Digital cash, an idea that helped focus bankers' and regulators' attention on the commercial possibilities of the Internet, has yet to answer many questions about its own viability, a bank technologist said last week.

With most on-line consumer transactions being done by credit card, electronic money alternatives like Mondex or Digicash Inc.'s eCash are "still struggling," Citibank vice president Dan Schutzer told the American Banker Future Money conference in Philadelphia.

He said micropayment systems like Digital Equipment Corp.'s Millicent, which can theoretically transfer even fractions of virtual pennies, are pursuing a "niche market" that may evolve in ways not anticipated by inventors.

Digital money was originally contemplated as negotiable stores of value in smart cards or computer hard drives. Mr. Schutzer suggested it could just as well reside on a remote server computer and perform as loyalty points or premiums.

As an example, he cited a personal experience with the AAdvantage air miles program and the stickers that entitled him to class upgrades on American Airlines. Mr. Schutzer said he was recently offered the opportunity to have his "sticker data" tracked on-line, saving him the trouble.

"They sold me on putting them on servers," which he said may be a hint of where micropayment systems are going.

A British on-line entrepreneur, Oscar Jenkins of Uptime Group, has similarly referred to loyalty points as "near money."

A leading expert on Internet technology, Mr. Schutzer was the first president of the Financial Services Technology Consortium, a five-year-old banking research forum that Citicorp initiated.

Citibank and the consortium have kept a close eye on the emergence of electronic cash. Stating what he called a "personal opinion" about its prospects, Mr. Schutzer was quick to add, "This doesn't mean we are not experimenting with it."

Citibank has its own entry in the field, the Electronic Monetary System. Its inventor, Sholom Rosen, vice president and head of emerging technology, spoke at the American Banker meeting on the broad issue of payments security, encompassing not just electronic cash.

He said the industry is still wrestling with a "software versus hardware conundrum."

Data encryption and digital certificate tools can be disseminated quickly in the form of software, but he asked, "How do we know a certificate is being downloaded to the right person?" Hardware-based security methods, embedded in computer chips, are viewed as more secure but less flexible and slower to market.

Raising a question that has yet to be fully answered about software, he said, "What if the infrastructure we are marching into starts being used extensively, and it has a failure?"

If the alternative is hardware, Mr. Rosen warned, "if it's not in the pipeline now, we won't have it for a couple of years."

Mr. Schutzer said clues about Internet payments come from the real world, where customers choose among credit and debit cards, checks, and different types of electronic funds transfers, as well as cash.

"We can expect to see the same methods evolve on the Internet," Mr. Schutzer said. That helps explain why "credit cards are the No. 1 way to pay on the Internet."

Typing in a credit card number for an on-line merchant, protected with relatively low-grade data encryption, "is good enough today for billions of dollars of on-line commerce," the Citibanker said.

Speaking for the bankers and technologists who want to ratchet that up with the Secure Electronic Transaction standard was MasterCard International senior vice president Alan Glass. He called SET "an opportunity for the banking industry to do its business and not cede it to somebody else-to take the trust it has already earned and make sure it keeps it."

The Financial Services Technology Consortium is doing its bit to bring checks into the virtual world with a system called E-check. Built to resemble the checking system in all but its unwieldy physical attributes, E-check has already been publicly demonstrated. But Mr. Schutzer spoke about it only briefly, saying he did not want to steal thunder from a forthcoming announcement.

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