Trouble Stacking Up For Stored Value
We are hearing a lot about the future of stored-value cards (Smart Cards), in spite of the less than stunning results of the Atlanta Olympics test. However, the reality is that there are still a lot of potential problems for this new payment vehicle.
The first problem is that payments players have been waiting more than two years for the Federal Reserve Board to release its final regulations on stored-value cards, and they will have to wait a bit longer.
The Fed's decision on whether stored-value cards that carry less than $100 will be exempt from Regulation E of the Electronic Funds Transfer Act is not expected to be made until the first quarter of 1997, according to the Fed.
One of the many regulatory concerns is that potential requirements forcing acquirers to provide receipts and having issuers send statements to cardholders, could make it too costly to support programs and will kill the financial viability of the cards altogether.
The second significant problem for this new payment vehicle is that Smart Card payments are supposed to be as good as cash, but are as vulnerable to theft or loss as a $100 bill.
According to the New York Times, a potential security flaw has been discovered that might make it possible to counterfeit many types of the electronic-cash Smart Cards that are used in Europe and are being tested in this country by banks and credit card companies-including Visa and MasterCard.
The types of cards that are potentially at risk include the kinds already employed in the Mondex cash card system and others used by European consumers.
Even though theft is a problem, the cards have been promoted as tamper-proof, which is why computer scientists at Bell Communications Research, one of the nation's leading information-technology laboratories, are now sounding the alarm, saying that a sophisticated criminal might be able to tweak a Smart Card chip to make a counterfeit copy of the monetary value on a legitimate card.
As a sales professional offering advice to the retail marketplace, we should remember that the retailer may be facing far more severe fraud problems with this "cash replacement vehicle" than has ever been the case with cash, which it is intended to replace.
Also, look out for criminals to have their hands in the pockets of both merchants and card issuers, unless Regulation E wipes out all the benefits of low-value Smart Cards by making consumer protection and reporting costs prohibitive for the product.
