By Alexis D. Gutzman
Wave Systems offers an interesting hardware-based model for payment that eliminates the risk of chargebacks for merchants, permits buyers to maintain a much higher degree of anonymity when shopping, and reduces the load on the merchant''s payment processing server. The downside? While the technology is ready, the hardware is not yet distributed widely enough.
How It Works
Consumers first need to have the Wave Systems chip in their computers -- consumers will soon be able to get a small device that works with a USB port -- in order to take advantage of this payment technology. Compaq has already committed to including the Wave Systems chip as an option in keyboards for their next generation of PCs, and Advanced Micro Devices (AMD) is working with Wave Systems on a motherboard reference design for the Wave EMBASSY Trusted Client chip. Also, Hitachi Europe and KiSS Nordic will be bundling the Wave System USB smart-card reader with their multimedia PC products starting this fall.
Client- vs. Server-Resident Balance
The difference between the balance residing on the client (the chip, in this case) and the balance residing on the server is that if the balance truly resides on the client, when the consumer goes to make a purchase, the merchant doesn''t need to connect with the server to verify anything. When money resides on the server, the merchant has to connect to the payment system''s servers - which can create a bottleneck for the merchant - in order to process a transaction. However, it also means that the consumer can theoretically spend the money from any client workstation, including a coffee shop or library. By having the money sitting in a "wallet" on the chip, the merchant can take the money off the chip without having to connect to any payment gateway at all.
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A consumer with either the chip in his PC or the USB device can go to the Wave Systems site, sign into the Wave payment servers, and using a credit card, put money on the chip. Unlike most alternative payment solutions I''ve discussed, the money in this model really does reside on a client rather than on a server.
For now, Wave Systems is partnering with broadband distribution networks with the model of offering pay-per-view or pay-for-play metering. A consumer will be able to subscribe to a music channel, a movie channel, or even a game channel, indicate what his interests are, then the broadband system will broadcast the encrypted content to subscribers. Only those who choose to purchase the content will be able to decrypt it and play it. For games or music, for example, the consumer will pay by the hour until he''s paid for the cost of the game or CD, at which time it becomes his own. This rent-to-own model can be very attractive for content creators.
The hardware gotchas, such as secure, non-volatile memory (memory that retains its contents when power is turned off) and secure clock timing, are handled in the Wave Systems chip.
Privacy of the consumer is protected because the content creator doesn''t necessarily need to know which consumers have purchased what - or even which consumers are subscribing. Wave''s transaction system keeps track of the ''rent-to-own'' credits and InterTrust DRM is used to protect the content and provide the digital rights that have been determined by the content provider. Royalties for the content used is paid to the distribution network company and the content provider.
This model frees the content provider from micromanaging usage. For example, just as ESPN2 doesn''t have the account information for every subscriber - it leaves that to the cable providers to manage - Web content providers can get out of the business of accounting and focus on creating and delivering Web content.
Because of the reduced level of consumer protection afforded to credit card holders in Europe, and the coexistent lower level of credit card penetration there, paying with credit is a far less attractive option for most consumers. Some banks in Europe are even making high security smart card reader-enabled keyboards available to their customers to allow them to scan their own cards - giving the merchant the "swiped at the register" experience and audit trail - at home. Wave Systems is providing these keyboards.
Fees, Costs, Etc.
In order to get mass distribution of the EMBASSY chip, Wave Systems employs a subsidy model for its distribution partners such as the PC OEMs, which allows them to share in the services revenues generated through the chip. The new value chains for content, distribution, and services all participate in the transaction revenues. In addition, since the open, programmable EMBASSY chip can support an unlimited range of services through secure applets, it provides a new location for e-commerce delivery for many new services, each delivered independently from each other and Wave Systems.
Overall
When the world is ready for hardware-based shopper authentication, Wave Systems has a solution that seems to address all the concerns. For now, the distribution networks for broadband datacasting are under development, but for "rent-to-own" and other metered applications, it''s an excellent model. Also, with rampant piracy of all types of digital goods such as music and video, a hardware-based security model in users'' PCs is virtually certain to be deployed.
Pros: Guarantees a sale for the merchant. Non-repudiation of the purchase becomes a non-issue. Since the merchant pulls the money right off the hardware chip on the client, there''s no payment gateway to slow it down. Creates new alternatives for distribution of digital goods, such as broadcast Internet. Much better model of consumer privacy than most payment models on the Web.
Cons: Model is only ideal for a narrow niche of digital content providers at this point. Very few consumers currently have the hardware.
Alexis D. Gutzman is an E-commerce Technology Author and Consultant and author of The HTML 4 Bible, FrontPage 2000 Answers!, and ColdFusion 4 for Dummies. Her newest book, The E-commerce Arsenal: 12 Technologies You Need to Prevail in the Digital Arena will be out in October. She can be reached at agutzman@internet.com
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