[Editor’s note: As a New Year's exercise, we asked a select group of Xconomists to answer this question: “What’s the craziest idea out there that just might succeed?” ]

After nearly twenty years of failed attempts, I’m still a believer in the potential transformative power of the “crazy idea” of alternative Internet payment systems, particularly micropayment engines and alternate currencies.

Payment systems are simply mechanisms to streamline and calibrate the exchange of value. It’s easier to assess the relative worth of cloth from India and tobacco from America if you can translate both into standardized European coinage. Modern payment systems also provide simplicity and security through the use of trusted third-party settlement agents such as banks and credit card associations. But none of these mechanisms are built into our DNA, and there’s no reason to think that today’s systems are the final word.

In fact, the Internet brings with it the potential for so many innovative payment mechanisms as to threaten chaos. This chaotic prospect, combined with the inherent conservatism of payment system users and the understandable desire of payment providers to protect their turf, has so far doomed nearly every new payment system enabled by the Internet. The few exceptions—most notably PayPal—have survived in large part through a strong alliance with the existing players in credit cards and banking. PayPal is (like First Virtual before it) largely a security-conscious overlay on the existing credit card and banking systems.

That kind of limited innovation is more than enough for the powers that be—the large financial players who are more interested in maintaining their near-monopolies than in enabling new kinds of economic activity. Not surprisingly, however, the interests of the banks and card associations are not necessarily in sync with those of the rest of us.

From Digicash to Cybercash to BitCoin, there have been plenty of demonstrations of the technical feasability of alternative Internet payment mechanisms. And in the physical world, alternative currencies such as Ithaca Hours have hinted at the potential for a community to revitalize itself by taking control of its own money supply. In times of economic hardship like today, the poor and unemployed have traditionally reverted to barter to exchange goods in the absence of currency, but those transactions have been limited by geography and personal circles of trust. With Internet-based alternative currencies, however, … Next Page »

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San Diego’s Mitek Systems, which signaled its plans to move to the Nasdaq exchange a couple of months ago, says its shares will begin trading on Nasdaq Thursday. The move is an added bit of credibility for Mitek, which has emerged over the past two years as a leading provider of mobile payment and transaction technology that enables bank customers to make a deposit by transmitting an image of a check taken with a smartphone camera. Mitek says its mobile deposit technology is used or being implemented at six of the top 10 U.S. retail banks, as well as Charles Schwab, Fidelity Investments, PayPal, and other financial institutions.

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Dan O’Malley created a Web-based financial services company in 2008. Crazy, to put it in his words, since the financial markets were in meltdown mode. Now his startup, PerkStreet Financial, says it has more customers than half the banks and credit unions in the country each do.

Boston-based PerkStreet has gotten plenty of buzz for its debit card that gives consumers cash rewards without the debt or limits associated with credit cards. PerkStreet account holders just have to make one transaction on the account per month to avoid a $4.50 fee (which goes to services like access to more than 37,000 free ATMs across the country in places like 7-Eleven, CVS, and WalMart).

Customers can get rewards in the form of separate debit gift cards or gift cards to places like Starbucks or Amazon. Accounts with at least a $5,000 balance earn 2 percent cash back, and those below that cutoff earn 1 percent. Points can be redeemed at any time, and PerkStreet covers the cost of activating and shipping the cards. The PerkStreet card is designed to provide the rewards benefits of a credit card while preventing consumers from racking up debt. O’Malley says a debit card—which pulls from the money already in an account—helps consumers stay on track financially by spending only what they actually have.

O’Malley, a former Capital One exec, founded the company with a few other banking veterans to challenge the industry to pivot from its focus on credit cards and rich people to serving customers with more average incomes and spending habits. It seems to be catching on. In the last six months, PerkStreet says it has quadrupled its customer base and its revenue. And earlier this month, the company announced it had raised a $9 million financing round from Globespan Capital Partners and Highland Capital Partners.

But enough from me. Read the edited transcript below from my interview with O’Malley last week to get his take on the typical PerkStreet customer, future technology rollouts from the company, and why a debit card like his (unlimited 2 percent cash back) couldn’t happen at an existing bank.

Xconomy: What pushed you to first want to start PerkStreet?

Dan O’Malley: I was at Capital One for a pretty good long time. I had spent most of my time there focusing on credit cards and co-founding and building a business based on debit cards. My eyes were really opened to the fact that the lives of the average person are very different from the lives of the average banker. I honestly think that’s the reason we ended up in a bit of pickle as a country over the last few years. There’s nowhere that’s more apparent than debit cards.

People like to use debit cards because it lets you stay on top of what you’re spending. When I was at Capital One, it was interesting. I suggested forming a new line of business focused on debit cards. Every time we’d talk with other members of the executive team, they’d say, “Aren’t debit cards for stupid people, who don’t know you should use credit cards?” I have to say, that really pissed me off.

