Re: Bypassing the Digicash Patents

[azur@netcom.com (Steve Schear)]

>> When one combines the transactional economic advantages of DBC: no customer
>> accounts, statement generation, little or no need for dispute resolution
>> and the economies of using the Net for settlement, with the still
>> considerable marketing costs, the likely differential between DBC and
>> CC/ACH is closer to one order of magnitude at best.
>
>Again, I still hold out for three or four.
>
>> This is still
>> considerable, however, and if properly branded and marketed could
>> significantly displace current competition, for lower value transactions.
>> The overhead of CC discounts is keenly watched by merchants.  If a trusted
>> DBC issuer/agent offered 1.0% fees (especially to on-line merchants) it
>> would get noticed quickly.
>
>Agreed. However, when it happens, it'll probably be more significant than
>that. I think removing 3 or 4 extra zeroes from the status quo is probably
>what people should try to do when developing this stuff. I think that the
>technology offers us at least that much slack, and probably more.
>
>Remember, it *is* supposed to change the world. :-).

If I grant that you're right that DBCs will be 3-4 orders of magnitude
cheaper than the book-entry approaches, and I'm ready yet, there is still
the issue of whether such savings can be quickly passed on to the merchant
and consumer, and thus spark this revoltion.

Consider this, if a DBC-based system were to garner 3% (about what it might
take to get noticed by the consumer, retail and business markets) of the
GDP's $4 trillion in transactions, or about $120 billion, and the
transaction fees were $0.0025, this would generate about $300 million in
fees.  This is about what Western Union International generates in fees, a
very respectable sized business.  But how much marketing and branding
expenditures would it take to get there?  All financial products which
attempted to reach a broad market and have a significant impact have
required, in the past, significant up-front marketing expenses (VISA
succeeded because BankAmericard spent in the $10s million per year range).
Unless the Net will enable a 3-4 orders of magnitude reduction in such
expenses, amounting to an historic bootstrap, it is difficult to see how
this will occur without a white knight.

A similar situation is occuring in cellular.  Prices are plummeting because
many new companies are building out competitive PCS networks and forward
pricing their services to gain market share and economies of scale.  These
new players have deep pockets (or are backed by those with deep pockets).
To wrench away the bank and credit card francshise from the established
players may require similar sized investments.

--Steve


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