In contrast, most proprietary credit card solutions as well as so-called electronic currencies will fair poorly, the study predicts. Internet use of smart cards will also lag because relatively few of the cards are in use, and PCs are currently not equipped to read them.

The Electronic Payment Systems study, conducted by SRI's Media Futures Program, finds that the best long-term alternative to SET will come from the banking industry; for example, from electronic drafts that let customers use their existing checking accounts for peer-to-peer or customer-to-merchant transfers over the Internet. Electronic-draft solutions, such as Financial Services Technology Consortium's e-check program, will initially target business-to-business applications but will eventually be used in consumer transactions.

Secure electronic payment systems are critical to the long-term growth of Internet commerce. Surveys of consumers have consistently found that concerns about security are one of the chief reasons that many Internet users don't make purchases over the Internet.

However, Internet payment system's success with consumers depends upon whether they are reliable, convenient and ensure a level of security comparable to phone or mail-based payments.

According to SRI Consulting, the SET standard, now in trials with select banks and merchants worldwide, is best positioned to play the role of securing Internet payments because it has a host of advantages over other proposed solutions. Besides the clout of its many sponsors, SET has links to existing processing systems, millions of credit card accounts and a greater ability to distribute marketing costs and fraud risks widely.

Another important advantage to SET is that it can be tailored to the requirements of particular countries. For example, in Japan, at the time of purchase customers specify whether they will pay a lump sum during the semiannual bonus season, pay a fixed number of installments or maintain a revolving credit obligation. While it is also possible for non-SET solutions to be tailored to regional differences, these solutions will be less well-financed than SET and draw on fewer software development resources.

Electronic currencies, such as those offered by DigiCash, Millicent, and CyberCash, will have to battle for niche applications that SET-based solutions leave unserved. These niche applications will involve purchases below $5, an amount currently not cost-effective for credit card systems to handle. However, even here there may be less need for so-called micropayment systems than their proponents hope. Many of the items of content or services that would cost under $5 are likely to be given away as part of promotions or advertising. Moreover, consumers may also choose to buy through tokens or subscriptions, using their credit card, rather than making a series of small purchases using electronic "coins." Finally, competition between SET and bank-based electronic drafts will lower costs, allowing them to reach deeper into the small transaction segment of the market.

SRI Consulting's Media Futures Program examines the commercial impact of emerging media technologies through a synthesis of technical evaluation, business and regulatory analysis and original user-demand research to give clients a comprehensive perspective on opportunities in new media. The Electronic Payment Systems study is part of a subscription service--Advanced Digital Media: 1997-98--that provides in-depth --> --analysis of emerging digital information, communications and --> --entertainment products and services worldwide in consumer and --> --business settings.

SRI Consulting, a wholly owned subsidiary of SRI International, combines strategic business consulting with technology expertise to help companies compete more effectively in changing global markets. SRI International is one of the world's largest research, technology development and consulting firms.