The Cashless Society - Part I

13.11.1997

The implementation of electronic commerce based on e-cash as the main engine driving global economic activity will determine the future shape of society.

Virtual shopping, the digital economy, e-cash, e-commerce - these are just a sample in the range of economically-laden terms that have cropped up in recent years to accompany the plethora of new vocabulary spawned by the development and commercialization of the Internet. While most people either know or can guess at what these terms mean, fewer realize the motivations and implications that lie behind the expressions which are being thrown at us - and even by us.

The Cashless Society Part II and Part III

Although they differ in many respects, these terms all converge toward one single point: the concept of a cashless society, where the supposed burdens associated with cash transactions are expected to disappear. While the move away from cash transactions has been underway for some time (e.g., through the use of credit cards and other payment systems), the business practices associated with them have only just begun.

As a result, many promises for the economic future of the world have been (and are being) made. Yet, it becomes quickly apparent when one looks past the hype that these promises are fraught with inconsistencies and contradictions. Simply comparing and contrasting promises made by different people at different times about the same subject brings many of these inconsistencies and contradictions to light.

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After sifting through these myriad promises and proclamations, it is clear that the future of economics in the First World - driven by the notion of e-commerce (hitherto referred to as simply ecomm) - is being built on shaky foundations. These foundations, which are also seen as the building blocks for developing and Third World nations, raises questions as to whether or not it is, among other things, sustainable.

Apart from such questions, far too often what has not been looked into enough is the kind of society that will evolve if the said promises - or at least the prime objectives of those making the promises - actually came true. Along these lines, the implementation of ecomm as the main engine driving global economic activity will have an impact which goes far beyond than simply whether or not it will (or can) become a viable economic model for the future: it will also determine the future shape of society - not only what we buy and how we shop, but also how we work and ultimately who will govern, which, in turn, will influence us in what we think, say, and do.

Exploding and Revolutionary Promises

Ecomm in recent years has become the focus of increasing attention. Some see it as the "killer application" which will push the supplier markets for computing and communications. Others, meanwhile, see it as a new economic paradigm, full of promises and risks. Yet when discussing the promises of ecomm, we first and foremost have to define what it is.

Because what you are reading now has been written in Europe, not to mention written from a Central European perspective (thereby dispelling the myth of the death of distance), I have subsequently decided to rely on a definition used officially by the European Community.

Electronic commerce (ecomm) refers to any activity which involves enterprises interacting and doing business with customers, with each other, or with administrations by electronic means. It includes electronic and online ordering and payment for goods which are delivered by post or courier, as well as online delivery of goods and services such as publications and software. Also included within the definition of ecomm are activities such as share trading, auctions, collaborative design and engineering, marketing, and after-sales services.

What usually accompanies any discussion pertaining to the world of the Internet is the "revolutionary" aspect of what is being talked about. As Joyce Stoller (1997) wittingly commented in her essay Rebels Without a Clue, capitalism has reached the stage where it finally succeeded in co-opting the word revolutionary. Hence, the "revolutionary" implication of the Internet in general, and ecomm in particular, is considered to be not only about mass consumption and the economic prosperity of industrial societies, but also the changing nature of society itself. As the argument usually goes, "if people can get beyond passivity and insecurity, a new era of economic experimentation lies ahead - ventures that explore new socio-cultural and economic arrangements, projects that can be encouraged by government, not managed by it."

Economically speaking, however, the revolutionary aspect of ecomm is clearly misplaced. The cashless society concept it purports to establish is nothing new, no less revolutionary. One can even go so far as to argue that the telephone has had a much bigger and revolutionary impact on economics than computers have or ever will. Because the implementation of telephone-based commerce (e.g., TV shopping, mail ordering) was a much more gradual process, it never had a "revolutionary" feel to it.

The economic rationale and structural framework for ecomm, therefore, has already been in place in a fragmented sort of way for decades, as exemplified by such activities as TV shopping and mail ordering. Indeed, according to a report by a leading research company on Internet retailing, entitled The Internet Retailing Report, the future of ecomm is expected to largely parody the history of mail-order commerce, albeit on a faster and larger scale.