I knew a lot of people who used debit cards. That was really motivating for … Next Page »

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PerkStreet Financial, a Boston-based online banking startup offering a debit card with cash-back rewards, has raised $9 million in funding, according to report by Scott Kirsner of the Boston Globe, which the company confirmed later this morning. The money, which brings PerkStreet’s total funding pot to about $15 million, comes from Globespan Capital Partners and Highland Capital Partners.

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For years, Carbonite has been one of the compelling stories of the Boston-area tech scene. That story is about to get more compelling in 2011.

The online data-backup company, which launched its consumer service in 2006, has talked openly about its plans to file for an initial public offering later this year. In an in-depth profile last January, my colleague Wade wrote about Carbonite’s approach and history, as well as its broader business and marketing strategy and competition with Mozy (part of Hopkinton, MA-based storage giant EMC).

A year later, it seemed like a good time to check in with Carbonite to see how things are progressing—particularly in regard to the company’s proposed IPO, and its relatively recent move to focus on small businesses as well as consumers. The firm is led by serial entrepreneur and CEO David Friend, who co-founded five previous tech companies: ARP Instruments, Computer Pictures Corporation, Pilot Software, FaxNet, and Sonexis.

“We’re in the final stages of banker selection,” Friend told me a few weeks ago about Carbonite’s IPO progress. “We’re just marching ahead. We’re in no huge rush; we have quite a bit of money. We want to have top name bankers. We just have to continue to execute, continue to bring out new products, and expand internationally.” The prospective IPO, he says, depends mostly on Carbonite’s “ability to show we can do more of what we’re doing.”

Indeed, cash is not an issue for the company, which most recently closed a $20 million Series D venture round about a year ago, and has raised more than $67 million to date. More importantly, Carbonite has been doubling its revenue every year since 2006. The firm has about 160 employees in Boston, plus around 200 other full-time equivalents, Friend says.

Yesterday the company announced a series of promotions and hires to go along with a reorganization around its two main kinds of customers. Swami Kumaresan, formerly vice president of marketing, is now general manager of Carbonite’s consumer group, while Peter Lamson, formerly senior vice president at NameMedia, has joined Carbonite as general manager of its new small business group. And, rounding out the personnel moves, Bill Phelan from Intuit and Richard Surace from PlumChoice have joined Carbonite as vice presidents of product and services, respectively.

Carbonite’s focus on providing online backup for businesses (in addition to consumers) has grown over the past year or so. The significance of yesterday’s news is that the company’s business … Next Page »

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What do you get when you mix a digital media and marketing entrepreneur with a banking and real estate executive? Answer: Clovr Media, a Boston company that’s officially launching today with $1.5 million in seed funding from Kepha Partners and CommonAngels.

Founded by Tom Burgess, the former CEO of Third Screen Media, and Doug Spear, the former CEO of CSpot Networks, Clovr makes a software platform that enables banks and financial institutions to reach consumers through “card-linked offers” embedded directly in Web banners, text links, and mobile and video advertisements. That means you can click on a banner ad—potentially on Facebook or anywhere on the Web, not just on a bank or credit card site—and automatically get $25 off a Canon printer at Best Buy, say, when you use your registered card to buy it. (Clovr stands for “card linked offers with virtual redemption.”)

“We’re bringing card linked offers into the digital media space,” says Burgess, Clovr’s chief executive. “We create what the banks call ‘loyalty 2.0.’”

Indeed, Clovr sits at the intersection of two broader trends: more individualized digital rewards and loyalty programs, and more transparent analytics that let advertisers track exactly how well their online campaigns are performing. Other companies working in this area include Cardlytics, Edo Interactive, and OfferIQ, which all have slightly different approaches.

Clovr says one of its differentiators is that it has broader consumer reach—its offers aren’t tied to financial website ads or a specific card. Another advantage is that its platform allows a greater number of brands—tens of thousands, Burgess says—to benefit from card-linked offers. That’s because Clovr’s offers work at the individual product level (Bic pens), not at the merchant level (Staples).

The startup’s success will depend largely on the value of its software platform for banks and advertisers. Banks need to find ways to make money through loyalty programs instead of interchange fees. Advertisers should be able to use Clovr to tell whether a banner ad on Google, say, performed better than one on Facebook—by following through all the way to the point of store purchases. Clovr charges a per-transaction fee for advertisers and splits its revenue with banks.

“We can track the user and see transactions on a credit card. We’re partnered with a bank. We know when you went through a point of sale,” Burgess says. “Advertisers see 100 percent attribution.” As for any consumers worried about privacy, Burgess says the banks will retain all private information behind their firewalls.

