If you’ve done any shopping online you will notice that e-commerce can fall into three categories: sites that ask you to send in your payment, sites that collect and process your credit card information online, and third party money handlers that use digital cash.

The digital cash idea never really became popular until online auctions became more accepted. The need for a quick and reassuring way to exchange funds for goods spurred the development of today’s digital cash systems.

Once the right need arose, dozens of services sprang up to fill it. But many digital cash services have suffered from the recent Internet fallout. Once-promising services, including Flooz.com, PayPlace, and CyberCash have all become extinct. Others have set their sights on different goals, regrouping to focus on other financial services.

Through the service, users transfer funds from one bank account or credit card to another. (Most services require recipients to register in order to collect their payment.) Digital cash takes some of the worry out of buying from (or selling to) strangers by guaranteeing sellers that the buyer has made payments and being a trusted intermediary to whom buyers can give their bank account and credit card information. Digital cash also provides an alternative payment option for consumers who don’t want or can’t get credit cards. Below are the three top digital cash providers.

With more than 10 million customers PayPal (http://www.paypal.com) is the most used digital cash system. PayPal lets you send money to or request money from anyone with an e-mail address. You can also sell or buy items online by setting up a PayPal-powered shopping cart on your site or using PayPal to accept or send payments on auction sites.

Sending money with PayPal is easy. Enter the recipient’s e-mail address and the amount you want to send. PayPal will send an e-mail to the recipient, with instructions for picking up the money. When the recipient logs in to PayPal, the amount of money you sent will appear in their account balance. They can then transfer the funds to a checking account, request a check from PayPal, or pass the money along to someone else.

Requesting money is just as easy. Enter the e-mail address of the recipient, the amount of the bill, and an optional message. PayPal will generate a bill and e-mail it to the target recipient(s). The e-mail includes a link back to PayPal, making it easy for recipients to send you their cash. You have access to a history of the transaction, including the ability to send a gentle reminder or have a change of heart and cancel the transaction.

PayPal was made to collect payments from online auctions and offers advanced services for users who want to sell products. Automatic payment requests let you send invoices for closed auctions on eBay or Yahoo!. PayPal can also be used to collect payments or donations from your website.

ACHEX/WESTERN UNION MONEYZAP

When you think of sending money, Western Union is probably the first name that comes to mind. Achex combined with Western Union hopes that name recognition will continue to work for it as it enters the digital cash business with MoneyZap (http://www.achex.com). Like PayPal, MoneyZap lets you send money to or receive money from anyone with an e-mail address. MoneyZap also offers tools for online auctions and business websites with products for sale.

If you are sending money enter the name and e-mail address of the recipient, the amount you want to send, and the method of payment (credit card, debit card, check, or Money-Zap wallet). Using existing funds from your MoneyZap wallets provides instant availability of funds for the recipient.

If you would like to request money enter the target’s name and e-mail address and a request description. The e-mail includes a link the recipient can use to get to the MoneyZap site and make the payment.

You can even add MoneyZap to your own site. While not a full-fledged shopping cart, the MoneyZap tools still simplify the payment process. Your customer will see a form with the product description, its cost, shipping charges, and your e-mail address.

YAHOO! PAYDIRECT

Yahoo! PayDirect (http://paydirect.yahoo.com) currently doesn’t charge any fees for sending, receiving, or requesting money, although there are transaction limits based on your account status.

When you log in, you’ll see an overview of your account (Request For Money, Money To Accept, Pending Transactions, and Transaction History). Enter the name and e-mail address of the recipient, the amount you want to send, and a message, if any. An optional identity confirmation protocol lets you confirm the identity of the recipient, this comes in handy when sending money to someone who shares a computer, such as a son or daughter at college. The system lets you send a question to the recipient. If the recipient answers the question correctly, you can feel comfortable in sending the money. If the recipient answers the question incorrectly or you’re not sure about the response, you can cancel the transaction.

LIVING UP TO ITS PROMISE

Digital cash has had its ups and downs, but it’s finally starting to become an accepted option for making purchases at websites and is thriving in the online auction market. Individuals and small businesses need a way to collect payments without setting up expensive merchant accounts to accept credit card payments. With auctions legitimizing its use, digital cash is now ready to branch out into other services.

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