Harris Interactive and Nickelodeon Online estimate that 68 percent of all 13-to 18-year-olds in the United States are now online. About 50 percent spend an average of 8.5 hours a week on the Internet. What are they doing there? The primary reason for going online is e-mail. Other reasons include researching information, playing games, using chat rooms, and downloading music or videos. It’s the same picture in the United Kingdom. Surveys indicate that over 75 percent of 13- to 16-year-olds in the United Kingdom are now online. Like their U.S. counterparts, teenagers in the United Kingdom are doing homework, sending and receiving e-mail, and playing games. In either case, what they aren’t doing is shopping. They spend time researching potential purchases, but they don't spend money online. In the United States, teenagers spent somewhere between $110 to $140 billion dollars last year. Of this, less than 1 percent was spent online. When they did spend money, they were likely to purchase CDs, clothing, books, software, and toys in that order. This isn’t much different than the pattern for adults where the top five purchases were books, CDs, software, toys, and clothing in that order.

Teenagers cite a number of reasons why they don’t shop online -they can’t touch the products, it’s hard to return items purchased on the Web, they don’t have the money, and it’s insecure. The number one reason, however, is that their parents won’t let them. Or, more specifically, their parents won’t let them use their credit cards online. Just like their parents, when teens purchase something online they use credit cards. Because only 10 percent of U.S. teenagers have their own credit cards, this means that they have to use their parents’ credit cards even if they have the cash to make a purchase. The fact that teenage consumers aren’t independent creates challenges for online merchants. It also creates opportunities for firms who can come up with creative ways for teenagers to make purchases without relying on credit cards.

One firm that is addressing this opportunity is InternetCash. InternetCash is a New York-based start-up founded by a former steelworker, Charles Doherty. InternetCash offers prepaid stored-value cards sold in amounts of $10, $20, $50, and $100 at retail outlets. Like prepaid phone cards, they must be activated to work. This is a two-step process. First the merchant swipes the card through a specially programmed POS machine. Next, the user logs on to the InternetCash Web site (lntemetCash.com), enters a 20-digit code from the back of the card, and creates a personal identification number (PIN). That gives them shopping privileges at designated stores, which carry an InternetCash icon. Purchases are automatically deducted from the value of the card. When the value is used up, consumers throw it away, or link an amount not used to another card. As with cash, InternetCash’s transactions are anonymous.

InternetCash has a number of competitors including IcanBuy.com, Doughnet.com, and Rocketcash.com who have already signed some major retailers such as CDNow, Amazon.com, and BarnesandNoble.com. Even if they didn’t have any competitors, InternetCash would still be facing enormous obstacles. It’s the old “chicken-and-egg” problem. First, they have to find retailers to distribute the cards. InternetCash is aiming for 30,000 outlets. The bait for the retailers is that it costs the retailers nothing to handle the cards. Instead, they receive 6 percent of the value of the card sold. Until recently, the cards were only distributed by a handful of retailers. In October 2000, they signed a partnership agreement with PaySmart America who will distribute the cards in over 5,000 PaySmart locations in 11 states. PaySmart is part of TSI Communications, the largest independent distributor of prepaid calling cards in the United States.

The second obstacle they face is trying to persuade merchants to accept the card for online purchases. This is a harder task since InternetCash charges commissions of 2.25 percent to 10 percent of sales. At last count, InternetCash had signed 150 merchants. The bulk of these were smaller businesses. In June they formed an alliance with JustWebit.com, a supplier of EC software for small businesses. Through the deal, JustWebit.com was to set up its merchant clients to accept InternetCash’s cards for purchases on their sites. The results have been mixed since JustWebit.com has experienced an economic downturn since the alliance was formed.

Other InternetCash ventures in the works include U.S.-to-Mexico money transfers through the Internet using plastic cards with transferable balances, and a partnership for kiosk-based EC and money transfer using convenience store and check cashing outlet locations as a base.

Charles Doherty, the CEO, expects the company to break even by the middle of 2001 with revenues near $19 million. That means InternetCash will have to sell $100 million worth of cards in 2001 or somewhere between 100,000 to 1,000,000 cards. It’s a daunting task. InternetCash and other vendors of e-cash products could also face some serious legal issues. For the moment they exist in a gray area regulated by individual state laws where the cards are used. The Federal Reserve is looking into treating these companies more like banks, which would open them up to a whole series of banking and depository institution regulations.