Clovr has eight employees plus a half-dozen developers and contractors. The company is moving from Waltham to downtown Boston this week. At this point, Burgess says, the goal is to launch the website (which is live as of today) and introduce the Clovr platform. It’s still too early to announce any retail or financial partners, he says.

Burgess sounds like an entrepreneur who never forgets where he came from—which is good, since he’s built companies that have sold to the likes of Monster.com (CollegeLink) and AOL/Time Warner (Third Screen Media). “Six or seven months ago, we were two guys and a PowerPoint,” he says. “We went back and built something. Now we’ve come back to the market.”

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San Rafael, CA-based ClairMail, which makes mobile banking software for banks, credit unions, and card services companies, said today that it has raised $13.8 million in late stage funding. The round was led by Investor Growth Capital, a unit of Stockholm-based Investor AB. Joining the round were existing investors JAFCO Ventures, Norwest Venture Partners and Outlook Ventures. The company said it would use the funds “to grow its technology infrastructure and services capabilities to meet the growing demand for mobile financial services.”

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Lexington, MA-based Highland Capital Partners is the lead investor in a $7.5 million series B round for WePay, the group payments startup that emerged from the Mountain View, CA-based Y Combinator startup incubator last year.

WePay co-founders Rich Aberman and Bill Clerico confirmed news of the funding round, which was first reported tonight by the tech blog Mashable. “We’re very excited,” says Aberman.

The startup, which was born in Boston in 2009 and relocated to Silicon Valley after Aberman and Clerico were admitted to Y Combinator, opened its online payments service to the general public in March. (For the full story on the company, see this July 8 Xconomy Q&A with Aberman.) The service enables members of organizations such as fraternity houses or homeowner’s associations to handle joint expenses by creating group financial accounts. Members can send money to the account from their bank accounts or credit or debit accounts, and group coordinators can spend the money by check or using a special WePay credit card.

All funds are kept in FDIC-insured accounts at Minneapolis-based Bancorp, the nation’s sixth-largest bank. Aberman and Clerico argue that alternative ways of organizing group payments are awkward and old-fashioned, and that other online payment processors like PayPal have failed to address this need, leaving a big opening for WePay.

On the strength of that argument, WePay closed a $1.65 million Series A round last November, with August Capital and a high-profile group of angel investors contributing. Since then, “We’ve been operating at an extremely low burn rate and have plenty of cash in the bank,” says Clerico. “But we’ve seen some pretty impressive growth numbers, and we’re excited about the going-back-to-school season. So we wanted to make sure we have the capital to scale our operations, based on the demand we’re seeing.”

Fraternities, college clubs, and rooming groups have been signing up at high rates, Clerico and Aberman say. But WePay is also popular among non-profit groups and professional association. The founders say the services is used by groups as diverse as roller-derby clubs and groups of artists preparing projects for the Burning Man festival.

WePay’s B round was “extremely competitive,” according Clerico—the implication being that the startup turned away a number of eager venture investors, though he couldn’t name them due to confidentiality agreements. Highland won the lead spot in part because of a Boston College connection. Aberman and Clerico are both BC alums, as is Highland partner Peter Bell (who has now joined WePay’s board).

“Peter is actually a trustee at Boston College, and one of my first college internships was at one of Peter’s portfolio companies,” a small medical tourism company called HealthBase, Clerico says. “Peter has made great investments across the board, including Ocarina Networks and SCVNGR, and we have great respect for him as an investor and for Highland as a firm.”

August Capital returned for WePay’s B round. But Aberman and Clerico aren’t commenting on whether any of the startup’s stellar lineup of Series A angel investors—who included PayPal alumni Max Levchin and Dave McClure, former Googler Paul Buchheit, Swipely founder Angus Davis, and super-angel Ron Conway—also ponied up.

The Series B funds will help the company staff up. “We think that in this space, the best product wins, and the best product comes from having the best people building it,” says Clerico. “So we’re aggressively hiring engineers, and also staffing up in customer support and sales and marketing.”

Interestingly, six of the company’s nine current employees—counting Aberman and Clerico—hail from Boston, where Clerico says the startup has had the most recruiting success. The most recent addition is product manager Kyle Paice, whom WePay hired away from Cambridge, MA-based Hubspot.

“Out here I’m competing [for job candidates] with Facebook and Twitter and eBay and all of these big Internet companies,” says Clerico. “Boston doesn’t have that level of competition, but it has the same level of talent.”

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Seattle-based electronic signature automation software developer DocuSign said today it has joined in a partnership with web-based financial software company MeridianLink, out of Costa Mesa, CA. Through the deal MeridianLink, which offers online loan origination and account opening applications for consumers, will integrate DocuSign electronic signature capabilities into its existing system. DocuSign said the partnership will allow MeridianLink’s cloud-based financial services to become “fully paperless” for the 450 banks and credit unions, and 26,000 customers currently using its product. Financial terms of the deal were not disclosed.

