Welcome to Luca!globe
CPA Journal - May 1998 Current Issue!    Navigation Tips!
Main Menu
CPA Journal
Professional Libary
Professional Forums
Member Services



Mike Plonien, CPA, Boomer Consulting A Division of Practitioners Publishing Company

The Internet has recently become the most vital segment of this national information infrastructure, better known as the information superhighway. With the backing of Federal government and big business, the Internet is now an essential marketing and sales channel. Today, even small companies often find it necessary to establish an online presence.

Though delivering electronic customer information is relatively simple, exchanging electronic funds is not. New technology must be widely adopted which provides rapid and secure sales transactions. The future of Internet electronic commerce hinges on the issue of handling digital cash.

There are many advantages to conducting electronic commerce on the Net. The following are the more significant areas to consider.

    * Marketing. Fast and inexpensive way to attract new customers, especially in geographically remote areas.

    * Speed of transactions. Typical direct sales and mail-orders are slow methods by comparison.

    * Accuracy of transactions. No re-entry necessary for customer or sales information.

    * Convenience. Storefront is open 24 hours a day, 7 days a week.

    * Competitive research. Easy searching for similar products or services.

    * Reduced overhead. Facilities, inventories, and personnel can be centralized.

    * Up-to-date information. Sales and product information is continually revised.

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. *

Paul D. Warner, PhD., CPA
Hofstra University

L. Murphy Smith, DBA, CPA
Texas A&M University

The CPA Journal is broadly recognized as an outstanding, technical-refereed publication aimed at public practitioners, management, educators, and other accounting professionals. It is edited by CPAs for CPAs. Our goal is to provide CPAs and other accounting professionals with the information and news to enable them to be successful accountants, managers, and executives in today's practice environments.

©2009 The New York State Society of CPAs. Legal Notices

Visit the new cpajournal.com.