Where ecomm can be said to have a revolutionary impact, however, is in Third World and developing countries (especially Central and Eastern Europe), where basic communications and financial infrastructure was (and in many areas, still is) in an underdeveloped state. For instance, in Central and Eastern Europe the different components of ecomm's structural framework - such as telephone services, bank cards, and credit payment systems - all made their appearance only within this decade, and even so it is still not as prevalent nor working as efficiently as it could or should. Conversely, these same components in the west (US, Canada, Australia, western Europe, Japan), have been around for decades, making the development of ecomm's structural framework more evolutionary than revolutionary. Ecomm in industrial countries, as a result, can be viewed as merely the next logical step in the long march toward a cashless society.

In spite of this, the talk of revolution abounds. Along with the word "revolution", a favourite adjective used by Internet enthusiasts and ecomm supporters is the idea of the Internet leading to an "explosion" of opportunity. As Annette Hamilton of ZDNet sees it: "We know where the next Internet explosion will occur: the business segment. We also know when: 1998." This volcanic prediction is based on market researchers at Dataquest and other firms who forecast that "the Internet is on the verge of a surge in business use." Statistics on the number of computers expected to be connected to the Internet, the projected number of online sales, the number of web sites, etc., are all regarded as objective proofs of things to come. Ms. Hamilton can hardly contain her excitement when she offers the following words of advice: "When a volcano erupts, you want to get out of the way. When the Internet erupts next year, you want to be right in its path."

Aside from the prospective benefits of exploding revolutionary volcanoes, one thing is certain: the ultimate goal of ecomm is the establishment of a "cashless society." According to a report released by Ovum, a British information technology (IT) and telecommunications analysis group, the success of ecomm will depend heavily on the replacement of physical cash in all its forms (this would include cheques and credit cards as well) by a single "e-cash" infrastructure. Indeed, much work has already been done in this area. For example, Verifone announced last year at the ABA Bank Card Conference that it had developed a small and low-cost electronic smart card reader/writer device that is, basically, a personal and portable dispenser of digital cash. Such devices are expected to replace not only cash but also Automatic Teller Machines (ATMs), thereby enabling consumers the possibility of ecomm services anytime and anywhere using telephones, televisions, personal computers and other like devices.

In many ways, what has been leading ecomm supporters to believe that their vision is correct is the way in which technological change and innovation has kept speed with the mushrooming dreams and promises of a radiant and electronically-controlled economic future. The Secure Electronic Transaction (SET) protocol, which is developed by a consortium that includes rivals Microsoft and Netscape, is seen to become the global standard for ecomm. Ironically, Europe in this case is not that far behind technologically; as is often pointed out, North America (US and Canada) along with Japan are usually placed well ahead of Europe when it comes to the Internet. In terms of e-cash, however, this is not entirely so. As the Ovum report indicates, "the e-cash world is currently dominated by Western Europe, which is claimed to be way ahead in the introduction of smart card-based e-cash systems." In fact, the first transaction using the SET. protocol took place in Denmark when MasterCard beat Visa in the race to process the world's first online credit card transaction.

And Prosperity for All

What makes ecomm so appealing is the assumption that everybody will indubitably benefit. By using this as a common denominator, it appears the only ones who would not be in favour of ecomm - or are critical of it - are killjoys and the ignorant since consumers, businesses, banks, and governments can only stand to gain from it.

As with Ms Hamilton and her volcanic rhetoric, many observers are predicting that we are on the edge of an online shopping boom. According to a European Yahoo! survey over the summer, online shopping is on the increase in Europe. The report claims that overall between 25 and 40% of users have made purchases over the Internet in the last six months. In a like survey of American users sponsored by AT&T, "More than half of the consumers surveyed - 55 percent - said they expect to be shopping online five years from now."

The benefits of ecomm to consumers center around the notion of convenience. "Consumers have much to gain from electronic commerce when they buy goods and services from their own homes: a wider choice, easier and more comprehensive pre-purchase information, and potentially lower prices." Equally, people would also be able to shop at 2:00 AM in their bathrobes if they like see), although worthwhile reasons for doing so remains to be demonstrated. Nonetheless, as far as Louis Noel Joly, Director and CEO of Europay International, Europe's leading payment services company and one of the major consortium partners to have first established the fully secure credit card transaction on the Internet using the SET protocol, is concerned, "the convenience of safe shopping straight from home is certainly an attractive proposition for banks to offer their customers. For consumers this means increased convenience and a guaranteed payment acts as a stimulant for retailers to offer more services via the Internet." This seems to go well with the assumptions in The Long Boom (Wired, July 1997) in which the cyclical fluctuations of the market are transcended, thanks to the stability brought about by world trade.

