Online consumers will rapidly turn to virtual cash to buy goods, making the fate of shopping more advanced than a scene out of The Jetsons. After all, even the family's patriarch George still used greenbacks.
By the year 2000, almost half of all online purchases will be paid for with digital money with the use of smart cards, e-cash, and e-checks, according to a report by Jupiter Communications released today. By then, the figure for online sales could reach $7.3 billion, according to the research firm.
Smart cards resemble credit cards but have an embedded microprocessor that stores money. Similar technology is already used by many universities, letting students purchase a card for a specific dollar amount to make phone calls, shop on campus, or pay for meals.
Credit cards will continue to be used for sizable purchases, but Jupiter says e-money will be the currency used to buy online goods and services priced below $10.
"For now, to the extent that they buy items online, consumers are comfortable with using plastic," said Scott Smith, principal analyst for the Jupiter Internet Payments Report. "But if the price is low, such as for a newspaper article or gameplay, they will likely turn to new kinds of e-money--smart cards or electronic coins they can also use on the PC."
Even though the use of e-cash will boom, on the whole, merchants will continue to favor credit cards. "Getting merchants to adopt to payment systems that require special hardware or servers, like some of the electronic cash systems, is a huge hurdle," Smith added. "That's why we expect credit cards to be the most used in terms of dollar value because they don't require a new set of systems."
Credit cards companies are also closer to standards for secure payments over the Net. Yesterday, CNET reported that Visa and MasterCard were almost ready to finalize the Secure Electronic Transactions (SET) protocol for credit card purchases. Visa also said that it will launch a SET trial involving electronic cash cards in May or June.
The growth of "wallets" as plug-ins to browsers will also increase the use of e-cash. In addition, 1997 will be one of trials and experimentation for online smart card technology, according to the report.
The average number of transactions per online household is expected to climb from the current 9 transactions per year to 120 by 2000. Jupiter says this is because more low-value goods and services are becoming available online, and smart cards will be used to buy the items.
As with other Net commerce developments, electronic cash sparks user privacy issues. Privacy and e-commerce advocates aren't as concerned about smart cards that simply replace cash. But virtual money systems that track consumers' identity, purchase histories, and Net surfing activity are being flagged. "With smart cards that are just like cash, no information about the user is stored on the card. This is a positive thing from a privacy point of view," said Lori Fena, executive director for the Electronic Frontier Foundation (EFF). "But electronic payment methods that create a digital tracking of who you are pose a huge concern."
eTRUST, an effort to increase the level of trust between merchants and consumers on the Internet, encourages companies that use such systems to establish an informed consent policy that tells users how their activity will be monitored. EFF is a partner in eTRUST.