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[Editor's note 2/3/10, 3:15 pm: Robert Kibble, who conducted the chat with Frank Quattrone at this event, took issue with aspects of this story. See comments below.]

At a time when the IPO market appears to be loosening a bit, controversial former investment banker Frank Quattrone appeared before a regular meeting of the San Diego Venture Group—and he had a lot to say about today’s outlook for IPOs.

Despite a promising increase in the pipeline of IPO deals, Quattrone told the San Diego crowd, “The IPO market is structurally damaged.” In contrast to the deals Quattrone saw in the late 1980s and early ’90s, when “some of the biggest names in the tech business were taken public by a small firm for less than $10 million,” Quattrone says a typical IPO these days seems to require big numbers and big-name underwriters, “including three co-managers and seven book-runners.”

Addressing the startup CEOs and VC partners in the audience of roughly 450 people, Quattrone said, “You guys think the only ones worthy of running your IPOs are Morgan Stanley and Goldman Sachs.”

Quattrone, who was Silicon Valley’s star banker for more than 15 years, said he yearns to return to a simpler era that existed before the tech boom of the late 1990s escalated into a casino mentality of ever-larger deals. He talked nostalgically about joining Morgan Stanley in 1977, when it was a private partnership with a thousand employees that provided only financial advisory services. Quattrone said that’s what he hoped to recreate when he founded Qatalyst Partners, a small merchant banking firm in San Francisco on March 19, 2008—”two days after Bear Stearns sold for $2 a share.”

In essence, Quattrone told the crowd the financial industry grew too large and too over-extended—with too many VCs and too many underwriters on too many deals—at a time when too many big investment firms had leveraged themselves at 30 or 40-to-1 on borrowed capital. He now predicts that the venture capital industry is going to shrink, “and only the best funds are going to survive.”

Quattrone’s star began shining brightly in 1995, when … Next Page »

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Where are we? And where are we going? Those are the questions we need to address and, if possible, answer as 2009 recedes and 2010 approaches—hopefully, bringing better markets and a better economy with it.

As you know, we’ve been trying to assess and analyze the ebb and flow of things for more than a year.

Back in Q4 2008, for example, we issued our first report in a series designed to help companies make sense of the uncertain economy. Earlier this year, we followed up with a group of interviews that helped show how promising technology companies were coping with financial anxiety. Now, in this installment, we’re going to talk about changes in the markets—both permanent and temporary—and what they mean going forward.

The key take-away is that raising equity dollars is—and will remain—difficult.

The second hard truth is that the venture capital model is broken. The past recession shined a bright light on that, and it’s clear that pension funds will not allocate a greater percentage of their diminished dollars to a non-performing asset class. As a result, the VC population will definitely shrink; expect these lowered numbers to be permanent.

The third reality is that capital efficiency is critical. The emerging facts are stark here: exit values will be lower; relatively few companies will make it public; and investors and strategic buyers will expect strong growth to earn lofty multiples. In the end, making the math work with existing and future VC funds will be tough because lower value exits will translate into fewer dollars paid into startup companies. This will also be a permanent change—although, as always, there will be certain deals that smack of insanity.

The fourth certainty is that those VCs left standing will be disciplined. They’ll stay in markets in which they have demonstrated expertise. And they’ll attach premiums to revenue quality, subscription models, high growth, and consistency while applying discounts to the pure license model with more modest growth. The days of 10x TTM (trailing twelve months) revenue multiples for software-as-a-service companies are gone.

The fifth fact that has resonated is that business is emotional; investors and CEOs won’t forget these brutal years anytime soon. And, as the environment continues to improve, companies that struggled through the past two years will look for ways to diminish their risk going forward. That means recaps, strategic partnerships, equity infusions, grants, and NRE (non-recurring expenses). My prediction is that this, too, will be a permanent change for the generation of business people who have endured the financial meltdown and its aftermath.

The sixth outcome is that the M&A market will rebound. A number of factors point to a robust year in M&A for 2010: companies have been hoarding cash and will use it for inorganic growth; valuations are still quite reasonable; quality companies now have the threat of an IPO, which drives buyers; and private equity and access to debt capital will eventually come back. We all know that the M&A markets are cyclical, and the down cycles are typically 2-3 years, while the up cycles typically are more like 5-6 years. So the time for a turnaround may be approaching.

In the meantime, at least the worst appears to be over; at least we’ve learned something from the recession; and at least some form and semblance of sobriety has returned to the world of equity formation. We should be thankful for that.

