DigiCash loses U.S. toehold

The pioneering Internet firm is losing its toehold in the United States as the only U.S. bank testing its eCash micropayment system is closing the trial.

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DigiCash, a pioneering Internet firm that promotes "anonymous eCash," is losing its toehold in the United States as the only U.S. bank testing its eCash micropayment system is closing the trial September 14.

Mark Twain Bank has told its approximately 5,000 customers, including just more than 300 merchants, to clear the eCash off their hard drives, put it back into Mark Twain bank accounts, and expect a check in the mail.

Some analysts think DigiCash's recent travails serve as a metaphor for the current state of electronic money. Jupiter Communications just revised its online payments projections, giving electronic cash a mere 1 percent of transactions in 2002.

"We are extremely skeptical and bearish on another payment instrument online," said Jupiter e-commerce analyst Nicole Vanderbilt. "The move by Mark Twain Bank isn't surprising in light of the very low success of eCash among online merchant."

Scott Smith, an e-commerce analyst at Current Analysis, was even more blunt in his assessment: "Micropayments are all pretty much dead in the water."

Summing up e-cash initiatives
E-cash company Initiative Status
DigiCash eCash In testing in Europe, Australia
Cybercash CyberCoin In testing in Europe, Asia
Digital (now part of Compaq) Millicent In testing in U.S.
IBM Minipay In development, early trials
First Virtual Virtual PIN Discontinued

Other electronic cash schemes have "failed to gain much traction" in the market, Smith said. The best known is CyberCoin from CyberCash. Digital Equipment, now part of Compaq Computer is testing its Millicent electronic cash for transactions under $5, and IBM is in early trials for a product referred to as Minipay. First Virtual, which had a form of e-cash, exited the payment business in July.

Micropayments were envisioned as a way to handle small transactions, ranging from 25 cents to $10, over the Internet. Visa has estimated that each year $1.8 trillion is spent in transactions of $10 or less worldwide.

But, given the proliferation of credit cards in the United States, the micropayment idea has yet to take hold. Consumers prefer instead to use credit cards for secure online transactions.

In Europe, where there are fewer credit cards and more cash transactions, micropayment technologies make more sense. In fact, DigiCash and some of its competitors see Europe as fertile territory for its services.

But DigiCash remains upbeat, citing plans by a new chief executive, Scott Loftesness, and his team to push the electronic cash portions of DigiCash's business, particularly in the United States. Loftesness was formerly a top executive in First Data Corporation, a major credit card processor, and at Visa. He formerly served on the board of First Virtual Holdings.

"The U.S. wasn't really moving forward at the rate we wanted, nor was Mercantile Bank, which bought Mark Twain Bank, interested in driving it forward," said William Donahoo, DigiCash's new vice president of marketing and business development and former Novell executive. Mercantile bought Mark Twain in April 1997 and is dropping the program because it didn't meet profit goals.

"We are investing in the United States, and we are planning a very broad, significant presence," Donohoo added, declining to be specific on DigiCash's immediate future. Rumors suggest two possible approaches--rolling out an eCash service itself or linking with a major bank that will bankroll a broad deployment.

Mark Twain Bank told its customers that DigiCash itself "is preparing for a full-scale commercial eCash implementation later in the year." DigiCash declined to elaborate on its plans.

DigiCash has focused on software, deemphasizing its efforts in smart cards, he added.

DigiCash still has assets--an unspecified amount of venture funding in April 1997, and the addition of VC David Marquardt of August Capital and MIT Media Lab's Nicholas Negroponte to its board.

While DigiCash has lagged in the Unites States, it has had greater success elsewhere. In June, it launched a pilot with a unit of Credit Suisse in Switzerland, joining similar trials by Germany's Deutsche Bank, Bank Austria, Finland's Merita Bank/Eunet, Sweden's Posten, and Norway's Den norske Bank.

Two Australian banks, St. George Bank and Advance Bank have piloted DigiCash's eCash, and Nomura Research Institute markets eCash to financial institutions in Japan.

News.com's Dan Goodin contributed to this report.