 12-29-96. Computerworld:
 
 Cybercash at risk/Money laws lacking 

 Cruising the Internet with a hard drive full of electronic cash is like 
 walking the mall with a pocketful of bills.

 If you get ripped off, that money is gone. Don't expect a refund from the
 financial firm that gave you the cash.

 But a lot of people don't understand that. The laws that govern digital
 money are unclear, partly because federal and state governments have failed
 to revise finance rules to include the online realm explicitly.

 Electronic payment is potentially an enormous market. Internet commerce
 is expected to ring in $6 billion by 2000, according to International Data
 Corp. in Framingham, Mass.

 But digital cash can take various forms. Those include electronic chits to be
 exchanged for hard cash, smart cards with a preprogrammed value and the
 digital equivalent of cash in the mode of specially coded ones and zeros.

 These days, everyone from financial start-ups such as 2-year-old
 CyberCash, Inc. in Reston, Va., to banking veterans Wells Fargo Bank and
 The Chase Manhattan Bank Corp. is turning out products.

 But because the payment methods are so new, even enthusiastic online
 merchants worry about the legalities.

 "I can't afford to have a major blow. You have to know there's something
 to fall back on," said Leo Travenshek, owner of Leo's Live Seafood
 in Lummi Island, Wash.

 And that something is the law, Travenshek and other electronic merchants
 hope. Yet the federal government so far has stayed away from writing rules
 specifically to govern electronic money.

 Tracing the Deals

 Audit trails is one area that the federal government is clear about wanting to
 regulate, however. No matter what the method of digital payment,the feds
 want to be able to trace funds in some way in order to guard against online
 money laundering.

 Overall, Uncle Sam's hands-off stance isn't necessarily bad news for an
 emerging technology, experts said. But the situation has left people
 wondering what laws and banking regulations apply to electronic cash.

 Furthermore, companies looking to sell products and services on the World
 Wide Web often don't know the risks they bear when they sign contracts
 with suppliers of digital money, according to several online merchants,
 lawyers and analysts.

 "Checks, credit cards, etc. they're regulated. But beyond that, it's
 something of a free-for-all," said Tom Smedinghoff, a lawyer at McBride
 Baker & Coles in Chicago.

 For example, anyone can invent his own online currency, which people can
 decide to use or not use. But for risk-takers who adopt it, it isn't clear 
 what legal recourse there will be should Bob's BigBucks go under, 
 Smedinghoff said.

 Regulations Vary

 In general, online money suppliers have to comply with banking laws at the
 point where their services deal with banks. For example, if a shopper starts
 a CyberCash CyberCoin account at a bank, his money is insured when it sits
 inside the bank, just as other funds are protected by the Federal Deposit
 Insurance Corp.

 But there are no widely accepted regulations for, say, the maximum fees
 companies such as CyberCash can charge or what information consumers
 or merchants must reveal to open accounts.

 Many merchants, meanwhile, are small-business owners with little
 technology know-how. They often put their faith in software products,
 rather than the law, to protect them.

 Sandra Bauer, a marketing assistant at Dreisbach's Steaks, Inc. in Grand
 Island, Neb., said she initially had concerns about the safety of CyberCash.

 "But when they called on me, they also came with our banker from
 Norwest [Corp.], who was very enthusiastic about it," Bauer said. "This
 set any fears we had to rest."

 Karen Epper, an analyst at Forrester Research, Inc. in Cambridge, Mass.,
 said electronic commerce companies should do more legal research than
 that.

 "Joe Programmer could create a new currency system," Epper said. "But if
 it's not supported by regulators, what do you have?"

 Indeed, Amsterdam-based Digicash B.V. is in just such a precarious
 position, Epper said. So far, only one bank offers Digicash's Ecash: Mark
 Twain Bank in St. Louis.

 Daniel M. Eldridge, vice president of Ecash business development at
 Digicash's New York office, acknowledged that there could be a problem.

 "If Mark Twain goes out of business, the Ecash could be worthless if no
 other bank is there to accept it or wants to accept it," Eldridge said. But
 Digicash is working to sign up other banks, including Germany's
 Deutchebank, he said.

