"Brother, can you
e-mail a dime?" -- Sure,
zapping cash via the Web is getting easy
"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
way or the other
Two methods of exchanging cash over the Internet have debuted
recently, allowing U.S. residents to transfer money quickly and
These competing evangelists for electronic cash
come from PayPal.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.
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.
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.
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.
| Flooz and beenz
There are other ways of exchanging cash electronically,
but they're not as portable as good old fashioned U.S. dollars
or their electronic cousins.
push virtual scrip that you can exchange at a limited number
of online merchants -- the Internet version of gift certificates
that can be redeemed at any store in a shopping mall.
You buy Flooz certificates online with a credit
card, and one Flooz equals one dollar. You can combine a
Flooz certificate with an online greeting card. You earn
beenz by going to certain Web sites and filling out online
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
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."
of real money
The e-cash revolution will never completely overthrow paper
"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