E-cash is a system that allows users to make transactions over the Internet in real time. In order to pay with e-cash, a user must store information on his personal computer in an electronic wallet or–to avoid computer storage–subscribe to a service like PayPal. To complete a transaction, a user transfers money from his wallet to another user’s wallet or to a merchant’s wallet (or from his PayPal account to a merchant or user’s PayPal account).
E-cash transactions are advantageous for individual users. User-to-user transactions occur without waiting for a check to clear a recipient’s bank account. Consumers find e-cash handy because they avoid paying fees to banks for debit-card use, and they don’t incur debt on credit cards for small purchases. With e-cash systems like PayPal and DigiCash, you can transfer money easily without having to visit a bank and withdraw cash.
Merchants can also benefit from using e-cash systems as a marketing tool to attract customers to their online marketplaces. For example, DigiCash markets its program to merchants wanting to keep customers on their site. When a user pays with e-cash, she makes an instant transfer of cash from her digital wallet to a merchant’s digital wallet.
PayPal offers merchants a free option to add its functionality to their website. With PayPal, merchants pay lower fees than credit-card fees for transactions over a certain dollar amount.
Why not target a merchant’s marketing strategies to online shoppers? DigiCash, for instance, notes how merchants use real-time coupons to entice consumers to buy instantly instead of surfing to other websites for comparison shopping.
A big advantage of e-cash is the possibility for international exchange. If you are a Chinese toy merchant, you can sell a $2 toy to an American consumer. A transaction is easy to complete with a service like PayPal. You will receive your customer’s payment in real time and not pay a fee if the transaction is lower than PayPal’s payment threshold. Of course the consumer still has to wait for the product to be delivered–but processing a payment will not delay you in shipping your toy from China to the American consumer.