U.S. Press Embargo: December 8, 1994, 11:00 A.M. EST
William B. Seebeck,
Managing Director of Grant/Seebeck International, L.L.C.
and Chairperson
Panel on Electronic Payment Services
The 18th International Online Information Meeting, Olympia Center
London, England
Thursday, December 8, 1994
Before we examine this critical issue though, I want to go back in time with you. History, I believe helps to provide us with a perspective of the present and the future.
Last week, I was having a conversation with my Italian baker about technology. He was reflecting on having told his children about what technology was like for him when he was growing up in the early 1950’s. He told his children about how he used to “watch radio”. His children, laughing at him, he said, asked Papa, how can you watch radio? I don’t know, he said, but we just sat there in front of the radio and focused on the light of the dial and the speaker, as if it was a person.
Well, since the introduction of online information services in the mid-70’s, we too have been staring at our monitors, very much like in the radio days of the early 50’s.
Today, however, we are now beginning to see into our online services, going beyond text into graphics, sound, video, and to directly interacting with the other people, like us, connected to the service. We are as a result, networking with one another.
Networking is something that we humans do naturally, we are after all social beings, born to interact. It is why, I believe, that the Internet has taken off so quickly, creating a life form of its own, because the most common person can understand what it is about -- it is about human networking.
But the Internet and other global online services have done more than provide a place for us to buy a variety of goods and services. Unknowingly, I believe, they have created a network where people have created a new global society, with its own rules, understandings, politics, communications and commerce.
This new society has burst forth out of necessity. Not just because we are offering great products and services, but because we collapsed the information float. What do I mean by that? Well, as an example, it used to be if you mailed a letter, it would take three to five days for a person to receive it. So, you ordered your life accordingly. You had time. Today, if I send you a letter, via E-Mail, you will receive it in seconds. As a result, there is no more time -- no information float. You are also expected to respond instantaneously. In order to manage this rapid change and to help control your life, you reach out for the new world -- the net.
It follows that if you’ve collapsed the information float, then you can do the same with money, much like the shift from barter to currency 300 years ago. The shift we are considering today is away from physical currency, as we know it, to electronic currency. Further, to meet the demands of commerce for this new society, banking or the business of money becomes information in motion able to be moved around the world in nano-seconds.
Now it is at this point where we fall down dramatically.
The Internet has captured the attention of the world. People everywhere on the globe want to connect to it. In fact, a study of Americans published last week in Interactive Age shows that 60.9% of those surveyed believed that it was important that, “everyone, regardless of income, have universal access to the Information Highway.” The Internet is for everyone and soon most people will be able to connect to it. However, what they all can’t do is buy goods and services easily on it.
Why?
Because the whole Internet world of commerce is predicated on people using credit cards.
And that is our first problem.
Why?
Because it is estimated that only 2% percent of the world’s population have credit cards.
Let’s get even more specific. If the only way you're going to pay for global online services, including the Internet is by credit card, then the interactive world is a finite one not infinite, it’s very definition drawn by the number of world’s credit card holders.
Amazingly, to date, the debate about payment for services has focused around the encryption or non-encryption of, yes, an individuals credit card transaction.
But what of the millions and millions of people around the world that don’t have credit cards? You may believe that group is small, yet the fact is that it is much greater than you realize. We have a representative of GENIOS with us today to talk about what it’s like to operate an online service without credit cards. Why doesn’t GENIOS use credit cards? Mainly because, as of right now, only nine million Germans have credit cards compared to here in the United Kingdom where some 37 million have cards. Think about it, Germany, one of the world’s economic giants with a great consumer market for goods and services and no credit cards -- hard for Americans to picture a world without credit cards.
But, if you are a global online service or a merchant on the Internet, you want to sell information and goods and services to the Germans. Yet, how do you do it they don’t have credit cards?
One immediate answer to that question is to accept checks.
Now, that presents us with our second problem.
You can accept checks, but how do you do that economically?
Let me give you an example of what I mean: As an American traveling internationally, I have accumulated a desk draw filled with uncashed V.A.T. refund checks that are as worthless to me as wallpaper.
Why? Because, if my American bank processes my foreign currency V.A.T. check, they will charge me 10 to 20 times the face value of the check to do it.
And the reason for these high charges is because our banking system does not have sufficient volume in international personal checks to justify the $.50 per check charged for processing a U.S. check, instead they charge anywhere from $20 to $50 per check. We won’t even touch on the concerns for check fraud. In 1993, 1.6 million U.S. checks processed were fraudulent.
The fact is that our financial system has not anticipated a market, like the Internet, where an individual will buy and sell goods and services from another individual or company anywhere in the world on a regular basis.
Up until now, the norm was that importing and exporting companies bought and sold goods and services via the letters of credit structure and then resold the products to us in department and specialty stores within the confines of our own national borders.
With the collapse of the information float and the existence of global networks, particularly the Internet, this old thinking must be changed.
NOW!
If the world banking system does not move quickly to change this structure and these assumptions about individual commerce, then I say that commerce on the Internet will not be a profitable marketplace for goods and services for some time to come.
Now, with all of that said, let me take a breath and step back for a moment.
Anyone who knows me also knows that I have not raised up these problems without having considered a host of possible solutions.
In fact, our panel today deals with some of those solution opportunities including making electronic debit and credit payments via a very unique device that plugs into your telephone and can be afforded by most individuals.
But if the Internet is to be truly universal and most people in the world don’t have credit cards, then we must accept the premise that most people will not use credit cards to pay for their goods and services. Yet if they don’t use credit, can they use debit cards? And if they don’t use debit or credit cards, can they use checks?
Well, yes, some of them can use checks, but even in the U.S. only 66% of Americans have bank accounts. And if they use checks, banks need to create a must more timely and economical way to process and clear foreign checks.
Now if they don’t use credit or debit cards and they don’t use checks, what can they do? Well, they can still use other methods. One might be using non-bank financial service companies like Western Union, which operates in 100 countries. There anyone can go directly to a Western Union office and using their own national currency pay bills or buy values of exchange.
What should be clear to traditional merchants who want to sell products and services on “the Net” is that we still have a long way to go before the reality of the net catches up to the “buzz” or the noise of the net.
What should be clear to the world’s financial community is that the Internet offers them a great new opportunity. In fact, it is unlike they have experienced since the Medici’s and Fugger’s ruled the banking world 300-500 years ago.
There is a need for a new financial system and possibly a new medium of exchange. We call on them to move quickly to offer up new systems compatible with this new society. If they answer the call, electronic commerce will thrive, if they fail to respond, then the Internet will be limited to a relatively small group of credit cardholders.
This I believe is the biggest challenge to universal expansion of the Internet and therefore to the success of one of the greatest opportunities in human history.
Copyright 1994 WBSeebeck
Posts
