Digital money is, for the moment, small potatoes. Consider that last year Visa, MasterCard, Amex, Discover and Diners carried charges of more than a trillion dollars in the US alone (on which they earned billions in fees). Yet the economic impact of everything in the digital money world, from DigiCash to Mondex, doesn't even show up on the spreadsheet.
Yet digital money schemes continue to spring up and the subject continues to attract attraction. The net has a lot to do with this, since it is generating requirements for small transactions over networks and stimulating another cycle of evolution in the sector after the failure of early experiments such as First Virtual and BarclayCoin.
Even the Clinton administration, in the person of deputy treasury secretary Stuart Eizenstat, has called for a new "standards-based mechanism" to handle retail payments on the net because of the cost and inflexibility of credit cards, the dominant payment method today.
Why, given that digital money got off to such a poor start, is it back in the news again? A major difference between today's landscape and that facing the early pioneers (ie, a couple of years ago) is that there is a growing recognition that the role of banks may be limited. When interest in digital money began to grow, it was assumed that the natural route to market for this technology would be through banks. Banks would license the money technologies - whatever they might be - and then carry on with business as usual. It seems, however, that the replacement of notes and coins by new technology has been taken up more enthusiastically by non-banks.
• In the Netherlands, Shell has begun to issue drivers with contactless smart cards in the form of key fobs. The driver pulls up at a pump, punches in his Pin code, fills up and drives off. The cost of the fuel is then deducted from his bank account.
• In Scandanavia, digital mobile phones are already used to pay for car parking and other small ticket items. For example, Stockholm has car parking areas that accept payment cards (where petrol company cards, not bank cards, dominate), electronic cash and mobile phones (expected to dominate the next phase of development).
• The Hong Kong mass transit smart card, Octopus, handles around seven million transactions per day through 9,000 readers throughout the territory. The scope of the system has already been extended beyond transit and the cards (soon there will be eight million of them) can be used in phone booths, drinks machines and snack bars.
• In the US, five McDonald's restaurants in Santa Ana have reached an agreement with the local authorities to allow motorists to zip through their drive-through lanes and have the customers' Fastrak electronic toll transponders billed instead of using cash.
• On the internet, cash alternatives ranging reward-based schemes such as Beenz (which has just announced its move into the offline world with MasterCard), Flooz and Cybergold to alternative currencies such as e-gold are springing up and innovating at pace. The digitising of existing offline loyalty schemes is also of note: the 38m members of American Airlines' frequent-flier programme can now not only earn miles by buying on AOL, but spend miles there as well.
Banks in Europe have, where they've done anything, concentrated their effort on the smart card. But even if my bank did send me an electronic purse (a smart card that can carry digital cash, like a Mondex card or the 50+ million Geldkartes in Germany), I wouldn't be able to use it because I don't have a smart card reader on my Apple Macintosh. American Express solved this problem with its Blue smart card in the US: anyone who applied for one got a free smart card reader in the post.
Why can't our banks do the same, and solve the problem of paying online for good?
I was talking to somebody about this recently and their response - which was along the lines of "who wants digital money?" - surprised me. I do, for one.
In fact, I want it every time I find myself rummaging around the house for 20p coins so that I can park at the train station: I'd happily use my mobile phone to pay if I could.
I want it every time I'm trying to get some information that I really need but can't be bothered to subscribe to a web site: I'd happily send the OED 10p from my Mondex card for the odd occasion when I need to look something up. I want it every time I need to send my brother the £10 that I borrowed from him down the pub: I'd happily use Paypal if it worked in the UK (it doesn't, yet).
In short, don't be put off by digital money's (bank-led) bad start. It's going to happen, and it's going to make life easier for an awful lot of people.