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First of all, the terms “downturn” and “recession” don’t do justice to the current climate, says early-stage tech investor Andy Sack. As he puts it, “This is the seminal event of our lifetimes. This is our World War II. I guarantee I’ll be talking to my grandchildren about the Depression of 2009-10: ‘Make sure you save.’”

Sack was speaking at the MIT Enterprise Forum Venture Lab event in downtown Seattle last night. He was joined by Michelle Jacobson Goldberg, a partner at Bellevue, WA-based Ignition Partners who is on the board of Mpire (maker of Widgetbucks), Visible Technologies, and SEOmoz. The room was packed with scores of entrepreneurs looking for financing advice. “It’s ugly out there, and raising money has never been f-ing harder,” Sack told them.

What’s interesting is that both Ignition and Founder’s Co-op, Sack’s seed-stage fund with Chris DeVore, have made investments in the past 90 days. Founder’s Co-op has made bets on Frugal Mechanic; LookStat, an analytics and workflow-automation startup focused on the microstock photography industry (this was news to me); and a new smartphone company that hasn’t been announced yet. Meanwhile, Ignition announced earlier this week that it has led a $10 million investment in Silicon Valley-based Zenprise, a mobile-management software firm.

Goldberg and Sack spoke for about an hour on their perspective as investors, what startups need to know to get funded these days, and what the hot (and not so hot) areas of investment are. Here’s my top 10 list of takeaways:

10. Valuations are way down. “Anything that’s early, if you used to raise $3 million, you might raise $1 million now,” Sack says. And count on a similar calculation for the valuation, he adds.

9. Investors are seeing more pitches than ever. “There’s been an incredible amount of deal flow,” Goldberg says. To which Sack adds, “Deals are getting done, but more slowly and with a higher bar…Deals getting done really have to resonate with a customer base.”

8. Your next financing is your last. “Everyone wants to see your break-even plan,” says Sack. “Financing risk is higher than technology risk.” And Goldberg adds, “Take the money … Next Page »

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MoneyAisle.com, a reverse-auction site where lenders compete to offer potential banking customers the highest rates for certificates of deposit and high-yield savings accounts, is getting a big boost from the financial industry itself. NeoSaej, the Burlington, MA-based company behind MoneyAisle (profiled here last month), said today that it has raised over $7 million in new funding, bringing its total financing to more than $10.5 million. The new round was led by an entity that neoSaej, in a news release, identified only as “a large Boston-based money management firm,” but Xconomy has learned from a source outside the company that it is Wellington Management, which oversees more than $550 billion in institutional assets.

Stata Venture Partners II and NeoNet also participated in the funding round. Mukesh Chatter, neoSaej president and CEO, said that the company plans to put the money toward expanding the MoneyAisle platform and beefing up marketing efforts. “We will use the funds primarily to develop additional applications in lending, enhance existing deposit applications, build up promotions and advertising, and recruit new team members,” Chatter tells Xconomy.

MoneyAisle has grown quickly since its June 9 launch. Customers put more than $1 million into CDs and savings accounts set up through the site in its first week alone. At least 72 banks have joined the MoneyAisle network. (Each member bank receives software that allows them to participate in neoSaej’s automated, real-time, Internet-based reverse auctions and to specify, among other things, how aggressively they’d like to bid against competing banks.)

Almost a quarter of the participating banks are in Michigan, where the company has established a strategic alliance with the Michigan Bankers Association. The association has agreed to promote MoneyAisle’s services to its member banks.

“The interest in the MoneyAisle site on the part of both consumers and the banking industry has been very gratifying,” Chatter said in neoSaej’s news release. “After being live for just one month, our consumers are receiving better rates than well-known banking aggregator sites for some of the most popular financial products on the market.”

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The Web has brought comparison shopping to nearly every corner of commerce, including banking. In fact, thanks to years of advertising, LendingTree’s tagline—”When Banks Compete, You Win”—is one of the most familiar on the Internet. But now a startup in Burlington, MA, is arguing that the “competition” on LendingTree and similar financial-industry websites is often rigged to favor the sites’ advertisers. What’s needed to even things out, the company says, is a real competition—one where financial institutions actively bid against one another for customers’ business.

And that’s exactly the service that the startup, neoSaej, is launching today after nearly two years in stealth mode. The company’s consumer-facing website, called MoneyAisle, is an entry point for “reverse auctions” where consumers specify which financial products they’re looking for, then sit back and wait to see which bank responds with the best offer.

At first, MoneyAisle is offering just two kinds of financial products, certificates of deposit and high-yield savings accounts. These products are simple to start off with, explains neoSaej founder and CEO Mukesh Chatter, because they only involve a few variables. The buyer specifies how much money they want to put into a CD or account, and over what time period (typically 6 or 12 months); then banks compete to offer the best interest rate.

