCash
executives concede it will take some potent powers of persuasion
to get the banks on board.
"There is no security on the Internet," says Dan Schutzer,
president of the Financial Services Technology Consortium, a
group of major banks. "Your conversations can be tapped, your
passwords can be obtained, and your credit card number can be
filched. Clearly, it's there for the reading for a clever
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