Web Currencies Give Cash a Run for Its Money

SAN MATEO (04/18/2000) - Electronic transactions are revolutionizing the way people do business, creating virtual exchanges and giving way to a host of alternative forms of currency. Point systems and loyalty programs -- recall the "green stamps" of the old days, which people would collect and redeem for any number of prizes -- are back, and e-currencies are proliferating, with the Web as a new breeding ground.

Companies are dreaming up all kinds of loyalty systems in the race to attract and retain Web customers, as incentives to keep them coming back. Now that the dust is settling after the Internet landgrab, Web companies are more desperate than ever to prevent customers from trying their competitors' Web sites, which are a mere click away. And with today's fickle Web consumer demanding more from online vendors, sites are starting to get creative in how they reward their customers.

For example, MyPoints.com runs a diversified loyalty program, offering points to consumers willing to part with their marketing demographics. MyPoints.com's partners then target those consumers with specific deals, all the while adding to the consumers' bank account of "points." The points can then be exchanged for goods or services at companies such as Sprint or Red Lobster. Although no actual money changes hands in these transactions, MyPoints.com does not view itself as a threat to the Federal Reserve System.

"Our points are a Trojan horse for us to learn about customers so that our partners can deliver targeted messages to them," says Steve Markowitz, chairman and CEO of San Francisco-based MyPoints.com. "Our objective is not to become a bank, and talking about disintermediating the dollar is a bit grandiose."

MyPoints.com's modesty aside, the traditional way of paying for goods online with a credit card has had its share of problems. High transaction fees have made credit cards less viable for small dollar amounts, or micropayments, on the Web. This has created some fertile ground from which point systems can grow.

"If you have to use a credit card to buy something, everybody is making money off of you: banks, vendors, consolidators," says Deepak Amin, CEO of vJungle, a Bellevue, Washington-based ASP (application service provider). "Imagine a system in which you pay only points, and there is no middleman making money off of you."

Amin has some big ideas about the future of currency on the Web. He foresees a day when companies accept one anothers' currencies and actual money is taken out of the picture. But questions arise as to whether the Internet community can ever get organized enough to establish a universal e-currency that could gain wide acceptance and thus be highly useful.

Art Kranzley, senior vice president of electronic commerce and emerging technologies at MasterCard, in Purchase, New York, says the payment process on the Internet is the companies to lose. Kranzley cites brand recognition, trust, security, and universal acceptance as reasons people will continue to use their credit cards on the Web. Regarding micropayments, Kranzley won't say too much about what MasterCard is doing.

"We recognize [micropayments] as a market of a lot of interest and are taking steps to address that because we think there is a real market there," Kranzley says. "We want to be able to use the MasterCard for all transactions over the Internet."

Meanwhile, some e-currency start-ups are looking to bridge the gap between point systems and real money. CyberGold operates in much the same way as does MyPoints.com, offering CyberGold dollars for demographic information and working with partners in direct marketing campaigns. But CyberGold does not lock the consumer into a points-only world.

"The reason we don't call it points or miles or some other pseudo-currency is because in our case this is real money," says Dan Berger, senior vice president and general manager at CyberGold, in Oakland, California "We want to get the message across to consumers that this is real cash."

CyberGold allows customers to "cash out" in three ways. A consumer can spend CyberGold dollars online, automatically transfer CyberGold dollars into a bank account, or credit the value to a credit card.

"We had to make our currency able to flow both ways," Berger says. "Because of the predominance of credit cards, this was a way to legitimize the currency."

The onslaught of Internet currencies is causing businesses and consumers to reconsider what is of value to them. Web sites such as iWon.com give sweepstakes entries away for every click a customer makes on their site, awarding enormous cash prizes. Other sites offer steep discounts if a consumer clicks through an advertisement. The effect on the consumer is dramatic.

"Why would I stay with Yahoo as my home page when iWon.com does the same thing and offers me the chance of striking it rich?" says Erik Rabasca, a musician in New York. "If I'm going to click anyway, I might as well be rewarded for it. I figure this gold rush won't last forever, so I'm going to take advantage while I can."

Whether point systems and other alternative forms of currency have a future remains to be seen. Although the Internet offers the perfect community in which a bartering system can work, whether or not society will ever be ready to kiss the hard dollar goodbye remains a serious question. Nevertheless, some companies are viewing this trend as the Wild West, and they want to establish themselves as the currency of favor. And, in the hopes that the Internet can level the playing field, these e-currency providers are stepping up to take their shot at the giants.

"The winner will be the company who best consolidates all payments, all ways to pay -- small-value or large, real world or virtual -- into a single payment account," said Robert W. Selander, CEO at MasterCard, in his address to the Credit Card Forum earlier this month in Miami.

In his speech, titled "E-business: payments at a crossroads," Selander brushed aside the threat of "interlopers trying to disintermediate us" and stated clearly that the only company that could loosen MasterCard's stranglehold on the e-payment infrastructure is MasterCard itself.

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