“The key difference is the active competition and the buyer-centric auction—that’s what separates us from the rest of the crowd,” says Chatter. “Also, we’re completely free of advertising, so there is no influence from financial retailers whose links only show up because they paid the vendor for an ad.”

The idea for MoneyAisle was born three years ago when Chatter was searching for flat-screen TVs for his new house in Concord. “I went to Best Buy, Circuit City, and the comparison shopping sites and found a huge price variation,” Chatter recalls. “For 52-inch TVs the price varied from $2,800 to $4,200. That led me to say, why is it that every time you want to buy something you have to go through this comparison process? There has got to be a better way. I asked my wife, who is a much bigger shopper, and she said, ‘That’s the way life is, get used to it.’ A lot of other people said the same thing. But as an entrepreneur, you can either say, ‘That’s the way it is,’ or you can do something about it.”

What Chatter and partners Rohit Goyal, Bob Watterson, and Ray Stata (the co-founder and chairman of Analog Devices and a major benefactor behind MIT’s Ray and Maria Stata Center) decided to do was build an online system that lifted the burden of comparison shopping for commodity items off of consumers by allowing vendors to bid for their business. But the privately backed company, which now has 41 employees, couldn’t tackle the entire e-commerce world at once—so Chatter and his partners decided to focus first on the banking sector.

The choice made sense for several reasons. For one thing, most financial products are pure commodities—a 12-month, $50,000, FDIC-insured CD is the same no matter what bank you’re putting your money in. Just as important, banking was an industry where Chatter and his colleagues believed they’d be able to round up lots of participants for their reverse-auction platform. In the United States, a handful of mega-banks like Citibank (NYSE: C) and ING (NYSE: ING) spend hundreds of millions every year on marketing and advertising, driving up the cost of pay-per-click Web advertising and making the customer acquisition process very expensive for small- and medium-sized banks. At the mortgage comparison site BankRate.com, for example, ads for CDs cost advertisers roughly $6.50 per click, according to Chatter—and the “conversion rate” for such ads, the fraction that lead to actual purchases, is only 0.5 percent to 2 percent. Ads sold through Google’s AdSense network are even more expensive: $14 per click.

Small and mid-size banks “have to pay for those clicks in advance regardless of the conversion rate, and regardless of whether the person is going to deposit $2,000 or $20,000,” says Chatter. “So the INGs of the world are really eating away at their business, and there is nothing they can do to grow. It’s the same thing whether you want to raise deposits or give out loans or offer credit cards.”

In other words, Chatter and his partners see the Web’s existing comparison sites and advertising networks as expensive middlemen getting in the way of efficient connections between buyers and sellers of banking services. So, like good Internet entrepreneurs, they came up with a way to cut out those middlemen.

MoneyAisle is essentially an automated, Web-based reverse-auction platform with consumers on one side and banks on the other. Behind the scenes is a technology Chatter and his partners call “Seller Automated Engines” (the SAE in neoSaej). Say someone comes along with $10,000 in pocket change that they’d like to … Next Page »

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The Center for Future Banking announced yesterday by the MIT Media Lab and Bank of America is the trailblazing computer lab’s biggest corporate funding win in years—perhaps its biggest ever. But it also represents a new type of industry-academic collaboration for the Media Lab, one in which the company footing the bill will have more say over the questions researchers are studying than previous Media Lab sponsors have been afforded.

That’s the word from Media Lab director Frank Moss and MIT professor Deb Roy, the center’s founding director and principal investigator. I spoke with Moss and Roy yesterday, shortly after MIT released the news that Bank of America will commit at least $15 million, and possibly up to $25 million, over the next five years for research on the future of the banking industry—particularly the ways technology is changing consumers’ experiences of banking and their behavior around saving, spending, risk, and planning. Projects funded through the new center will involve areas as disparate as architect William Mitchell’s studies of the changing ways people interact inside network- and sensor-saturated public buildings and cognitive psychologist (and best-selling author) Dan Ariely’s work on why we often spend money unwisely and other forms of “predictably irrational” behavior. But in a break with past practices with sponsors, Bank of America will help choose the specific questions the researchers consider, and will send visiting fellows to participate directly in the research, according to Moss.

The center’s overall mission is to help the banking industry (and Bank of America in particular) look beyond innovations such as online banking and prepare for the field’s long-term future. “If you look at the big picture of banking for the past decade or 15 years, they have been in the process of re-architecting from the back office on out, with a new focus on consumer banking and consumer services,” Moss says. “They’ve done a great job at Bank of America and other banks of providing self-service access to back-office things that were previously only in the realm of people inside the bank. But the whole world that their customers are in is changing—and what those customers are doing is dramatically changing, as they change their social habits and engage in social networks, and communicate in different ways—and they are asking the question, ‘What is the next step beyond giving customers access to information?’ How can banks be a new factor in the lives of customers?”

