The Emerging World of Cyberpayments

Computing Japan is proud to have been selected as media sponsor (along with the Yomiuri Shimbun) of the upcoming CyberPayments@Tokyo conference.

by Wm. Auckerman

The internet is a vast new frontier of consumer-to-business and business-to-business commerce. For consumers, Internet-based shopping holds an attraction because of its breadth of coverage and ease of use. For corporations, Internet-based commerce represents an as-yet largely untapped medium for expanding and growing of their business.

Putting up a Web site to promote and display products, and then luring online shoppers in to look around at the offerings, however, is only one dimension of conducting business via the Internet. To realize the true potential of electronic commerce (EC), an effective method of receiving payment for products sold or delivered through the Internet is a necessity. Developing and implementing effective and simple "cyberpayment" methods is a major focus of current Internet-related research.

Defining our terms

Terms like "electronic commerce," "e-cash," "cybermoney," and similar general and proprietary terms are tossed about casually in the press and in daily conversation, with little attention to just what these terms mean. Since there is as yet no standard terminology for the new forms of electronic-based payments, and the practitioners and specialists in various financial sectors apply their own special (and often different) technical definitions to common terms, there is great confusion.

There basically are two types of electronic cash technologies: stored-value products (such as a JR Orange Card or an NTT telephone card) and access products (that process a transaction online, such as a bank ATM card). The concept of cyberpayments encompasses means of payment that use either (or a combination of both) of these technologies to effect fund transactions.

Primitive forms of electronic-based transaction systems have been around since last century (consider wiring "money" via telegraph). A more recent form of electronic transactions that we are all familiar with is credit cards and ATM (automated teller machine) cards, which contain an encoded magnetic stripe that enables access to a line of credit or bank account, commonly by transmitting the encoded information over a phone line or network for approval. Another common form is magnetic stripe cards that can store value (such as telephone cards). And being developed today are microchip-embedded "smart cards" that offer increased storage capacity, security, and applicability.

Internet-based payment systems take the concept of EC further, though, by facilitating financial transactions with other users. Since the personal computer that serves as the user's interface for Internet transactions can also store value, like the smart card it can act as both an access device and a stored-value device.

Looking to the future

Electronic systems like the Internet that facilitate the transfer of financial value promise to alter the means by which we conduct transactions. A common element of cyberpayment systems is that they are designed to provide transacting parties with immediate, convenient, and secure (even potentially anonymous) means of transferring financial value. When fully implemented, the new technologies will provide users worldwide with numerous benefits for legitimate commerce. Unfortunately, these technologies carry with them many of the theft/tampering, fraud, and privacy abuse dangers of traditional cash-based commerce, while creating new potentials for abuse as well. How, and to what extent, governments should and must become involved in regulating EC is an issue that is only now starting to surface.

Judging from media coverage of the potential of EC, and the interest being shown by corporations, banks, and government agencies, Japan obviously feels that its has once again fallen behind in a burgeoning global industry. The Japanese press is rife with stories about new EC-related service trials, corporate cooperative tie-ups, and government-backed R&D projects.

Since summer, the Ministry of Finance has been holding hearings to determine the extent to which Japan's foreign exchange and currency laws will need to be revised to cope with the new reality of EC. Several other ministries, including the Ministry of Posts and Telecommunications, Ministry of International Trade and Industry, and Ministry of Justice, are looking closely at areas of the issue that fall (or that they hope will fall) under their purview.

Japan's banks, though, aren't quite sure where they stand on the issue of electronic cash. Many fear the effect that new technologies could have on their operations, as telecommunications firms and electronics manufacturers develop EC alternatives to traditional financial transactions. Yet they are reluctant to make the huge investments that would be needed for them to provide widespread electronic services themselves, for fear that the investment would be wasted if the concept does not catch on in Japan.

Will it catch on? As is the case with most new technologies, the media seem to be exaggerating where electronic cash is now, or will be in the next year, but grossly underestimating the revolution of realities in the next five years. If the past is a guide, consumer acceptance and use of cyberpayment and electronic banking technologies will grow slowly, but grow it will.

