The Long Road to €ldorado

"Technologically speaking, it was a highly sophisticated process," says Dr. Joachim Henkel from the Institute for Innovation Research and Technology Management at the Ludwig-Maximilian University in Munich. "But it was too complicated." People wanting to use the system to pay for goods online first had to identify themselves at the post office. Then they had to install special software, file a digital certificate and generate digital coins, which they sent to the bank. The bank validated the coins by debiting a corresponding sum from the user's account and then sending the coins back. Basically, potential users had better things to do and gave the new digital money the cold shoulder.

One reason for this is anxiety about the safety of using credit cards for online purchases. According to estimates by the EU Commission, card fraud cost 600 mill. € last year. Eurocard, a German credit card company, claims that the level of fraud in the Internet is ten times higher than in the rest of the market. That's why online purchasers often see an onscreen symbol representing a key or a lock—a sign that the data will be encrypted. In particular, the large online outlets provide SSL (secure sockets layer) encryption for online payments. This creates a relatively secure link, inaccessible to third parties, between the server and the customer's PC. However, even this system has a substantial drawback: online traders have no way of checking whether customers have really entered their own personal data.

Customers wishing to use the SET (secure electronic transaction) standard as developed by Visa and Mastercard must first obtain certification from their own bank. This comes in the form of a special encrypted electronic wallet, which is sent to the online outlet to pay for goods. With the current version of the SET standard, the electronic wallet is stored on the customer's PC. In the future, however, plans call for this to be administered on a secure server. An even safer option would be to place the wallet on a special chipcard (SmartCard). But users would then need a card-reader, which currently costs around 100 €. "The security argument alone isn't enough to persuade people to buy one," says Knud Böhle, who monitors the development of electronic payment systems internationally at the Institute for Future Technological Research in the Spanish city of Seville. "Customers aren't ready to pay for a card-reader yet." Henkel is also skeptical. "Most people wouldn't even know how to install one," he said.

Nevertheless, Böhle believes that SmartCards will boost online business in the medium term. His optimism is based on the fact that planning for the introduction of such cards is well underway. By 2005 at the latest, all credit cards will be fitted with microchips for encrypting data. "That will give people an incentive to install a card-reader in their PCs," says Böhle. He also believes that the government could promote acceptance by allowing people to sign their tax returns with a digital signature and submit it by e-mail.

German legislation on digital signatures has already created the basis for online dealings with public authorities. A 1997 law was conceived to give digital signatures the status of a supplementary ID card. In May 2001, German law was modified to conform to EU guidelines introduced in January 2000 for a European-wide standard in this area. Use of an electronic signature, for example, makes it possible to determine whether a text has been manipulated during its journey through a data network. However, hackers still manage to crack even the most secure software with the help of so-called Trojan Horses. Therefore, it will be some time before you can send your attorney sensitive documents via e-mail.

Paying small amounts of money via the Internet is much less problematic. Indeed, as soon as PC-based card-readers become standard, special cashcards will provide a convenient way of making "micropayments." In Sweden, Finland and Belgium, for example, it is already possible to reload a SmartCard via the Internet and then use it for online purchases. In contrast, this feature is barely used in normal retailing in Germany, where some 20 million cards with a rechargeable wallet function are in circulation. Part of the problem is that too few outlets accept the cards, and with 20 different, incompatible systems throughout Europe, standardization remains a problem. For instance, it's impossible to reload a German card from a Spanish cashcard terminal—a frustrating experience for tourists.

Experts are forecasting a bright future for billing systems. Here, users first install a special software program that enables them to make small payment transactions using a computer mouse. "The amount is then charged to the customer's telephone bill, to the bill from their Internet provider, or to some other established account," says Böhle, adding however, that "New firms are at a disadvantage here, since they first have to develop a relationship with the customer." Such a billing system is offered by In Medias Res. The company's product, Net900, is licensed to Deutsche Telekom, which uses it under the name of Click & Pay net900. Even simpler are prepaid Internet cards such as the "Paysafecard," which is designed to make online payments not only safe but also anonymous. Not surprisingly, such cards are principally used to pay for Internet pornography. As a rule, the cards incorporate a secret number, which users first have to scratch free. This is then entered into the online payment form. A PIN code is also required in some cases. The central computer at Paysafecard checks to see if the balance credited to the secret number covers the purchase. This fall, DeTe CardService, a Deutsche Telekom subsidiary, will launch a rival card known as "MicroMoney." But such payment systems have a big drawback, as card suppliers generally charge online retailers a fee of five to 35 % per transaction.

In the future, cell phones could also replace small change. In Finland, they can already be used to purchase drinks from vending machines or to pay at the laundromat. There are also various cell phone-supported payment procedures in Germany. With the "Paybox" system, for instance, customers provide their cell phone number with their order. The retailer communicates this number and the amount due to Paybox. Within seconds, the customer receives a call and is asked to enter a PIN code to confirm the purchase. Finally, Paybox withdraws the sum from the customer's account and transfers it to the retailer. Here again, too few retailers have shown an interest in using the system.

Meanwhile, engineers continue to work intensively on new systems. In France, some cell phones from Motorola and Sagem are fitted with a second slot for a special chipcard to be used for payment. Another variant has the SmartCard already integrated into the cell phone. Böhle is now working with Visa and Nokia to test such a model. "If we can speed up the payment process and increase the number of businesses that accept the system, cell phones could become an everyday method of payment," says Böhle. "One day, we'll be able to transfer money simply by pushing a button."

Güven Purtul