These are exactly the kinds of question the Media Lab is used to asking about other industries, such as the news business, robotics, education, and entertainment. But beginning with the Bank of America partnership, it may be investigating these questions with a slightly more practical bent.

Throughout the 1980s and 1990s, under the leadership of co-founder Nicholas Negroponte (now director of the One Laptop Per Child Foundation), the Media Lab attracted a flood of industry research dollars—all in spite of a tradition of “open IP” that bars sponsors from having exclusive access to the work produced. But after Negroponte gave up executive leadership of the organization in 2000—and especially after the dot-com bust brought the days of abundant funding to an end—it appeared to many outsiders that the Media Lab was without a single strong leader who could sway contributors to loosen their purse-strings unconditionally.

When Moss was appointed director in February 2006, he said it was time to apply a business leader’s sensibility to solving the lab’s financial problems, and to better accommodate the needs of the lab’s sponsors. “What has changed over the past seven or eight years is that simply coming here and rubbing shoulders with very smart, creative people is often not enough for our sponsors,” Moss told MIT’s Technology Review magazine shortly after his appointment. “They need us to help them make a connection between … Next Page »

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If you live inside a Norman Rockwell painting or a Frank Capra movie, then perhaps everyone you interact with knows you by sight and can vouch for your identity. But in the real world, we tote around all sorts of digitally encoded data to verify that we’re entitled to carry out our daily business: the magstripes on our credit cards, the bar codes on movie and sports tickets, the RFID chips in the access cards and key fobs for offices and apartment buildings. Now Cambridge startup iCache wants to simplify things, storing all that data into one credit-card-sized gizmo called, logically enough, the iCache.

The device is part wallet, part Swiss Army knife. It stores personal data in encrypted form on internal microchips, and retrieves that information on demand in whatever format is needed. Want to charge dinner to your AmEx card? Choose that account from the menu on the device’s LCD display, and the card number will be temporarily recorded on the mag-stripe of a plastic card that slides out of the device. Downloaded an electronic dog-food coupon on your PC last night? Just call it up on the display and hand it to the pet store cashier, who can wave it over her barcode scanner.

But the catch in the i-Cache, excuse the pun, is that only the person who owns the data can retrieve it: the device won’t cough up a byte of data until it verifies the owner’s identity via a built-in fingreprint scanner. This supertight security, coupled with the device’s Jack-of-all-trades abilities, could mean an end to bulky wallets and purses, not to mention concerns about loss and theft. If your credentials are stored on an iCache, you don’t have to call dozens of credit card companies and other agencies to get all your old cards canceled and new ones issued. Just call iCache (or, more likely, your bank, since the devices will be distributed first to the platinum customers of big financial institutions), and a new device can be programmed and shipped overnight.

iCache CEO Jon Ramaci, a former member of the manufacturing and technical group at database giant Oracle, says the idea for the iCache device came from working with Oracle customers and watching where information flows—and jams up—in the electronic economy. Says Ramaci, “Every part of the economic flow, from the factory to the warehouse to the point of sale, is digitized today with the exception of the consumer, who is walking around with what amounts to a pocket full of insecure floppy disks—really, a 40- or 50-year-old technology.”

The fingerprint scanner is only the first layer of technology protecting personal data stored on the iCache from potential hackers and identity thieves. Data packets aren’t passed anywhere, even between the device’s subcomponents, unless a secure “header” based on the owner’s fingerprint scan is verified first. Components on the device can’t be replaced or tampered with, since they won’t talk to each other at all unless their signatures identify them as the same components the device was “born with” when it was manufactured. And though the card’s data is backed up on remote Web servers, it’s broken up into parts that can only be reconstituted on the device itself. The device far exceeds the security standards issued by Mastercard and other financial giants, Ramaci says. “A good two years’ worth of engineering went into this.”

A “major, major” bank whose name Ramaci says he is not yet at liberty to disclose just completed consumer tests of the iCache in Los Angeles and Chicago. Some 86 percent of users viewed the devices favorably, he says—a very high number in a market where a 20 percent rating is enough to get some products get launched.

Ramaci says that his company, which is backed by angel investors and is in the midst of Series A negotiations with venture capital firms, will announce distribution partnerships with banks and other organizations in early November. The first iCache devices could go out to these companies’ customers as early as the second quarter of 2008. “We’ve talked with many financial institutions, and one, they’re all looking for ways to create stickiness and deeper, more meaningful relationships with their customers,” he says. “Two, they’re looking to prevent a lot of the fraud that goes on now. We are leveraging that.”

