Cybercash Inc.'s bid to buy ICVerify Inc. would give it a commanding presence at the payment processing end of the nascent electronic commerce market, observers said.

Cybercash, of Reston, Va., announced last week that it would pay $57 million in cash and stock for ICVerify, an Oakland, Calif.-based company that develops merchant software for authorizing credit and debit card payments at the point of sale.

Cybercash, a pioneering provider of software and services for Internet payments, would process 80% of the estimated 10,000 merchants accepting credit card payments over the Internet, said Gary Craft, analyst at BancAmerica Robertson Stephens Inc., San Francisco.

"Banks should view Cybercash's position here as leadership in new network payment applications," Mr. Craft said. "Banks collectively need these small entrepreneurial laboratories to come up and get running."

The deal, pending shareholder approval, also would point to Cybercash's staying power amid the turbulence experienced by its Internet competitors.

International Data Corp., a Framingham, Mass.-based research firm, predicts wholesale and retail electronic commerce will total $223 billion or more by 2001. However, despite the lofty expectations, electronic commerce vendors such as Cybercash, Digicash Inc., First Virtual Holdings Inc., and GC Tech Inc. have struggled to turn a profit.

Observers said First Virtual, which went public in December 1996 at $9 a share, may be the first casualty. The Internet-based payment system developer may receive a "going concern" clause from third-party auditors who question the company's ability to sustain itself financially.

First Virtual's stock price closed Friday at 81.25 cents per share.

"We have seen a lot of players fall by the wayside," Mr. Craft said. "Here's Cybercash strengthening its position."

Cybercash's stock, which traded in the low $60s soon after its initial offering in February 1996, has also lost much of its market capitalization, dropping to a low of about $10 per share last month. But the stock has rebounded lately, up $2 for the week, to $17.

William Melton, chief executive officer of Cybercash, said the ICVerify acquisition will help him sell Cybercash's wares to banks and merchants, many of whom have raised issues of compatibility among the disparate merchant systems.

He said Cybercash's services will be integrated with ICVerify's physical products in the next several months.

"We believe that we, as a leader and as a pioneer in the payments area, need to be able to go back to our banks and our financial institutions and offer them a complete solution," Mr. Melton said.

He said the deal would avoid the potential drag on revenues. Cybercash has sold its Internet-based electronic cash, check, and card payments service to 3,000 merchants. Founded in 1989, ICVerify has licensed its PC- based cash register to 5,000 merchants and has 250,000 installations.

"It was obvious that we were going to be tripping over each other a lot more often and therefore driving ourselves into potential pricing wars," Mr. Melton said.

Cybercash's net loss in 1997 was $26.5 million on revenues of $4.5 million. It lost $26.6 million in 1996 on revenues of only $127,439.

However, observers said there are promising signs. Cybercash now processes 100,000 Internet transactions daily compared with about 3,000 12 months ago.

Privately held ICVerify has about $10 million in annualized revenue. It is not yet profitable. Both companies expect to be in the black early next year.

Mr. Melton, who founded Cybercash after leaving Verifone Inc., said ICVerify would become a wholly owned subsidiary. F. Thomas Aden, president and CEO of ICVerify and a former colleague at Verifone, will become executive vice president of Cybercash. Steve Elefant, who co-founded ICVerify, will become vice chairman.

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