For small business, the advantages of ecomm appear obvious. With more people online and the ability to purchase straight from their telematic device, there is potentially a bigger market they can reach. This is a point that is consistently hammered away to small and medium enterprises (SMEs), for ecomm is seen as a way for them to compete effectively with the big boys (multinationals) who, in one way or another, already have a global presence. In effect, it reinforces that other great myth of the Internet - that of a level playing field. In turn, this has given an impetus to self-employment, as exemplified in the rise of the SoHo (Small Office, Home Office) concept.

Along with small retail businesses, large companies also are beginning to see the supposed benefits of ecomm. A Reuters survey of 125 British firms revealed that the vast majority, some 82% of them, rate the Internet as significant or very significant for the future of their business, in spite of the fact that half of them see the Internet as insecure. Meanwhile, a Forrester report based on interviews of IT executives at 50 Fortune 1,000 companies, found that less than half of them expect the Internet to have either a "huge" or "significant" impact on their sales processes over the next three years.

As "cash" becomes more and more digitized, banks are also expected to play an increasingly important role in the cashless society. The Ovum report predicts that "e-cash will cause a global revolution in retail banking in the coming years." Already, in Germany, Deutsche Bank has set up a system called "Bank 24", in where "electronic coins" would allow a user to buy goods and services over the Internet.

Finally, government at all levels are also expected to benefit from the advent of ecomm. In Europe especially, ecomm is seen as a crucial element in the European Union (EU) project, for "electronic commerce can contribute to the acceptability of the Euro." Consequently, the European Commission has outlined a number of key objectives in order to foster the development and implementation of ecomm. Among these objectives are the provision of widespread and affordable access to infrastructure, products and services needed for electronic commerce; the creation of a favourable regulatory framework for electronic commerce in the EU, within the context of the Single Market (in particular, this will affect taxation and intellectual property rights); the fostering of a favourable business environment for electronic commerce by promoting skills and raising awareness of the potential of ecomm; and ensuring the regulatory framework at global level is coherent and compatible with that of the EU.

The reason for the EC going to such lengths and placing such an emphasis on ecomm in Europe is very simple: the EU project is primarily an economic concept as opposed to a careful blend of political, social, and cultural aspects. Because "the expansion of electronic commerce will be market-driven," and instead of economics being just another aspect in a myriad of aspects, ecomm has thus become the focal point and driving force behind European unity - with political, social, and cultural issues subsequently swept under the rug of "the market". This makes for an uneasy and politically dangerous situation; as the Amsterdam Summit the past summer had demonstrated, global economic objectives are frequently in conflict with Europe's unique social, cultural, and even linguistic fabric.

A Quicksand of Statistics

Mark Twain made the apt remark "lies, damn lies, and then statistics." While we may not go so far as to equate ecomm statistics with lies, they nonetheless appear as nothing more than a numbers game used to prove a point. The problem, however, is that playing a numbers game bears little or no relation to the present (not to mention future) state of affairs. Furthermore, it can be used to "prove" anything, everything, and nothing all at the same time, which leaves us, in the end, at square one.

There are a plethora of statistics on ecomm. By combining the forecasts from several leading sources (ActivMedia, Cowles/Simba, and Forrester), the following picture emerges: in 1996, worldwide Web-based sales totalled about 1 billion dollars; this year, it has been predicted to be 10 times more; by the year 2000, it is expected to be 70 times the 1996 figure (or seven times this year's figure). The most optimistic of these is a report from Forrester Research, entitled "Business Trade & Technology Strategies", which maintains that ecomm is set to soar from a value of 8 billion USD at the moment to 327 billion USD in five years time. The report predicts that this will happen as the Internet becomes ubiquitous and indispensable for conducting business-to-business commerce. Other number crunching statistics include: durable goods makers, chiefly in electronics and airplane parts, will bring in 3 billion USD, representing 38 percent of all Internet business trade in 1997; middlemen will generate 2 billion USD in Internet-based re-sales; other industry sectors, including utilities, transportation, and services, are expected to make up to 3 billion USD of fourth channel trade this year. The bulk of this will come from utilities; services, which includes software, will reach 1 billion USD by year-end; transportation will not exceed 30 million USD in Internet sales.