ICache devices won’t be available for purchase, at least initially. So there are, apparently, some things money can’t buy. But Ramaci says he recognizes that certain early adopters—perhaps the same people who paid an extra $200 to get an Apple iPhone two months before everyone else (the author included)—will want their own iCaches to flash. “We are not ruling out a direct-to-consumer model,” he says. “We hope to have that by late 2008.”

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I’ve been using Quicken and Turbotax to manage my finances for so long that I don’t even blink at spending the $30 to $100 that Intuit extorts every year for the newest version of the programs. But for an entire generation of younger adults, spending that much on a piece of software that comes in a box —indeed, spending money on home-PC software, period—is unthinkable. (Though, paradoxically, they don’t seem to have a problem plunking down $60 for Gears of War on the Xbox 360).

This 18-to-34 age group is the target demographic for Geezeo, a personal-finance website and mobile-data service launched in January by Shawn Ward and Peter Glyman, veterans of tax-acccounting software company Gainskeeper. “For a lot of them there’s an expectation that you can find what you need on the Web, and there’s also a psychological thing where they say ‘I’m not going to use my parents’ Quicken,’” Glyman told me yesterday. Yet these people do have checking accounts, debit and credit cards, student loans, plenty of daily expenses, and lots of debt—all the ingredients that make for financial disaster, if managed carelessly.

Glyman and Ward, who have offices in Framingham, MA, designed Geezeo to help users control their spending, reach financial goals, and get advice from peers, using just their Web browsers and mobile phones. Once you’ve provided Geezeo with your personal information such as checking account numbers and banking passwords, the site’s back-end software will grab the latest transaction records from your bank and credit card companies and automatically tag each purchase; it will figure out that the $40 you spent at the Exxon station, for example, should be tagged “Gas.”

The automatically generated tags, which are analogous to the spending categories in Quicken, help users determine whether they’re spending too much on certain items, such as dining out. Because the same tags are used for all members, individual users can compare their spending in each category to average figures for other Geezeo users.

Geezeo’s mobile component allows members to access their accounts from their cell phones. If you’re out shopping and need to know whether you can afford that beautiful 42-inch high-definition TV, texting “geezeo” to 4-1411 will elicit a return message with your current account balances.

Ward and Glyman say they started from the premise that young people today need help managing their money, especially given their propensity to pay for everything using a debit or credit card. “Debt levels are astronomical, savings rates are at an all-time low, consumption is at an all-time high, and there are just more and more creative products to buy, which helps people get deeper into debt,” says Ward.

Geezeo earns revenue by generating sales leads for banks and credit-card companies, based on its own analysis of how members’ accounts are performing. “If you have a savings account and you’re getting a bad rate, for example, we’ll identify a better product for you, based on product data we have and feedback from other users,” Glyman explains. For every member who switches to a new financial institution, Geezeo collects a bounty.

Glyman and Ward launched their service in October 2006 under the name DebtFolio. At first, the business focused only on helping users manage their credit card debt. “But we realized that you can’t just look at the debt side—you really need the whole picture, all of a person’s finances, to help them with product recommendations,” Ward says. The company quickly rebranded itself early this year under the more playful name Geezeo—a riff on G for Grand, as in “You owe me 10 G’s”—and added the ability to track bank accounts, loans, mortgages, and (coming soon) brokerage accounts.

The company also launched mobile and social features to capitalize on the interactive “Web 2.0″ trends attracting so many users to online services. In addition to seeing how other members spend their money (in aggregate—no individual data is revealed), users can submit personal goals such as “Pay off my American Express” or “Stop buying useless s–t” and exchange advice and encouragement with others who’ve listed the same goals. They can also join discussion groups with themes like “Broke Photographers” and “Boston on a Budget.”

Ward and Glyman won’t say how many members Geezeo has signed up so far. But because of its huge student population, the Boston area is an ideal launching pad for the company, says Ward. “With all the colleges in the Boston area and close by, you couldn’t ask for a better demographic,” he says. “But what doesn’t get recognized is that there’s also a really strong entrepreneurial movement going on in Boston, with lots of events and energy and investment. Those two factors together make it a perfect time for us.”

The company is in the final stages of arranging angel funding and will soon enter a venture funding round, say Glyman and Ward. And while the company’s current focus is on acquiring more members and rolling out new features, hopes for a liquidity event sometime in the future are certainly on the minds of the co-founders. They point out that credit-reporting giant Experian purchased debt-consolidation site LowerMyBills.com in 2005 for $330 million. “Certainly, there is an opportunity for Geezeo to be the next Intuit,” says Glyman. Just without the boxed software.

CORRECTION 10 Aug. 2007: The original version of this story, Shawn Ward’s name was misspelled Shawn Ford. The author regrets the error, particularly because his hard-of-hearing great-grandmother used to call him Ward.

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