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Credit cards still seen as No. 1

Most consumers will use credit cards, not e-cash or smart cards, to make purchases over the Internet, according to a new study.

Most consumers will use credit cards, not e-cash or smart cards, to make purchases over the Internet, according to a new study from research institute SRI Consulting.

"Payment cards are very well established already, whereas with electronic cash, you have to create a brand new customer account, gain customer trust, and do your own marketing," said Paul Di Senso, a senior analyst who worked on the study. "Credit cards already have an infrastructure in place."

The Secure Electronic Transaction (SET) protocol from Visa and MasterCard will boost the popularity of credit cards in Internet commerce, he predicted.

SET's chief resource, he suggested, is its widespread backing among credit card vendors, technology suppliers, and, increasingly, the banks that handle credit card payments. SET has the power to exploit links to existing processing systems.

Most importantly, SET gives backers something to say about Internet security. "Our findings were that 70 percent of U.S. Internet users have the perception that the Net not safe for credit cards," said Di Senso.

"I believe a lot of people out there will be trying to crack SET, and someone will," he said. But that won't be fatal for SET, he predicted. "All the credit card companies want to do is manage the risk. They don't want to make it impervious to risk."

Di Senso also worries that SET transactions take too long. Most purchases in the ongoing trials take 30 to 60 seconds, and still only involve few vendors and buyers. This is because each purchase requires multiple transactions with heavy-duty encryption at each step.

"I'm worried that this is an Achilles heel for SET," he said.

Smart card-based payments will lag because few of the cards are in use in the United States and because PCs are currently not equipped to read smart cards, the study predicts.

The electronic payment systems study, released only to SRI clients, finds the best long-term alternative to SET will come from electronic drafts or checks that let customers use existing checking accounts for customer-to-merchant transfers over the Internet. Initially e-checks will target business-to-business uses. Eventually, the study says, consumers will adopt them too.

Di Senso predicts e-cash programs from DigiCash, Digital Equipment, and CyberCash will battle for niche markets that SET-based solutions ignore, mostly purchases under below $5. He thinks individual Web sites may let users aggregate purchases of small items, perhaps by using credit cards to buy tokens on certain sites.