Stellar Startups: E-wallet security, dongle style

Israeli start-up Cell-apps has developed Cell-cash - an electronic cash-transfer system that lets people use cellphones to pay each other.

cell phones 88 224 (photo credit: Courtesy)
cell phones 88 224
(photo credit: Courtesy)
The customer dials a number at the start and end of service, and the amount owed is added to the customer's cellphone bill and transferred to the service provider What do you do if you want to buy something from a store where they don't take credit cards? Pay cash, of course! Okay, but what if you want to buy something really big - say, a car - and the person you're buying it from doesn't trust banks; no checks accepted, no credit cards, no nothing, just plain old cash. And they live in a bad neighborhood - which makes you very nervous about shlepping around big amounts of cash. Now what? The scenario I've just described is not from the anti-bank gold bug Luddite playbook, but a reasonably realistic description of how business is done in much of Eastern Europe and former Soviet Union states, says Michah Himmelman, president and CEO of Israeli start-up Cell-apps (http://www.cell-apps.com/). "For various reasons, consumers just don't trust banks in these countries, and even those that do, find that the services they provide often don't match their needs," he says. That's why, Himmelman says, he helped develop the company's chief product, Cell-cash - an electronic cash-transfer system that lets people use cellphones to pay each other. It's somewhat similar to systems in use in various places (including Israel) that let purchasers of services - like time in municipal parking spaces - pay via cellphone transfer. The customer dials a number at the start and end of service, and the amount owed is added to the customer's cellphone bill and transferred to the service provider. "Cell-cash provides a mobile, secure e-wallet service," Himmelman says. "Customers can transfer money to merchants, for example, via a cellphone payment. It's basically a means to conduct a cash transfer from a bank account or credit card linked to the wallet, into the account of the person you're doing business with - very much like a debit card." But what makes Cell-app's solution unique is the level of security in the transfer - and that explains the Eastern European connection. "Cell-cash requires two elements - a cellphone and a special bluetooth security dongle, carried separately from the phone," Himmelman says. "In other words, losing the phone doesn't compromise security in any way; there is no sensitive information stored there. And forgetting the dongle at home means that it can't be used in any way, since it's linked to one specific phone." The dongle is meant to be placed on a key ring or key chain, he says. And the fact that it's a bluetooth system increases the level of security - because the dongle won't work unless it's in bluetooth proximity of the phone, like a bluetooth earphone. And if you switch phones, you simply pair the new phone with the dongle, like any other bluetooth device. "You might lose your phone, and you might forget your keys somewhere," Himmelman says. "But the likelihood of losing both items in the same place, with a thief knowing how Cell-cash works, is infinitesimally low. The patented security dongle system increases protection from theft or loss of the phone, making Cell-Cash the only truly secure mobile wallet." And while increased security for electronic cash transfers would work well anywhere, it's been an extremely big hit in Eastern Europe. Communism is long gone, but the top-heavy bureaucracy and concentration on serving large, state-sponsored businesses is a legacy that lives on in the banking system. "Most banks in the region aren't sophisticated enough to meet the demands of modern electronic banking, whether from an infrastructure or cultural aspect," Himmelman says. "And because of lingering mistrust in large, state-sponsored institutions, residents of these countries just don't trust the banks." And with good reason - bank fraud is rampant in Eastern Europe, and the "once bitten, twice shy" rule applies there in spades. Cell-apps, on the other hand, puts the consumer in control. "The money doesn't float around in cyberspace, but is transferred from one party to the other immediately," Himmelman says. Plus, the dongle gives the customer the feeling that he or she has a security key they can look after and keep safe themselves - which they essentially do - instead of having to rely on the dubious kindnesses of others. And where the banking system in former Eastern bloc countries leaves much to be desired, the cellphone infrastructure is among the best in the world. Russia and Ukraine, for example, "has a cellphone infrastructure far better than that in the US and even better than Israel's," Himmelman says. The system works not just for consumers, "it's a great, secure B2B payment system as well," he adds. The Cell-apps system has just gone through a very successful testing phase (the company is about a year-and-a-half old) and is on the verge of signing "two big deals with significant players in Eastern Europe," Himmelman says. The company sees much opportunity and much room for expansion. "The potential is awesome - for example, guest workers would be able to use Cell-cash to transfer money home, avoiding the hassle and unpleasantness they often face wiring money to their families," he says. "That market alone was worth $300 billion in 2006 - $25b. of it in the Eastern bloc - with more than 150 billion electronic payment transactions worldwide, just among migrant workers." One could assume that at least some of them - as well as the billions of others who do business electronically - would be interested in the unique, secure system Cell-apps provides. [email protected]