Program Leaves E-Cash Future Uncertain

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It hasn't been a great month for smart cards. On the heels of allegations by the Justice Department that Visa and MasterCard colluded to hold back smart card development, a pilot program involving both companies, Citibank and Chase in New York City ended with mixed results.

The banks succeeded in creating a reader that accepted different types of smart cards, but infrastructure problems with merchants and fading interest from consumers for the card as a payment alternative led the participants to abandon plans for a national rollout.

Meanwhile, American Express yesterday unveiled electronic retail gift cards, which use magnetic stripe technology. The cards, positioned as replacements to in-store paper gift certificates, are available nationwide at Chanel boutiques and Tower Records. More partner announcements are expected early next year.

AmEx, New York, chose a stripe card over a chip-based card for its ease of use and immediate application. While chip cards require special point-of-sale infrastructure, stripe cards can be filled at existing terminals. The company estimates that electronic gift cards have the potential to become a $13 billion product category.

While the results from the pilot program don't bode well for smart cards as stored value vehicles, the cards are succeeding at other functions. Three million smart cards are now deployed in the United States, according to the Smart Card Forum, McLean, VA. They are in use on military bases, college campuses and laundromats, yet the best applications for direct marketers appear to be loyalty and incentive programs.

Chase has used the infrastructure from the New York pilot to implement a loyalty program at Burger King franchises on New York's Long Island.

"A stand-alone stored-value application is not likely to be a big hit with consumers," said Smart Card Forum chairman William J. Barr. "Where we see the value of stored value is in combination with other applications."

AmEx is conducting pilots with Hilton, American Airlines and Continental Airlines that use smart cards to expedite hotel registration at lobby kiosks and airline ticketing at special card readers. The Continental program also has a loyalty element that allows users, primarily business travelers, access to the Presidents Club lounge at airports.

It's such group applications with strong affinity relationships where Barr predicted branding of smart cards will develop.

If accepted by consumers -- a Smart Card Forum poll earlier this year showed that 76 percent were interested, 31 percent very interested -- smart cards would be marketed in much the same way as credit cards, through direct mail solicitations and the Internet. In addition to branding a physical card, services that could be programmed onto the card would be promoted. Smart cards also can provide a secure payment environment for e-commerce transactions, especially for business-to-business.

"Significantly increased security is very important to e-commerce," Barr said. "You will see deployment grow as the success of e-commerce grows."
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