CyberCash speeds up online checkouts in the search for cyberprofits

Guide to E-Commerce Technology

If the typical virtual retail store had a physical equivalent, it would not be a pretty sight: Shopping carts abandoned with items left unsold. A labyrinth of checkout counters scattered in all directions. And long lines everywhere in an endless stream of credit checks.

It’s not much of a way to run a business. Yet by some estimates, as many as 50% of all electronic commerce transactions are aborted prior to purchase. But by simplifying and streamlining the online shopping experience, CyberCash Inc., which bills itself as the world leader in secure-payment technology and services, aims to help change that. Its strategy is to bring merchants and customers together under the same electronic umbrella, where purchasing can be reduced to a single click.

CyberCash has big plans for its new one-click shopping model, InstaBuy. Since January, the company has raised $15 million in capital to support the launch of its latest payment processing system, much of which will go to marketing, sales and customer support.

Born again

“We are seriously committed to building InstaBuy as a brand,” says Ken Perez, senior vice president of marketing for CyberCash. In fact, CyberCash is banking on InstaBuy to reverse the company’s troubled fortunes and place it squarely on the road to profitability.

Founded in 1994 by payment systems industry pioneer William N. Melton, Reston, Va.-based CyberCash has led the way with a number of technological innovations, yet none have been enough to turn a profit. CyberCash lost close to $31 million in 1998 and has “one of the worst balance sheets in the e-commerce industry,” says Vernon Keenan, Internet analyst and founder of Keenan Vision Inc., San Francisco.

But over the last year or so CyberCash has all but reinvented itself, starting with its $55 million acquisition in March 1998 of ICVerify, a leading maker of electronic transaction processing software for the bricks-and-mortar universe. CyberCash hopes to convert ICVerify customers to the broad range of payment-processing products that remains the company’s bread and butter, beginning with its CashRegister service, which processes more than 3.1 million transactions a month for roughly 12,000 online merchants, and eventually ramping up to one-click shopping via InstaBuy. “If a merchant is happy with ICVerify,” asks James J. Condon, CyberCash’s president and chief operating officer, “why switch vendors for the Internet?”

With products that adapt to the changing needs of traditional and virtual merchants alike, and with a growing army of alliances assembled to take its technology to the masses, the new and improved CyberCash aims for nothing less than to streamline the business of buying products online. “We’re in the process of transforming our corporate identity beyond payments to a broader e-commerce identity,” Perez explains. “We want to be a market-focused company.”

Howdy, partners

Crucial to CyberCash’s goal of gaining mass distribution for its menu of offerings is teaming up with the appropriate partners, none of which are what Condon calls “Barney deals: ‘I love you, you love me, but nothing happens.’ ”

In March, for instance, Redmond, Wash.-based Microsoft Corp. named CyberCash as one of a dozen or so Microsoft Commerce Business Application Partners—basically a package of service providers that will facilitate the implementation of e-commerce for medium-to-large-sized business enterprises, including retailers. CyberCash executives hope that Microsoft will do for Internet commerce what Apple did for desktop publishing. “People ask us, Is Microsoft a competitor or a partner? And we say yes,” jokes Condon.

Payback time

For nearly five years, CyberCash has invested heavily on the prospect that Internet commerce would eventually take off. Bill Melton, the company’s 56-year-old chairman and CEO, made millions off his most successful creation, VeriFone Inc., which revolutionized the point-of-sale terminal business following its introduction in 1982. (With the InstaBuy technology in place, Melton recently remarked, the task ahead is bringing merchants, banks and consumers to the table.)

CyberCash went public early in 1995, generating more than $58 million through an IPO and concurrent private placement. Soon after it launched a secure payment card service and followed that up with CyberCoin, a much-ballyhooed micropayment service that never caught on with U.S. consumers. Undaunted, the company introduced its PayNow secure electronic check service at the end of 1996 and diversified its payment-services portfolio with its acquisition last year of Oakland, Calif.-based ICVerify.

That purchase was spearheaded by Condon, 42, who joined CyberCash in 1997 from the information communication and entertainment sector of KPMG and added the title of president to his resume back in January. “While a lot of people get into the business with a great idea, it’s a long way to making that idea a reality,” says Condon, who boldly pledges that CyberCash “will be profitable in the year 2000.”

A lot rests on the shoulders of InstaBuy, which is gradually rolling out now following its online launch in February. “What we’re hearing from merchants is that a streamlined consistent checkout process is going to enhance just about any consumer’s experience,” says Denis Yaro, executive vice president of products and operations for CyberCash. “What we can do is to give the merchant the ability to use InstaBuy not only on their site, but anywhere else on the Net.”

