From: shields@tembel.org (Michael Shields)
Date: Tue, 31 Oct 1995 07:47:44 +0800
To: cypherpunks@toad.com
Subject: Re: Digicash will not fly (not)
In-Reply-To: <acb9bb9700021004f83d@[205.199.118.202]>
Message-ID: <473jfp$pll@yage.tembel.org>
MIME-Version: 1.0
Content-Type: text/plain


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In article <Pine.SUN.3.91.951030121921.17834E-100000@tipper.oit.unc.edu>,
Simon Spero <ses@tipper.oit.unc.edu> wrote:
> One point worth noting is that the 5% cut used to be a typical fee for 
> credit-card transactions. However, that cut only happened once per 
> purchace, whereas digicash may incur this fee many more times. 

I think there are two major differences between credit cards and digicash
that affect the pricing structure.

1. Applicability

We think of eventually using digicash for everything.  You wouldn't just
use it to pay Sears for a sweater, but Sears would use it to pay for the
wool and for their taxes.  A 5% hit may be ok for the final transaction,
but it's impossible if you incur it every time money is exchanged.

Credit cards are mostly consumer items and don't have this problem as
much, and the states have invented resale licenses specifically to exempt
you from paying sales tax at every step.  I realize that digicash is being
marketed as a consumer item, but I'd like to see it eventually become a
standard banking instrument.  I certianly trust it more than I trust EFT.

2. Float

Cash schemes are unique in that while your money is in the ecash mint,
the bank has the use of it.  Don't underestimate the importance of this
in a high-volume business; if digicash were popular, the banks would
cut their margins to the point where this would probably be the major
source of revenue.  But it would be substantial.

I think digicash out to be priced comparably to traveller's checks.
That is what they are closest to.

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-- 
Shields.