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Failed Venture InternetCash.com

InternetCash.com

The idea of Internet currency could date back to 1995 , when the first major website thatused Internet trade was opened, eBay . The idea of trade over the Internet slowly got morepopular, and more websites began opening stores over the Web.

A company dealing in internet payments was founded in April 1999 with its headquarters inNew York City and offered as its products secure Internet Payment Network and pre-paidcards . It generated pre-paid cards, either in physical or electronic form , to distribute cash .The cash consisted of an InternetCash number together with a customer-selected PIN . TheInternetCash e-currency could then be spent with participating online merchants. An earlyname for InternetCash, before it acquired the internetcash.com domain name, was

SpendCash.com .

InternetCash was founded in April 1999 and it filed several patents to protect its novelelectronic money system . Its founders raised over $10 million, mostly from Jim Bidzos andElDorado Ventures, a Menlo Park venture capital firm between May and December 1999 .

Growing up

InternetCash's founders were Charles Doherty, Yiannis Tsiounis, Jason Richelson , and BenReddy . Mr. Doherty, an entrepreneur , had the idea about a pre-paid card system andcontacted Yiannis Tsiounis, who had recently completed his Ph.D. in electronic cash , inorder to build a suitable architecture for the system and write the appropriate patents. Dr.Tsiounis subsequently contacted Jim Bidzos who funded the first institutional investmentround . Independently, Ben Reddy , also an entrepreneur , had the same idea and workedwith Jason Richelson to write and file a similar patent in April 1999. Mr. Doherty, the CEOof InternetCash , proceeded to recruit Mr. Reddy and Mr. Richelson in May 1999 and thepatent work was combined under the guidance of Dr. Tsiounis, by then InternetCash's CTO .

Mr. Reddy took on the role of VP of Sales and Mr. Richelson that of VP of Operations. ToddKahn, Esq. was recruited in April 2000 as President and COO, taking over most of Mr.Doherty's functions.

System Architecture

InternetCash faced the choice of piggybacking on existing payment networks , such as thoseof Visa and MasterCard, or to build its own payment network . It chose the latter in order to

offer better security, especially on the Internet payment side. Therefore, InternetCashrequired merchants to redirect the customer to a new web page, which was operated by

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InternetCash and was called the "InternetCash payment window", where they would type intheir card number and PIN. Part of the card number together with the transaction detailsand timestamp was then digitally signed by that window (using InternetCash's hardwareencryption devices) and then sent back to the merchant for storage and reference. The

digital signature and the transaction details were then sent to InternetCash's paymentserver, where the transaction was completed. This two-stage approach allowed fullflexibility on the deployment of the "InternetCash Payment Window ", which waseffectively providing the payment security to the system, so it could be ran on separateservers than the actual "banking" system, which maintained the card balances andperformed the transactions.

Visa, MasterCard and JCB adopted a similar architecture a few years later, in 2001, for their3-D Secure (also known as "Verified by Visa", "MasterCard SecureCode" and "J/Secure")

system .An additional advantage of this architecture was that the "InternetCash Payment Window"could be used to securely accept any type of payment , including credit cards (much like 3-DSecure), debit cards and checks, and not just its own pre-paid cards. In fact, efforts weremade by its founders to enable American Express's "blue" chip cards and regular debitcards to be used online, but after the Internet crash many of the companies involved putthese projects on hold.

In addition to building its own secure Internet-based payment network, InternetCash

utilized hardware encryption devices from nCipher (acquired by Thales on July 11, 2008)combined with custom code for generating its card numbers . InternetCash card generationused secret sharing techniques, requiring a quorum of authorized company Officers presentwhen the cash was minted. The card numbers themselves included a digital signature based on keyed hash functions, thus preventing third parties from randomly generating acard number a form of security not present in typical credit or debit card numbers .

Business Model

InternetCash planned to make money from four sources: transaction fees, float, breakageand advertisement.

The transaction fees that InternetCash charged ranged from 6% to 12% with no fixed costs,much higher than the typical 2-4% plus 20-35 cents per transaction "Interchange Fee"charged by credit cards, which was owed to a combination of the effectiveness of its salesteam, the lack of Internet payments for those without a credit card, and the lack of paymentsystems for low-valued products (since it had no fixed-cost fees per transaction

InternetCash was suitable for micropayments, such as spending $1 to buy an article or asong online).

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Float and breakage are typical ways that pre-paid card or gift systems make money.Depending on the popularity of the pre-paid item , the breakage can range from 5% of thenotional value outstanding for a widely used system such as the New York City subwaycards, to higher than 30% for closed-loop systems, such as a gift card which is redeemable

at only one type of store.

In addition to the above, typical for a payment company, ways of making money,InternetCash used its website and the face of the physical pre-paid cards to advertise themerchants that signed up to its network, thereby generating additional revenue .

Failure

Although the business model looked promising, InternetCash spent most of the money itraised to build its secure payment network and card generation and maintenancearchitecture. After the Internet crash of April 2000 InternetCash found itself with almost nomoney in the bank and the inability to raise any additional funding . When InternetCashmoved into its New York offices in May 1999 it consisted of 5 people. By March 2000 itnumbered 70 employees and had already burst out of its original office space. By March2001 the count was back down to 6 . The founders, the newly recruited President & COOMr. Kahn and the VP of Strategy, Mr. Daniel Marein-Efron, kept the company running formore than a year, but in August 2001 the company eventually closed down perceived as anearly indicator of the growing dot-com bust.

Despite the failure, a few of the concepts pioneered by InternetCash did eventually findcommercial applications via other companies: 3-D Secure was an architecture similar toInternetCash's Payment Window, and it is used to protect credit card transactions on theInternet; and today's pre-paid gift cards, typically operated over the Visa or MasterCard network follow the same business model. As for micropayments, they appear to have finallybecome feasible via Apple's iTunes Store.

Internet currency was a form of electronic money for the Internet. Most sites offering the

currency have either been shut down or acquired. Three of the corporations providingInternet currency, InternetCash.com, Flooz.com and beenz.com were shut down in August2001.

Factors responsible for the failure of internetCash.com are as follows

InternetCash spent most of the money it raised to build its secure payment networkand card generation and maintenance architecture.

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After the Internet crash of April 2000 InternetCash found itself with almost nomoney in the bank and the inability to raise any additional funding.

This techno-hype concept was rammed by consumers, as they preferred credit cards

and real money for online merchandising and faced grievous accusations fromconsumers.

The following methods will help make the idea of electronic cash sustainable

The company can offer shares to the public.

A share of money raised should be kept in bank also, liquidity must be maintained .

The company should seek additional methods of funding .

The mindset of the consumers has changed a lot in the previous decade; they justneed to be enlightened on the benefits of the system.

Proper system for avoiding and handling of consumer grievances must be set up.

Watermark source -http://www.google.co.in/search?hl=en&client=opera&hs=s83&rls=en&channel=suggest&site=search&tbm=isch&sa=1&q=internetcash.com+logo&aq=f&aqi=&aql=&oq =

Sources

https://secure.wikimedia.org/wikipedia/en/wiki/InternetCash.com

https://secure.wikimedia.org/wikipedia/en/wiki/Internet_currency

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