Big Apple not ready to abandon cash, trial finds

Good old-fashioned cash is unlikely to be replaced by anything electronic just yet. A little more than a year ago this column featured a smart-card trial that was taking place on the upper west side of Manhattan. Twelve months later the trial has been deemed a failure and on December 31st will be shelved by its sponsors - MasterCard International, Visa USA, Citibank and Chase Manhattan Bank.

Smart cards are cards embedded with electronic chips. In this trial, people could transfer money from their bank accounts on to Visa Cash or MasterCard's Mondex cards at ATMs or buy them pre-loaded with money. They could then reload the cards when the money ran out.

Nearly 100,000 people were issued with these cards. The organisers thought they would use them particularly for small dollar purchases at local shops as they would be less cumbersome than bills and coins. In reality, however, few of the people who loaded the smart card in the first place, went to the trouble of reloading it and consumers reportedly found the cash-loading process cumbersome.

With so few using their smart cards, a third of the 600 merchants who originally signed up for the trial dropped out. About $1 million (£678,000) was spent using the cards - 30 per cent of that use was at smartcard readers on laundry machines in apartment buildings. Cardholders also chose to use the cards at grocery stores where credit and debit cards are already accepted.

The sponsors of the project concluded that several conditions were lacking for smart-card success in the US. "These include further advances in inter-operability, expansion of venues into more geographies, and the emergence of unattended applications such as telephones, parking meters, and transit systems," they said in a joint statement.

"All parties will continue to develop and test a variety of smart-card programs in 1999."

Chase and Citibank have said the customers have until six months after card expiration dates to unload any remaining value at branches, ATMs or merchant kiosks.

The failure of the New York smart-card trial is yet another indication that cards stored with value have yet to find a business case.

Last year, MasterCard closed down the Mondex smart-card trial in Swindon, England, and it is also ending a similar trial in Ontario, Canada. And when Visa first introduced the Visa Cash stored value card at the Olympic Games in Atlanta in 1996, usage there was disappointing.

This week in Ennis, Co Clare, Visa Cash launched the first such trial in Ireland. Initial reaction from retailers has been mixed.

One area, though, where smart cards seem to be adopted with some success is in closed environments such as universities and military bases.

Throughout the US on some campuses, smart cards are being used to control access to buildings, such as the library, to pay for food at canteens and in vending machines on campus. In some cases, when these cards are issued to first-year students as identification cards but with other functions, they then have a reason to use them - for example, to buy books in the college bookstore.

The problem with the New York trial was that there wasn't a critical mass of people using the cards throughout the city. If people left the upper west side they couldn't use the cards anywhere else. While that trial is ending, another has taken off. The introduction of the MetroCard last year has matched expectations.

Although not a smart card, but a magnetic stripe card, it has replaced metal tokens for use on buses and subway trains. Given a huge advertising campaign and incentives such as free rides with $15 or more on a card, New Yorkers have increasingly taken to using the MetroCard and its function is soon going to be adapted for use on phones.

It is perhaps yet another indication that what consumers want most of all is convenience and different ways to pay. A Dutch company, DigiCash, that set its sights on the use of electronic cash for small value purchases on the Internet, this month filed for bankruptcy.

The problem with DigiCash, said Mr David Stewart, vice-president of consulting firm Global Concepts in Georgia, was that it offered an electronic cash scheme that was Internet only.

It worked like a credit card in that it needed online authorisation in order for electronic cash transactions to clear, rather than a more flexible, off-line system.

Mercantile Bank in St Louis, Missouri was DigiCash's only US customer, although it had signed some international banks.

One reason for the system's failure, said Mr Larry Kirschner, senior vice-president of foreign exchange at Mercantile Bank, was that it was designed to capitalise on the perceived insecurity people had in using their credit cards over the Internet.

"The reality was they didn't have any insecurity and did use their credit cards on the Internet," he said.

Mercantile had 5,000 customers of the ecash system and they held "significantly less" than $100,000 in their e-cash accounts. "The revenue stream was not there, the demand was not there from our customers and, quite frankly, it was not going to be there," Mr Kirschner said.

DigiCash's failure does not indicate that there is any less enthusiasm for Internet commerce, said Mr Richard Crone, vice-president of CyberCash, DigiCash's main competitor.

"There's a great lesson in it," he said, "you must match the payment type to the application being sold." DigiCash's drawback, he said, was to concentrate on one payment type - credit cards. CyberCash, on the other hand, offers three forms of payment - cash (pay before), cheque (pay now) and the credit card (pay later).

"As the applications for credit card and cheque continue to grow we need to wait for applications for electronic cash," said Mr Crone. "We're looking for a compelling application on the Internet to motivate people to fund a purchase in advance rather than now or later."