In our last article, we had a different article, which talked about "How to plan your career". I am again starting with the earlier series and am discussing two more features of Ecommerce, eCash and Electronic cheques.

Most Ecommerce applications are based on the Credit Card. Internet users will log on to different sites giving their credit card nos. along with some additional information such as Birth Date, a Pre defined Password / Email ID. But these features do not provide the facility of Cash. Accepted, that even villages today are going for credit cards, but it cannot replace the flexibility of Cash. The liquidity aspects of cash cannot be replaced by plastic money. Consider the foll. Statistics.

In USA, there is 300 billion Dollars worth of notes and currency in circulation. Deposits by cheque are growing at the rate of 6 % and that by cash is growing at the rate of 8 %. This alarming statistic clearly indicates that cash transactions are not out. Infact a credible alternative to cash has to be found out for the Electronic media. Two potential options are available eCash and Electronic Signatures.

eCash is based on cryptographic systems called Digital Signatures. This method involves a pair of numeric keys (very large integers or numbers) that work in tandem: one for locking (or encoding) and the other for unlocking (decoding). Messages encoded with one numeric key can only be decoded with the other numeric key and none other. The encoding key is kept private and the decoding key is made public.

By supplying all customers (buyers and sellers) with its public key, a bank enables customers to decode any message (or currency) encoded with the bank’s private key. If decoding by a customer yields a recognizable message, the customer can be fairly confident that only the bank could have encoded it. These digital signatures are as secure as the mathematics involved and have proved Over the past two decades to be more resistant to forgery than handwritten signatures.

Before eCash can be used to buy products or services, it must be procured from a Currency server.

eCash can be purchased from an On – Line currency server in 2 steps namely, Establishing an account and maintaining enough money in the account to back the purchase.

How Actually eCash will work

1. The user of eCash has to have an Account with a bank ready to offer eCash.
2. The user will apply for eCash in the denomination and amount the he desires. In exchange of money debited from the customer’s account, the bank uses its private key to digitally sign the note for the amount requested and transmits the note back to the customer. The network currency server in effect is issuing a "bank note" with a serial number and a dollar amount.
3. Since the bank is digitally signing it, the bank is committing itself.
4. The user has the eCash available. He can sign the eCash and give it to anybody.
5. When the eCash software generates a note, it masks the original number or "blinds" the note. The blinding carried out makes it impossible for anyone to link Payment to Payer.
6. A central bank also maintains a database of Spent notes.

DISADVANTAGES AND LEGAL ISSUES OF eCash

1. eCash cannot be broken into smaller denominations.
2. The concept of maintaining a database of spent notes is very expensive.
3. Accessing Database of spent notes is also very time consuming.
4. Transaction based taxes account for a significant portion of state and local government revenue. If eCash becomes successful, then people will use it to buy things like cars and houses, which would not have been possible with actual cash. (One can’t physically carry so much of real cash)
5. Currency fluctuation is another issue related to eCash.

Electronic cheques are another form of Electronic tokens. They are designed to accommodate the many individuals and entities that might prefer to pay on credit or through some mechanism other than cash.

Once registered, a buyer can then contact sellers of goods and services. To complete a transaction, the buyer sends a check to the seller for a certain amount of money. These checks may be sent using Email or other Transport methods. When deposited, the cheque authorises the transfer of account balances from the account against which the cheque was drawn to the account to which the cheque was deposited.

This method has been deliberately designed to work in the manner conventional cheques work

1. Similar to traditional cheques. This eliminates the need for customer education
2. Since Electronic cheques use conventional encryption than Public and private keys as in eCash, Electronic cheques are much faster.
3. The risk is taken care of by the accounting server, which will guarantee that the cheque would be honoured.

Summary

On one side Ecommerce sounds like a great opportunity. But there are a lot of ifs, which will be cleared in the next 3- 5 years. A world with Electronic payment systems would be very different form the one in which we live today. New opportunities would arise. Consumers would be able to keep track of all their expenses. No offline entering of accounts to get account head statements. Customers would know the exact volume they are generating and that would help them negotiate discounts. Banks and other financial institutions would know the customer pattern. Taxes could also be seamlessly integrated into the electronic payment system.

Finally, just as the American Expressways increased economic growth in the post war era, Ecommerce would increase economic growth in the pot Cold war era.

References – Frontiers of Ecommerce by Ravi Kalakota

The author is Director of Fands, and can be reached at sandeep@fandsindia.com