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CyberCash covets vice income

The e-commerce provider believes online gambling and adult entertainment will drive the use of its technology.

Online gambling and adult entertainment will drive the growth of electronic cash transactions over the Net and thereby the use of CyberCash's (CYCH) own e-cash technology, said chairman and chief executive William Melton.

CyberCash provides e-commerce technology for credit cards, cash, and check payments. Its makes money by taking a percentage of the transactions that Net users make with the banks or electronic merchants who use CyberCash technology.

While the company makes most of its money right now from credit card transactions, it expects to draw in a lot more in the future from its e-cash technology. Its CEO thinks that a lot of that future revenue will come from two particular kinds of transactions: gambling and paying for access to pornography.

"Revenue from gaming and adult entertainment will be substantial in the early stage," Melton said in an interview at the Hambrecht & Quist Technology conference yesterday. "These people tend to be impulse buyers and less price-sensitive."

Consumers of these kinds of services also tend to want to remain anonymous and might defer to the use of electronic cash rather than using credit cards which bring itemized bills to users' homes. Melton says that online merchants would also rather see consumers pay with electronic cash than credit cards.

"Consumers want anonymity and the merchants don't want shrinkage," Melton explained.

The term shrinkage means that customers change their minds about buying something and call their credit card companies to cancel charges. Melton said adult entertainment merchants have reported shrinkage rates as high as 30 percent.

But with an e-cash system like CyberCash, the merchants know the cash is collected immediately.

The company's CyberCoin payment system lets e-commerce sites sell merchandise or information priced from 25 cents to $10. Playboy's Cyber Club site, now under construction, is already using the technology through a six-month pilot.

CyberCash is also working with banks to help overseas casinos use its technology. Online gaming in parts of the United States is being held up by laws that prohibit gambling.

Melton also expects to sell his technology to companies that do business online with other businesses. "Companies don't pay for things with credit cards. They use checks," Melton explained.

CyberCash, which earlier this week reported first-quarter revenues of $155,395, got most of its revenues from the 500 merchants using its credit card technology and its consulting services. But the company has just launched its pilot electronic check payment technology.

Once the market matures in two to three years, Melton forecasts that CyberCash's revenues will likely come 50 percent from coin transactions, 25 percent from check transactions, and roughly 15 percent from credit card transactions. He added that an average of six checks are written for every credit card transaction.

Cybercash went public last year. Hambrecht & Quist had at first projected that it would post revenues of $25 million in 1997, but has now revised that estimate to $6 million. Hambrecht & Quist is still hopeful, however, that CyberCash will bring in $35 million in 1998.