"Brother, can you e-mail a dime?" -- Sure,
zapping cash via the Web is getting easy
By Holden Lewis • Bankrate.com

"Dear Mom: Please e-mail cash. -- P.S. I love you! :-)"

If you believe a brief e-mail missive like the above belongs in a science fiction novel, think again.

You can e-mail cash now and you can beam it from one Palm Pilot̉ to another. Or you can transfer money over a secure Web page. The recipient can withdraw the cash from an ATM -- or move the money electronically to someone else.

The Internet revolution is about to change the way we handle cash.

Already, people are e-mailing the rent to their landlord. They're splitting restaurant tabs by beaming money from one Palm Pilot to another while the waiters are clearing plates. They're buying items on auction Web sites without enduring the delay of mailing a check and waiting for it to clear before their merchandise is shipped.

One way or the other
Two methods of exchanging cash over the Internet have debuted recently, allowing U.S. residents to transfer money quickly and for free.

These competing evangelists for electronic cash come from PayPal.com and X.com. They accomplish the same objective in different ways: PayPal.com allows you to make a credit card payment to anyone with an e-mail address, and X, an online-only bank, lets account-holders transfer money to each other.

Both bet that consumers are ready to treat money the same whether it takes the form of checks, currency and coins, or bits and bytes. Both aim to become the payment method of choice for auction Web sites.

"I think they're great," says James Breune, editor of Online Banking Report, an industry newsletter. "It just basically makes it really easy to make electronic transfers, the same kind that you make to your insurance company when you pay over the Web. It puts you in control."

Here's how the two services work:

• When you send money with PayPal.com, you register with the site and enter your credit card number, dollar amount and the recipient's e-mail address. The money is charged to your credit card as a purchase (not as a cash advance, which typically carries a higher interest rate and no grace period). The recipient gets an e-mail alert saying that the money has been transferred into an account. The recipient can e-mail some or all of the money to someone else, transfer the money electronically to his or her bank account, or ask PayPal.com to send a check in the mail.
  
  
• With X, you open an account with the online-only (or "virtual") bank. Built into the bank's Web site is a "move money to a friend" capability. You enter the e-mail address of a fellow X account-holder and the amount you want to send, click a button, and the money is transferred instantly.

They both giveth and taketh away
Both businesses require the recipient to register; in the case of X, that means opening an FDIC-insured bank account and going through a credit check. They both offer -- temporarily -- cash bonuses for signing up and for referring customers.

In addition to giving people another way to pay online, both companies allow online billing. If you sell something over Yahoo Auctions, for example, you can e-mail a bill to the winning bidder, requesting payment through PayPal.com or X.

Sometime soon, PayPal.com plans to extend its service to cell phones and two-way pagers. Nokia, the world's largest cell-phone maker, has invested in PayPal.

Of the two companies, PayPal.com is the more revolutionary, because it allows individuals to receive credit card payments. Moreover, the recipient doesn't see the sender's credit card number. This is transforming auction Web sites because it means you can take a credit card payment for your old baseball card collection, and the buyer doesn't have to worry about what you'll do with his credit card number.

Deposit buttons and charitable donations
PayPal transfers are being used for more than auction sites, though.

Yancey Smith of Oakland, Calif., owns a house that he rents out. His tenant pays the monthly rent via PayPal.

Why not ask the tenant for a check?

"It's just easier," Smith says, explaining that with a click on a 'Deposit' button on PayPal's Web site, he can shift the money to his bank account. He likes the speed of the transaction compared with receiving a check in the mail, depositing it and waiting for the money to be credited to his account.

He also has used PayPal.com to make charitable donations, and once he and some friends rented a limousine and they split the bill among themselves using PayPal.com.

"It's the easiest way to send money on the Web, that's for sure," Smith says.

Actually, transferring money from one X account to another is just as easy. One X customer says he paid back some money he owed to his parents through X's pay-a-friend service -- and his parents were newbies, online for just a few months.

X does have an option that is almost like using a credit card. An X checking account includes free overdraft protection and a line of credit. If you send someone more money than you have in your checking account, you automatically tap that line of credit.

... "and it was signed by a human"
Joe Hoover has used both PayPal and X to buy things from eBay to eliminate the delay of sending a check. As a buyer, he says, either service is fine. "I'll use whatever the payee is set up with."

When he sells items over the Web, though, "I much, much prefer X.com, because the funds are immediately available to me," he writes by e-mail. "I can write a personal check on the money in my account. They will also do free wire transfers and they give me an ATM card."

In addition, X lets accountholders track auctions on its Web site, automating the billing and bill-paying process.

On the other hand, Hoover says, he asked PayPal to send him a check and it took two weeks to receive it in the mail -- "and it was signed by a human."

"Human intervention in a business process that should be automated is a bad indicator of the e-business's prowess," he says. "I think PayPal intentionally introduces delay into the process so they can benefit from the float."

PayPal officials deny that they intentionally delay transactions so they can hold onto money longer to make interest on it. And Hoover could have asked PayPal to deposit the money electronically into his bank account, which would have been much quicker.

Still, it can take longer to get cash out of PayPal: An electronic transfer from PayPal to your bank account can take a few hours to a couple of days, whereas a transfer between two X accounts is instantaneous.

X's founder, Elon Musk, believes his company holds the edge because of the speed of transactions. In banking lingo, PayPal depends on "batch processing" -- several hours' worth of transactions are sent in batches through the financial system, introducing delays -- while X processes internal person-to-person transfers immediately.

But PayPal.com allows you to use any credit card, and users like that convenience. Consequently, PayPal.com seems to be winning the competition on auction Web sites. In the middle of this week, 43,000 eBay auctions mentioned PayPal.com as a payment method (the number had been 17,000 a week earlier) and 16,000 mentioned X.com.

(Doubtless, a minority of those mentions said the seller would not accept those payment methods.)

David Sacks, vice president of strategy for PayPal.com, says he welcomes the competition with X because "you need two companies to make an industry." X, he says, offers an array of financial services, while PayPal.com focuses solely on consumer-to-consumer payments. As Sacks puts it, "They're trying to do the pentathlon and we're offering the 100-yard dash."

The value of real money
The e-cash revolution will never completely overthrow paper money.

"People aren't going to drag their Palm Pilots out to the golf course just to pay off bets," Hoover says.

He's right. The fact is that sometimes a person-to-person payment is an economic transaction, one that can be settled with an exchange of electrons. But on other occasions -- a golf bet, a cash gift to a young grandchild, a tip for a maitre d' to ensure a good table -- the payment is a social gesture.

And on those occasions crisp, green paper is the only means of an exchange that is more than just money.

-- Posted: Feb. 4, 2000