For
years, pundits have predicted that the digital age would usher in the paperless
office and the cashless society. But computers have led to more paper not less!
And though getting cash may be more convenient with computerized ATMs, the need
for it is no less great.

Significant change is in
the works, however, on the money front with computers. Today you can carry out
transactions using your personal computer and the Internet without exchanging
cash. You can buy and/or sell, without even needing to use credit cards.

Online auctions have been the
catalyst behind the innovations, says Mark Morgan, a research analyst who
specializes in e-finance for the San Francisco investment bank Putnam Lovell.
The biggest mover here is a little-known, meteorically growing, and
controversial company named PayPal.

What Is PayPal?

Out of the heart of the
Silicon Valley, PayPal has vaulted in little over a year from nowhere into
first place as the world’s largest Internet-based payment network. More
than five million people now use its PayPal service, according to a company
spokesperson. This constitutes more than 10% of all Internet traffic in the
financial services sector—more people than are served by big names such as
Citibank, Wells Fargo, and Bank of America combined!

Using PayPal, at http://www.paypal.com,
you can quickly and conveniently pay for goods or services by having money
transferred from your bank account, credit card account, or PayPal money market
account. The kicker here is that you can sell over the Internet without a
credit card merchant account, which for individuals and even small businesses
can be difficult or expensive to obtain.

No Longer “Always Free”

PayPal used to promote itself
as being “always free,” in its logo no less, but it now charges if you buy or
sell more than specified amounts. It can still be a good deal, compared with
other options.

But PayPal’s abruptly
changing its terms of service created a storm of protest—Internet message
forums were flooded with scathing complaints and calls for boycotts. In what
undoubtedly is a side effect of this, the Better Business Bureau just gave
PayPal an “unsatisfactory” rating.

PayPal will likely weather
this deluge in part because a key competitor, ExchangePath, just went belly-up.
But it could have handled things better.

Sure, in today’s brutal
dot-com shakeout, businesses need to make money rather than just coax venture
capital and grow market share. But the transition from free to pay should be
planned and managed. PayPal’s lesson to other businesses is a commonsensical
one: Don’t promise what you may not be able to deliver.

Competing Services

PayPal isn’t the only player
in the “person-to-person payment” market. Ecount, based in Conshohocken,
Pennsylvania, is carving out space for itself by marketing to banks and credit
card companies rather than directly to individuals or small businesses, says
Matt Gillin, the company’s CEO and President.

Individuals can still sign up,
at http://www.ecount.com, and more than 800,000 have—often those wary of
using credit cards over the Internet. You can use the service with any merchant
who accepts MasterCard payments, unlike with PayPal, which requires the
merchant to have a PayPal account.

With
this second service, you pay for online purchases out of your Ecount; this
account may be funded through a major credit card. The company plans to offer
bank account transfers in the future. You’re charged a small fee only when you
add or withdraw money from your account or opt to receive a traditional plastic
MasterCard debit card from the company.

Other services battling for
position in the online payment space include eCharge at http://www.echarge.com,MoneyZap at http://www.moneyzap.com, and c2it at http://www.c2it.com.

Security Tips

Any electronic payment
service worth its silicon makes security top priority, but you have to do your
share too. Don’t use the same password for your e-cash account as your e-mail
account. Recently hackers got into the PayPal accounts of some Hotmail users by
hacking their Hotmail passwords.

Also, beware of “spoof” sites
with names such as PayPai that try to trick you into giving up your password.
It’s best to log directly onto sites such as PayPal than to go to them via
possibly bogus links in e-mail messages.

One World, One Payment
System?

E-payment companies have
grandiose plans, with dollar bills flashing before their eyes. The ultimate
goal: One payment system that replaces
not only cash, but credit cards and checking accounts as well.

Reid Goldsborough is a syndicated columnist and author of the book
“Straight Talk About the Information Superhighway.” He can be reached at
reidgold@netaxs.com or http://members.home.net/reidgold