Do You Still Accept Cash Here?

Today's retail environment is tougher than ever. Consumers are demanding more convenience and service, lower prices and faster distribution channels. New competitors are proliferating. And major market trends like globalization and technology are affecting all of us.

The good news is that in this era of hypercompetition, some powerful new business tools for the retail industry are emerging — things like electronic commerce, data mining and electronic bill payments.

One of the most exciting new tools to evolve for retailers and consumers alike is the “smart card” or chip card — a payment card that combines features of debit, credit, stored value, and nonfinancial services (such as frequent shopper rewards) on a single chip. Chip cards offer amazing potential to create payment efficiencies, expand into new markets and deepen customer relationships. Many retailers are wondering how chip cards can increase their competitive advantage and if they should join this new technology bandwagon. The short answer: Absolutely.

Cost efficiencies and convenience: Chip cards offer superior solutions for merchants and consumers as efficient, flexible and multipurpose tools with 80 times more memory capacity and higher security standards than magnetic strip cards. Chip cards offer more than payment capabilities. They can affect an entire transaction at point of sale by helping merchants accurately record shopper preferences and present real-time rewards. They also offer a platform to create personal relationship cards, with the ability to house everything from driver's license and travel information to health insurance data. This type of payment and information system will offer retailers and consumers convenience, security and efficiency that cash and checks can't match. Today the chip card is in your wallet. Tomorrow it will be your wallet.

Visa Cash is one example where chip technology is already at work. It's a payment product that stores monetary value on a chip, either in a set denomination or on a “reloadable” card in variable amounts. Consumers can add value to reloadable cards at specialized terminals, ATMs or with home-load devices. For consumers, the primary benefit is convenience — shoppers can make smaller purchases, such as a cup of coffee or a movie ticket, without having to carry cash or make inconvenient trips to an ATM. It's also an ideal “micropayment” product for shoppers who are buying small-ticket items on the Internet.

Customer loyalty: Chip cards contain microprocessors that can store far more information about customers and their buying preferences than magnetic strips, and they can be encrypted to become virtually tamperproof. Merchants can use the chip platform to develop loyalty programs and functions that can help customers personalize their shopping trips. Customers benefit by having a convenient and highly secure method of payment.

Think for a moment about routine shopping trips to the local grocery store. Using chip cards, customers can check for store specials and create a shopping list on their PCs before they leave home. They can use their cards to access special parking areas set aside for frequent shoppers. Their cards can keep running totals as they shop — and at check-out, reward them with frequent-shopping points. Finally, the market can deliver the groceries using information from the shoppers' cards.

Online opportunities: Research firm Jupiter Communications, New York, estimates that online shopping generated $706 million last year and will reach $7.3 billion by the year 2000, when half of all online purchases will be made with credit cards. The staggering growth of e-commerce illustrates the need to maximize payment security for cardholders and businesses conducting transactions online.

To make Internet shopping secure, card companies are developing Secure Electronic Transactions specification (SET), an open security protocol designed to safeguard today's credit and debit cards. The advantage of SET over existing security models is the use of digital certificates that authenticate both the cardholder and the merchant in the virtual world. The digital certificate goes above and beyond basic encryption, giving merchants additional protection against fraud and potential chargebacks. In the future, chip cards will carry a consumer's SET digital certificates and make online purchases that much more convenient and secure.

Take the lead: Credit-card companies are partnering with banks, technology providers and merchants around the world to develop the platforms and applications that will let retailers capitalize on emerging payment technologies. With rapid advancements being made in the area of chip-card development, the transition to e-commerce will happen sooner than you think. The time is right for retailers to begin thinking about incorporating new and open technologies into their business plans.

Although there will be a transition period of several years — when magnetic strips and chip cards will be side by side — the service- and revenue-enhancing benefits of the new payment technologies already are clear. This is one boat you can't afford to miss.

Bruce McElhinney is senior vice president of market development and acceptance at Visa U.S.A., San Francisco.

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