Electronic purses, interoperability and the Internet (originally published in April 1999)

This paper is included in the First Monday Special Issue #3: Internet banking, e-money, and Internet gift economies, published in December 2005. Special Issue editor Mark A. Fox asked authors to submit additional comments regarding their articles. Back in 1998-1999, several players, including the European Commission, contended that the patchwork of over 20 domestic-only electronic purse schemes that existed in the euro-zone was untenable in the long run, and that making the schemes interoperable was a matter of urgency in view of the introduction of the euro coins and banknotes. In the article below, I argued that the lack of cross-border compatibility was no major barrier to the development of e-purses as payment instruments for the real world, and that there was no business case for standardization. Today, it can be observed that the CEPS standard, while underwritten by over 90% of the e-purse schemes that existed at the time, was in fact a deadborn child. To the best of my knowledge the first CEPS-compliant e-purses have yet to be issued in Europe and it is very uncertain whether any will ever see the light of day. Tellingly, the most recent press release on the CEPSCO site dates back from May 2001. In the article I also argued that, unlike in the real world, the lack of interoperability would severely hinder the adoption of e-purses as payment instruments for the Internet - even on a national scale. I therefore concluded that "there [wa]s a real danger, especially in smaller countries like Belgium, that electronic purses w[ould] not succeed in breaking the chicken-and-egg deadlock" in the virtual world. Looking back six years later, it is interesting to note that Internet payments with Proton were discontinued in 2002. Using Proton for buying on the Web had become possible as early as December 1997, but met with limited success among surfers and e-tailers alike. At the height of its popularity, only some 20 Belgian online shops accepted Proton. Elsewhere, e-purses can still be used on-line - in Austria and Germany, for example - but there too the response has been lukewarm. Part of the explanation for these failures lies in the persisting lack of interoperability, which restricts e-tailers’ ability to sell abroad. With CEPS not materializing, the window of opportunity for e-purses on the Internet is therefore becoming smaller and smaller. This said, e-purses have not been all that successful in the real world either. But that is a different story; see “Electronic Purses: (Which) Way to Go?”, elsewhere in this Special Issue. These last few months the move toward the standardization of electronic purses has gained considerable momentum. Card issuers and newspapers present this move as crucial for crossborder transactions, and especially urgent for the Euro-zone. Starting from the network externalities theory, I argue that interoperability is more important for electronic commerce over the Internet than for real-world cross-border transactions.