Pioneering Internet payments firm First Virtual Holdings is exiting the online payments business to concentrate on Internet messaging and will urge its 2,000 Net merchants to sign up with former rival CyberCash.
First Virtual also will encourage its 60,000-plus buyers to sign up with CyberCash. The deal, which involved no cash payments, may have been brokered in part by technology and publishing conglomerate Softbank, which owns about 8 percent of CyberCash and 60 percent of First Virtual after a $6.6 million cash infusion in June.
"Having Softbank involved in both companies made decisions and concurrence of the board easier," said Keith Kendrick, First Virtual's president.
Both firms have struggled in the payments arena as the number of Internet transactions has not met their expectations.
"It looks like this is designed to bring CyberCash new merchant relationships," said Gary Craft, analyst for BankAmerica Robertson Stephens, noting that mainstream payment processors like First Data Corporation, a First Virtual shareholder, often have added merchants through acquisitions.
Paul Merenbloom, analyst at Prudential Securities praised the deal--and said it might spur other companies' interest in acquiring CyberCash.
"CyberCash is able to increase its market share for a nominal amount of capital. [It] eliminated a perceived competitor in the marketplace and further solidified its own position in the market," he said. "Because it provides critical mass, it will make CyberCash more attractive not only to partners but also to potential acquirers."
First Virtual, Merenbloom added, gets a graceful exit from payments while giving its merchants a way to accept payments.
"We announced at the end of last year that we would shift our core competency to our email platform, which gives a chance to do broader applications," Kendrick said. First Virtual also has Java-based interactive ad banner technology that allows buyers to click on a banner and complete a purchase.
In addition, CyberCash will provide payment services for users of First Virtual's email service bureau and will recommend First Virtual's service to its customers.
"We will look for opportunities to improve our merchants' marketing capabilities--one of their biggest challenges is getting people to their Web sites and building loyalty with customers," said Maureen Loftes, CyberCash's vice president of marketing.
The transitions will take place next month, when CyberCash plans to release a new version of its wallet software that will be made available to First Virtual users via a special Web site. Humboldt Bank and First Bank of Beverly Hills will expedite merchant bank relationships for the First Virtual merchants so they can use CyberCash's CashRegister 3 software to accept credit card payments over the Net. CyberCash also has arranged with systems integrators to help merchants install its merchant payment software, which is a small file on the storefront's site that communicates with CyberCash's server.
Forrester Research recently estimated that the email service bureau business that First Virtual is targeting will become a $1 billion a year market. First Virtual will focus on sending outbound "transactive" messages to individuals who already have a relationship with a company, then manage the responses. Kendrick said the company will not be a Spam provider, sending unsolicited email.
Last week First Virtual announced it will acquire Email Publishing, which provides email subscription management services to publishers, for 6 million shares of First Virtual stock. That will add publishing to First Virtual's target list in financial services, travel, and catalog marketing.
After its March acquisition of ICVerify, a payment technology that primarily served merchants in the physical world, CyberCash last month laid off about 20 percent of its work force after an earnings shortfall.