But the Internet, with all its functionality and coverage, attempts to hide a serious deficiency. By design, it is an open public communication forum. Thus, its strength actually creates its most severe weakness--security. Hackers, corporate spies, and white-collar criminals all see an unparalleled opportunity for entry into this worldwide virtual cash register. Private commercial online services, such as CompuServe and Prodigy, currently provide a more secure environment for electronic commerce.

Electronic Cash

Forms of electronic cash have been warmly embraced by businesses and consumers for years. ATMs (automated teller machines) provide a fast and convenient way to withdraw, deposit, and transfer funds without banks or personnel. Direct deposit of payroll checks and direct payment of certain regular expenses are now common bank services. Debit cards give habitual consumers with poor credit an alternative to their addictive credit cards. Even electronic cash cards (electronic purses) with imbedded memory chips are entering the marketplace from companies such as Mondex and Bourse.

Electronic funds transfer (EFT) is one of the keys to effective Internet commerce. If properly implemented, buyers and sellers are able to quickly and safely exchange digital money. Banks handle the actual transactions, but the authorizations are made over the Internet. Encryption methods must be employed to protect them from misuse. In the wrong hands, EFT authorizations can open the drawers to a company's bank account.

There are two basic ways to handle money for sales made on the Internet. The safest is to use standard mail and a paper check to make payments. If a form of EFT is necessary, the authorization should be sent to the bank by standard mail or phone. Otherwise, you will probably need to use a third-party service to handle the electronic cash securely. These companies specialize in controlling Internet monetary transactions. Each has a unique security scheme and payment requirement. Many of these digital banking systems request a credit card to secure or satisfy the cash obligations.

Here are a few of the major players in the Internet money game and their respective Web sites:

DigiCash www.digicash.com

CyberCash www.cybercash.com

Mondex www.mondex.com

NetCheque nil-server.isi.edu/info/NetCheque

First Virtual

Holdings www.fv.com

NetChex www.netchex.com

Credit Card Transactions

Because of the need to attract customers, most businesses on the Internet accept credit cards as payment. Consumers, however, are hesitant to furnish credit card numbers online due to the lack of security and high incidence of fraud. Credit card companies are similarly reluctant to give new vendors an account to accept such payments over the Internet. Authorization of transactions without a physical signature is a continuing problem for electronic commerce.

Secure credit card transactions on the Internet generally involve using an intermediary service such as CyberCash. A customer's credit card is used to pay for the electronic cash transactions conducted with online vendors. Encrypted monetary units are exchanged between the vendor, bank, and service company. Authorizations are coded and decoded using a public key system to deter misuse.

Two rivals in the Internet market are vying for position to manage credit card payments. Netscape has teamed with First Data Card Services Group, the world's largest credit card processor, to bring real-time card authorizations online. On the other hand, Microsoft has partnered with Visa International. Other industry giants, such as IBM and Hewlett-Packard, are equally interested in a piece of the lucrative electronic commerce trade.

Electronic Banks

With cash and credit going electronic, banks are sure to follow. Several institutions and corporations have formed online banking services to aid this exploding Internet marketplace. Names such as First Bank of Internet, Bayshore Trusts Co., and Global Village Bank may soon become as important to online users as Chase and Citibank. Even software developers such as Intuit and Microsoft have arranged banking partnerships to provide interactive, real-time payment and loan services to consumers. *

Editors:
Paul D. Warner, PhD., CPA
Hofstra University