While electronic payment pioneers CyberCash, DigiCash and Mondex International got feathered with arrows and largely failed, a new group of companies has arrived to pick up where they fell short.
Such start-ups as Billpoint, Ecount.com, PayPal, ProPay.com and SafeTPay.com are betting their bottom lines that Netizens are now ready to let go of their credit cards just long enough to try something new.
A few already have. The explosion of online auctions is proving to be the ultimate testing ground for "person-to-person" (P2P) payment schemes that promise ease of use and improved security in transactions that have traditionally been carried out via cashier's checks and a lot of trust.
Here, PayPal is clearly out in front. The company launched in November 1999 and merged with its prime competitor, X.com, in March. The P2P service has quickly become the leading payment mechanism on eBay, with 3.3 million users and 100,000 transactions per day.
"We have about 80 [percent] to 90 percent of the online payment market," says PayPal spokesman Vince Sollito.
The free service requires users to open an account and supply PayPal with bank information. From there, the user can send and receive money through the platform. PayPal makes its money on the float in the system, as well as fees paid by 150,000 premier customers, some of which are businesses.
But copycats have been quick to follow. EBay and Wells Fargo joined forces in June to offer Billpoint, an identical transaction service, in an effort to cut into PayPal's booming business. No luck so far.
"We're beating eBay 5-to-1 on its own site," Sollito says.
Some industry experts are surprised eBay let it happen. "PayPal is a hostile tenant. They're like the barnacle on the boat -- eBay would love to get rid of them," says James Van Dyke, senior analyst at Jupiter Communications.
Ecount is also coming on strong. The San Francisco company licenses its e-mail-based payment platform to popular portal sites such as CNet, mySimon and NBC Internet. The company also has licensing arrangements with AT&T, Charles Schwab & Co. and Ford Motor. All in all, 160 companies accept Ecount payments, and the system has logged 1 million users in the last 10 months.
"What we saw was that CyberCash and others failed because they tried to create a new currency," says Ecount Chief Executive Matt Gillin.
ProPay has a slightly different take on the market. The Orem, Utah, company allows its customers to accept credit cards without applying for a merchant account.
ProPay delivers the service by holding a master merchant account and allowing customers to transact under its umbrella. The big advantage, says Brad Wilkes, ProPay's founder, is that customers can preserve the full fraud protections afforded them by MasterCard International and Visa International.
That raises a vital issue. Credit cards still dominate, with more than 90 percent of the overall Web payment market, and the alternative methods haven't been able to successfully break into the business-to-consumer loop.
"Why would a consumer give up their credit cards if they are shopping at Web stores?" asks Avilah Litan, a research director at GartnerGroup. "It's going to be very hard to get consumers to give them up."
Harry Hargens is praying they will. He's president of SafeTPay.com, a new alternative payment shop based in Atlanta that's hoping to spur the use of a client-side combined card reader and personal identification number pad that Hargens says will be cheaper to use and far more secure. The system allows buyers to debit their automated teller machine cards when purchasing online.
"If you don't add [a reader] to the customer's PC, the information has to be keyed in and it can be sniffed," Hargens says.
But analysts say Hargens faces an uphill battle convincing merchants to buy and then hand out the card reader to their customers -- who may not really want another peripheral on their cluttered desktop.
Hargens isn't giving up. "Once we get the first few merchants to give out the PIN pads, others will join in to ride their coat tails," he says.
While dozens of companies fight for the P2P market, the business-to-business e-payment sector is lying largely fallow. Some companies say they'll target that sector soon.
"There is a lot of value in growing the network from the P2P model," ProPay's Wilkes says. "We'll probably push the border right up to where a customer is becoming a business."