All this sounds impressive. Yet many of the statistics from different sources don't correlate with one another and regularly change their predictions - sometimes radically. For instance, another set of statistics, these coming from a report by IDC, estimate that the value of ecomm in 1996 was 2.6 billion USD (double the Forrester estimate). The increase, however, would be more moderate at only 100 percent, or about 220 billion USD (more than a 100 billion USD less than Forrester) by the year 2001. These findings were based on the assumption that online security will improve. As if to add some weight to its predictions, the report also added that the number of Web users is expected to grow to 175 million, with Web access devices such as PCs and Web TVs to pass 300 million.

To add to the confusion, Forrester Research has another set of figures under the title "Sizing the Internet Economy" which, on the one hand, corresponds to IDC's figures for around the year 2000 but, on the other, has a totally new figure for 1997 - 15 billion USD (or could it be a typo?). These statistics are broken down further, with a figure pertaining to US only business-to-business ecomm, which is expected to represent 66 billion USD in Internet revenues by the year 2000. To make matters worse, other statistics are included which are related to user and connection profiles. For example, an estimated 33 million US household will go online by the year 2000, while the number of businesses connected will rise from 4% today to 33% in the year 2000.

Things begin to go out of control when individuals start quoting these statistics, using an amalgam that is supposed to sound reassuring and impressive. But to those following such statistics, it only adds to the confusion. Take the case of the general manager of IBM's Internet division, Irving Wladawsky-Berger, at the Second Internet Commerce Expo earlier this year. "Citing research figures, he argued that huge financial opportunities lay in the future of e-commerce. Underscoring that point, he said the total revenue from e-commerce was $1 billion last year. [...] 'This year it is projected to be $2 billion. By the year 2010, just 13 years away, it is expected to be $8 trillion,' Wladawsky-Berger added."

From these projections, although the numbers differ widely, it seems that ecomm is rapidly taking off, or at least set to. The other side of the coin, however, shows a much different story. According to a survey commissioned by Business Week, not only do a mere 19% buy something from the Internet, but an overwhelming 80% of web users have no intention of buying anything when looking around the Internet. In addition to this, the survey revealed that about half of those who use the Internet regularly claim that it was beginning to affect other aspects of their lives, in the sense that they were watching less TV and reading less. Since TV and print are also integral parts of ecomm, namely in the form of advertising, this means the Internet could have an adverse effect on marketing.

New statistics are slowly emerging that appear to show some fault lines in the enthusiasm of earlier predictions. In terms of the number of people connected to computer networks, the third quarter of 1997 saw a drop in the number of users for the first time ever - by 3 percent (see). At the same time, research in the UK has revealed that interest in the Web is less than observers originally claimed, even among PC owners. Almost 90% of respondents have never accessed the web, with a third of them stating that they had no intention of doing so in the future (see). In another survey conducted by Phase 5 Consulting Group Inc. and Opinion Search, which polls nearly 2000 people in the workplace on an annual basis, the amount of Internet users purchasing online has not changed in two years and remains at 15 percent, despite the fact that Internet access has increased from 11 percent of the working community to 25 percent. In essence, this means that only 4 percent of users have bought something online in the last year. In fact, over half of those who had not purchased online cited lack on interest in the products on offer as the main reason they had not bought anything (see).

Going even further, it appears that ecomm enthusiasts also take for granted the profile of the average consumer. Take, for instance, the following results of a recent survey:

"Consumers were asked to give their opinions on a host of questions. Did you know that 40 percent of Americans would like to spend less time shopping? An even higher percentage would like to spend less time balancing their checkbooks and straightening out simple banking procedures. Forty-two percent report 'hating to go to a car dealer to buy or lease.' Thirty percent claimed to 'hate going to the grocery store.'"

What this survey shows is that ecomm is in for some rough times ahead, and that it will take more than just simple statistics to prove that there is a bright and radiant future glaring back from the other end of a screen.

Part II: "Shaky Foundations"

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