As with any market-based product/service, in the end only the most dependable, secure, and user-friendly EC strategies will succeed commercially. For corporations considering making an investment, with dozens of competing payment systems and standards in a constant state of evolution, it is imperative to know which will thrive and which will not. And that is where conferences like CyberPayments can prove invaluable.

CyberPayments@Tokyo

The inaugural CyberPayments conference, held in Dallas in June, was attended by 320 delegates from 10 countries. Following up on that success, the National Automated Clearing House Association (NACHA), which is responsible for the US's largest electronic payments system (over $10 trillion transmitted in 3 billion transactions annually), has scheduled a series of three similar events in the Asia-Pacific. CyberPayments@Tokyo, to be held on November 14 and 15, is the second of the series, coming after CyberPayments@Hong Kong (November 5 and 6) and followed by CyberPayments@Sydney (Nov. 26 and 27). The three Asia-Pacific CyberPayments conferences are being produced and managed by Financial & Business Media Associates, Ltd.

CyberPayments@Tokyo will be Japan's major international conference devoted to the latest developments in payments over the Internet. The sessions are geared toward helping those in attendance stay ahead of the competition by presenting advanced strategies, how-to tips, and forecasts from industry leaders, both Japanese and foreign.

As befits a conference devoted to developing technologies, a significant number of the sessions will feature online demonstrations of Internet payment systems and services. A brief look at some of the sessions and activities of corporations involved offers an instructive overview of important current issues.

Hiroshi Yuguchi, director of global multimedia for KDD, will cover emerging Internet technologies, services, and opportunities. Asked what new development it considered significant, KDD pointed to an agreement it has signed with Gemplus, a French company with top worldwide share of IC card production, to jointly market, distribute, and sell IC cards and related products in Asia. IC cards can be adapted to custom specifications and are thought to be less prone to misuse or forgery than traditional credit cards, bank ATM cards, and ID cards. KDD, which has already introduced prepaid IC cards for use in its international-call 011-IC Global Phones, is doing experimental research on Smart Pass, an Internet and LAN security method that employs an IC card authentication system. Because it carries out two-way authentication of both the client and the server, the Smart Pass authentication mechanism is especially suited to shopping via the Internet.

Mitsuo Yamaguchi, chief researcher with Hitachi Research Institute, will provide an international perspective of the trends and issues of cyberpayments, while Asahiko Isobe, senior executive managing director of Hitachi, will wrap up the conference by giving the closing remarks. Hitachi Research has provided Computing Japan with the summary of an intriguing study on payments for individual use that covers some of the hurdles to developing new payment systems and discusses the available strategies for banking institutions. Electronics/computer manufacturer Hitachi is an active participant in EC development in Japan and has been cooperating closely with Mondex, which is quickly emerging as the central player among the many electronic cash alternatives.

Nobuyuki Kinoshita, a director of FISC (The Center for Financial Industry Information Systems, an affiliate of the Ministry of Finance), will speak on the topic of electronic money in Japan. FISC, a nonprofit organization supported by some 1,000 corporate members, performs surveys and research on financial information systems and develops appropriate standards and guidelines. Based on the results its last year's Study Group on Electronic payments, FISC is working to bring about the early realization of electronic payment systems in Japan.

Hisashi Yoshikawa, director of MITI's information, computer, and communications policy division, will focus on the problems of public network-based EC, including the establishment of transactional evidence, sharing responsibilities for losses, authentication, costs, and protection of privacy. Hideo Nakanishi, chairman of the steering committee of ECOM (Electronic Commerce Promotion Council of Japan) will broaden the topic by discussing the electronic commerce challenge. ECOM, established through a MITI initiative in January 1996, serves as an open forum for examining the broad spectrum of issues relating to EC. An interim report of MITI's Study Group on Environmental Improvement for Electronic Commerce is available from the ECOM Website (http://www.ecom.or.jp/eng/ec_japan
/ohp1.htm).

Watch our February issue for a follow-up of the issues covered (and uncovered) at the upcoming CyberPayments@Tokyo.