 The safest bet is to look for electronic payment firms backed by veteran
 banks, analysts said.

 Smart card vendor Mondex USA, for example, is no sure thing. But it is run
 by seven of the largest banks and credit-card companies in the U.S., Epper
 said. "These financial institutes will watch their Ps and Qs," he said.

 Although the federal government hasn't rushed to regulate electronic
 money, the Federal Reserve Board is deciding whether to apply its complex
 Regulation E to at least some online payments, starting with smart cards.
 Regulation E oversees the electronic movement of money. Automated teller
 machine transactions fall under Regulation E, for example.

 Some states, such as Illinois and New Hampshire, are devising policies on
 their own.

 Yet when regulations aren't spelled out, matters often get decided in court a
 slow, piecemeal process, Smedinghoff said. That's what is now happening
 with trademark disputes over Web domain names.

 Although no one wants stifling interference from the government, some
 clear statements from lawmakers might help spur electronic commerce,
 said Stan Wilson, general manager of Iconomics, Inc., a graphic design
 company in Fort Collins, Colo.

 "It would make some people feel better about trusting these new ways to
 pay," Wilson said.

 Payment options proliferate

 Electronic payment methods are proliferating on the Web a trend that is
 likely to accelerate in 1997. What follows is a sampling of companies
 growing the first crop of digital dollars:

 Digicash created Ecash, a digital form of dollars and cents that consumers
 can use to pay merchants directly online (www.digicash.com).

 CyberCash offers CyberCoins, which are essentially electronic promissory
 notes that can be redeemed at certain banks. No banks offer CyberCoins
 yet, but several are expected to launch programs early next year, including
 First Union Corp. in Charlotte, N.C., and U.S. Bank in Portland, Ore.
 CyberCash also offers an encryption service to guard credit-card numbers
 transmitted online (www.cybercash.com).

 Mondex is a joint venture of The Chase Manhattan Bank, AT&T Corp.,
 Wells Fargo Bank and four other big banks and credit-card companies to
 push smart cards. People who use the cards, which hold a preprogrammed
 amount of value, can pay for items online by sending encoded numbers or,
 in the real world, by swiping them through card readers.

 First Virtual Holdings, Inc. in San Diego uses electronic mail and secret
 personal identification numbers to transmit payments online
 (www.fv.com).
 
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 12-27-96. Nikkei English News:

 Asahi, Sakura to join Visa's e-money trial 

 Asahi Bank and Sakura Bank decided Thursday to participate in an electronic-
 money experiment arranged by Visa International Inc., to be conducted in 
 Tokyo's Shibuya district by a consortium of major Japanese finance companies.

 Participants in the project include most of Japan's major banks and finance
 firms, such as leading credit card issuers Nippon Shinpan Co., DC Card Co. 
 and UC Card Co.

 Daiwa Bank and regional Bank of Yokohama also decided the same day to join 
 the consortium, which includes as start-up members Bank of Tokyo-Mitsubishi
 and Dai-Ichi Kangyo Bank.

 Among the few major players not taking part are Sanwa Bank, Hokkaido 
 Takushoku Bank and JCB Co.

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 12-29-6. Communications Daily:

 Bureau of Export Administration issued regulation implementing
 Administration's new data encryption policy.

 Bureau of Export Administration issued regulation implementing 
 Administration's new data encryption policy (CD Oct 2 p2). New rules 
 establish procedures companies must follow to export encryption products. 
 William Reinsch, Undersecy. of Commerce for Export Administration, said 
 new rules "will promote the robust growth of international electronic 
 commerce and secure global communications while balancing our nation's 
 economic and national security needs."

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 12-28-96. Computer Shopper:

 SPA Sets Guidelines for Net Distribution 

 The Software Publishing Association (SPA) recently released guidelines 
 for the electronic sale and distribution of software. The proposal 
 includes procedures for the protections of intellectual property and
 customer privacy and provides a system for tracking sales.

 The SPA proposes a new entity called a clearinghouse, which will handle 
 the locking and unlocking of software--in the form of digital codes 
 that will render programs inoperable until paid for--as well as
 keep records of all transactions.

 Copies of the SPA's report are available from the association's Web site
 (http://www.spa.org).

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