Shopping made simple

Here’s how InstaBuy works: The first time a consumer makes a purchase at a merchant site with InstaBuy, he or she types their payment and shipping information into the merchant’s own form. At the end of the purchase, the consumer is prompted to sign up for the free InstaBuy service by entering a password for future use. The consumer’s information and password are securely stored under the auspices of a participating financial institution.

The next time the consumer shops at the same merchant or any other InstaBuy-enabled merchant, the InstaBuy window pops up on the merchant’s payment page, complete with the consumer’s purchase information—nothing more to fill out. Once the consumer enters his or her password, the purchase is complete.

Another way for consumers to sign up free for the InstaBuy service is by visiting www.instabuy.com, which advertises selected specials from many of the participating merchants, including The Sharper Image, Sports Superstore and Egghead.com. “Instabuy.com represents a launch point, a Web site where consumers can get their InstaBuy wallets and start buying online with ease,” says Yaro.

While CyberCash executives are mum on the exact cost of InstaBuy, Perez says the company is tinkering with the payment formula to reduce any perceived barrier to entry. But its biggest ally so far may well be First USA. The Wilmington, Del., credit-card behemoth is marketing the InstaBuy technology on a non-exclusive basis under the name VersaPay, and already fields a merchant roster that includes Borders.com, CDnow and 1-800-FLOWERS.

Perhaps the biggest challenge facing CyberCash is selling merchants and consumers on the virtues of InstaBuy. If the customers are there, the merchants will follow. And if the merchants are there, the customers will find them. “It’s kind of a chicken-and-egg thing,” Yaro admits.

Instant recognition

To that end, a TV ad for InstaBuy began a three-month run on CNN and Headline News in April. The campaign is aimed primarily at building the product’s visibility among online merchants, while fostering consumer awareness for the InstaBuy brand as well.

Other elements to CyberCash’s multimedia campaign include banner ads tied to the InfoSeek search engine, print ads in Interactive Weekly, and a direct-marketing piece specifically targeted at the top 400 online merchants. All that ties in closely to the company’s new slogan, “e-commerce. Simply.”

While the company continues
to add new merchants for its CashRegister service at the rate of about 900 a month, Yaro hopes to have upwards of 4,000 merchants sold on one-click shopping in time for the coming holiday season. “We’ll be packaging up InstaBuy for our new clients and remarketing it to the installed base,” he says.

CyberCash presently handles an average of more than 100,000 transactions a day through its CashRegister service. By Christmas, it expects to handle at least double that number, and perhaps just as many again on the InstaBuy side. “What we’re finding so far this year is merchant volume has not dropped off post-Christmas,” says Yaro.

As for Condon’s aggressive projection—that CyberCash, which trades on the Nasdaq, will turn a profit by 2000—time will only tell. “InstaBuy sounds really promising,” says Eviva Lighten, research director for payment systems with the Gartner Group, Stamford, Conn. “They may find some profitability with that product.”

Needs improvement

But she warns that CyberCash still suffers from an industry image of having poor service. Noting that competitors such as CyberSource Corp., San Jose, Calif., and Internet Commerce Consulting, San Francisco, “have gone directly after their customers and won them over,” Lighten adds, “they have the lead, but they need to improve.”

Jim Condon concurs. “We need to work on better customer support and satisfaction,” he admits, noting that CyberCash is putting about 65% of its spending into “customer facing functions,” such as hiring more troubleshooters and beefing up management in customer service. (Perez points out that the company’s operating systems have been operating at efficiency levels exceeding 99% in recent months.)

Internet analyst Keenan’s research indicates that customer satisfaction seems to have improved in recent months—good news for CyberCash. “The e-commerce bubble could drive them toward profitability because their business model will certainly give them the ability to be profitable,” he adds. “Their existing customers are increasing their volumes, and they probably are gaining new customers even as you consider churn.”

Where it’s at

CyberCash has learned a lot from its earlier misfires. Four years ago, in what Yaro now refers to as the “prehistoric” era of electronic commerce, CyberCash introduced the first electronic wallets to a less-than-electric reception. “We distributed lots of wallets,” he recalls, “but we didn’t get them used.”

But this is a different CyberCash—a little older, and a whole lot wiser. The world of e-commerce doesn’t fit conventional two-dimensional models, Perez notes. It’s more like a gyroscope, he suggests, with “lots of things on the surface and other things moving counter to the real pillars of the technology.”