FIRST VIRTUAL: Internet Payment System

First Virtual was one of the first Internet payment systems to be available to the public, announced as a fully operational open Internet service in 1994 and “First Virtual Holdings” was the company to facilitate this first Internet commerce service.

This is a very elegant, well conceived, low-tech system, built on top of the Credit Card infrastructure. It avoids card numbers ever being sent over the Internet or disclosed to merchants, and it allows the purchaser to confirm the payment. The purchaser must be reachable by e-mail. Amazingly, it uses no encryption.

How?  The customer gives their card number to the First Virtual Bank by phoning up a particular number and typing it into a touch phone. In return they are assigned a PIN password. The merchant must be registered with First Virtual, and must have a bank account able to accept payments by the ACH (Automated Clearing House) system; that is to say, a U.S. bank account.

When the customer makes an order, they give the merchant their PIN password. The merchant then contacts First Virtual, quotes them the PIN and asks for the money. First Virtual send the customer an e-mail asking for their OK. The customer replies either "Yes", "No" or "Fraud", and if the reply is "Yes" the transaction goes through.

Start-up objectives of First Virtual Payment System:-

1.        Focus on Internet Information Commerce. What we here call Virtual Goods Commerce.

2.        Never exchange or keep financial information on the Internet.

●      This makes it very hard for hackers to steal any info.

●      There is simply no access path from the Internet to this data.

3.         Provide Security, but do not use cryptography.

 FV security was provided with other means. Namely, it is very hard to

intercept Email addressed to an individual, and then prevent it from also

being delivered to the addressed recipient and then fake a reply to FV

saying "YES", which the FV PIN holder never sees.

FV never had a case of receiving a false Yes..

4.        No Special Software required. Buyers just use regular browsers and Email.

●      This was a general result of avoiding complexity of use.

5.        Worked with the available WEB, FTP, and Email system and tools.

●      The KISS Principle: "Keep It Simple, Stupid"

6.       High degree of privacy.

●      Sellers should not need to know the buyer's personal information, other than the buyer's "Virtual PIN" account identifier.

●      However, some FV employees had access to user's data, and FV kept histories of user behavior to control rampant non-payment.

Assumptions based on 3 fundamental assumptions.

●      First, electronic information merchants can produce as many or few copies of any information product at no incremental cost per copy because once the information has been developed and offered for sale once, the cost of selling it again is virtually zero.

●      Second, information-buyers like buyers of any other product need some way to examine products before they buy.

●      Finally, buying and selling should be simple and have as low an entry cost in time, money and effort as possible.

These assumptions lead to certain conclusions, which produce a different view of the information marketplace than that taken by most other commerce providers:

1.  Because there is no cost or negligible cost associated with sending out a copy of the information being sold, “returns” or “stolen goods” don’t in fact cost the merchant anything.

2. Information products are sold “on approval” with the customer required to explicitly reply either yes or no to a request for payment, but only after having received a copy of the information.

3. Information products can be sold through virtually any Internet application and do not require vendors or buyers to buy special software. More important, first virtual offers facilities to individuals to sell information online for very minimal cost

 The First Virtual payment system has several advantages and disadvantages over other payment systems used on the Internet.

Advantages:

●      Neither buyer or seller needs to install any software in order to use the system.

●      Buyers are virtually 100 % protected from fraud. No charges are processed against their account without their confirmation.

●      Purchases are essentially anonymous. The merchant is never given the buyer's name from First Virtual.

●      It is extremely easy to become a merchant, or seller, under First Virtual. First Virtual does not screen merchants, nor do they require merchants to have a special business accounts established with a bank. All a person needs to sell merchandise, services, data, etc.. over the Internet is an ordinary checking account.

●      First Virtual has very low processing fees compared to other Internet payment schemes or even straight credit card processing.

Disadvantages:

●      Merchant assumes all risk!

●      Extremely long waiting period between when a sale is made and when payment is deposited in the merchant's account.