Victor Nappe, the founder of DuoCash Inc., recalls an incident of about two years ago that he says opened his eyes.

He was talking with a friend in a Manhattan coffee shop — the subject was e-commerce — “and I saw somebody buy a prepaid phone card” and thought, “Why couldn’t you use prepaid phone cards to buy on the Internet? The rest is history.”

The next chapter in that history is the New York company’s rollout, slated for July, of a prepaid payment card for digital products and services that cost under $5.

DuoCash faces a stiff challenge in getting consumers to change their method of payment. Dove Consulting says 92% of paid online transactions involve a credit card. Other methods, including debit, one-time-use, and other stored value cards, as well as person-to-person payments, have had little success in e-commerce.

But Mr. Nappe, 32, said the popularity of prepaid phone cards — there are more than five billion on the market — gives his idea a running start. DuoCash can be used as a phone card and as an Internet payment card, hence the name.

Prepaid phone cards are a good fit with online commerce in several ways, said Mr. Nappe, who was e-commerce director at Apple Computers from March 1998 to December 1999. For instance, they are cost-effective for merchants of inexpensive digital content that typically have a hard time turning a profit because of the transaction and other fees associated with setting up credit card accounts.

But phone companies and phone cards are built to handle large volumes of small transactions, and the merchant will only pay DuoCash a transaction percentage if a consumer uses the technology, Mr. Nappe said. “We just piggybacked on the existing phone card infrastructure.”

For phone companies that distribute the cards, this new use may open a market. Someone who would not normally buy a phone card to make calls might buy one to download music for $2 or $3. This type of offer should appeal to teenagers, a segment DuoCash will pursue.

Anonymity is another advantage. DuoCash is essentially a stored-value card and can be bought at convenience stores or wherever phone cards are sold, so consumers will have easy access to them but will not risk exposing any personal information or accounts to fraud.

But Mr. Nappe reiterated that the real winners will be merchants that will be able to make money from sales of inexpensive digital content instead of from advertising, which has not been much of a profit generator online. These merchants’ Web sites “don’t have a financial system in place to capture dollars,” he said. “They’re trying to rely on advertising. There’s a real sweet-spot in the market right now to help out those companies.”

He added: “There needs to be a pay-per-click model. The Web wasn’t going to be free forever. Eventually people were going to have to pay.”

DuoCash’s patent-pending technology is simple enough: Web site operators wishing to sell content such as e-books, MP3 music files, games, and streaming videos will have DuoCash’s logo affixed to their payment page. Payments would be routed over the DuoCash network, similar to the way credit cards go over their own network.

DuoCash has teamed up with the card processing company and NetworkIP, a prepaid phone card enabler. NetworkIP will put the DuoCash logo on prepaid phone cards and provide some back-end processing if a card company does not do that itself. It has also been working with many of the larger prepaid phone card companies, though Mr. Nappe would not name any of them.

Some analysts are skeptical about DuoCash. With so many purveyors of so many payment mechanisms trying to capture a market dominated by credit, “the question comes down to how many of these payment choices” merchants will offer, said Mark Kornbluth, vice president of financial services for Mainspring Inc., a New York consulting firm specializing in digital strategy. “My only question for DuoCash is, How do they get merchants to put them at the top of the list?”

Mr. Nappe responded: “This product has been in existence longer than the commercialization of the Internet. We have something that nobody else has — physical distribution.”

Richard Crone, vice president of the financial services group at Boston-based Dove Consulting, said Internet merchants are not necessarily interested in offering pay-per-view services. “They want you to subscribe to the site. They want to lock you in,” he said. DuoCash “does not work for subscription, because you have no recurring capabilities.”

Mr. Nappe said there is room for two models of payment on the Internet, subscription and pay-per-view, and noted that both work in tandem for television and that a comparable model — newsstand and subscription sales — works for print periodicals.

Mr. Crone, who spent five years as vice president and general manager at CyberCash, which went bankrupt, said CyberCash erred in offering a payment tool that took too long to be downloaded. DuoCash will not have that problem because the consumer “comes to the Internet with the payment instrument in hand,” he said.

But DuoCash is not perfect, Mr. Crone said. Its anonymity may be good for the consumer, he said, but it does not let merchants “establish a relationship with their customers. They never know who you are. It’s not viral.”

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