Charles Cohen is happy to explain why his digital-cash scheme, called Beenz, bit the dust. The problem, he says, is that hard cash is symmetrical, digital cash is not. You expect a $5 bill to buy $5-worth of goods: but digital cash has costs that must be recovered. So $5-worth of Beenz, Mr Cohen’s online currency, could not logically buy quite as much. Hence the failure of the Beenz business model. Sobering stuff at the Digital Money Forum, a gathering in London of eggheads and entrepreneurs, whose goal is to transform the way people pay for everyday things in car parks, restaurants, stations, shopping malls and, naturally, on the Internet.
Still, things are changing. For a start, a handful of digital-money schemes are starting to pay their way. In America PayPal has been very successful as the main payment method for users of eBay, the country’s dominant Internet auction site. Now PayPal plans to expand into Europe. It is negotiating with Britain’s Financial Services Authority (FSA), which applies its version of an EU directive on electronic money from April 27th. PayPal may seek a licence from the FSA, with a passport to operate throughout Europe, or it may negotiate country by country. In America, it had to win licences state by state.
In its latest quarter PayPal made a net profit for the first time since its launch in October 1999. In February it floated $70m-worth of shares, which have since doubled in price. No auction site in Europe is as dominant as eBay is in America, so there will be less incentive for customers to sign up. They may, however, like to bypass high charges levied by banks for cross-border payments. PayPal charges individuals $1 for cross-border payments to and from America; within Europe, the charge might be about the same. That would undercut the banks, whose charges are around euro17 ($15.11) — though they should fall after July 1st, when charges for cross-border transfers within the euro area are banned from exceeding domestic charges. PayPal could yet become a preferred way of transferring money across the euro zone. Still, says Jack Selby, head of business development at PayPal, person-to-person payments are not enough. PayPal needs also to plug into Internet and other consumer businesses.
A potential rival to PayPal is Paybox, a mobile-phone messaging system that operates in five European countries. With Paybox you can use your phone to pay a taxi fare, provided the cabbie is signed up to Paybox and can spare a few seconds for the deal to go through. (You give the cabbie your number; he calls Paybox; Paybox asks you to punch in a PIN code.) Paybox can also be used in selected shops and restaurants. Its strength, and its weakness, is that it is half-owned by Deutsche Bank. Transactions are as swift as Deutsche’s bank-to-bank transfers. But Mathias Entenmann, Paybox’s chief executive, acknowledges that a consortium of banks would be better at spreading the product. Paybox’s message system — it does not hold your cash — uses Deutsche’s network and its relationship with other banks. The cross-border fee is euro1.50.