zdnet.com
Start-Up Touts Mobile Cash Transfer System
By Todd Spangler, Inter@ctive Week
November 15, 1999 4:46 PM ET
How would you send me $20 over the Web? Internet start-up Confinity this week is launching a digital cash system that it said addresses the shortcomings of other Web-based payment schemes.
The system works like this: A user of Confinity's PayPal service enters a cash transfer to anyone with an e-mail address. The money comes off the sender's credit card - billed as a merchant transaction, not a cash advance - and is credited to the recipient's newly created PayPal account. To retrieve the cash, recipients must sign up with PayPal; they then ask Confinity to either mail them a check or put the amount on a credit card.
"Most online payment companies have focused on merchants - but credit cards are already a pretty good way for merchants to accept payments over the Internet," said Peter Thiel, Confinity's chief executive. "We think there is a market for making person-to-person payments in a very convenient way."
Confinity also has developed software for Palm handheld organizers that lets a person wirelessly beam money from one Palm to another. The accounts are reconciled later when the Palms synch up with PayPal's servers. In addition, the company hopes to extend the PayPal system to Wireless Access Protocol mobile phones next year.
PayPal is free to use. So what's in it for Confinity? The company makes money from the "float" - the interest that accrues on the cash in people's accounts. Thiel estimates that Confinity, which puts the money in its users' accounts in a Merrill Lynch & Co. escrow account, could reap 1.25 percent interest or more on the money people leave in PayPal accounts.
Though it's first out of the gate, the PayPal service will see competition. Western Union, the real-world leader in money transfers, plans to launch a service next year that will enable individuals to send funds over the Internet, according to a spokesman.
Unlike other Net payment mechanisms, PayPal requires no proprietary software. It works with existing e-mail and Web clients. It also doesn't make PayPal users preload money into their accounts; your credit card is charged only when you zap cash to someone.
"I think it's rather innovative. It's a simple, straightforward idea," said Avivah Litan, research director of payment systems at GartnerGroup. "We really haven't seen any consumer-to-consumer payment schemes break out."
Confinity, of course, has yet to prove its business model will work.
Litan said the main issue for Confinity will be winning customer trust, which the company might address by cobranding the service with a financial institution.
Confinity, based in Palo Alto, Calif., has received $5 million in backing from Deutsche Bank, Nokia Wireless Ventures and individual investors, including CyberCash founder Bill Melton and former executives at DigiCash and Hewlett-Packard. |
