Just How Smart Are Smart Cards?
Many have been predicting the Smart Card's domination of the market for quite some time now. But, according to a California-based market research firm, Dataquest, in 1995 90% of chip-card shipments went to Europe while only 2% went to the Americas.
Despite all the commotion by bankers and vendors, Smart Cards are not about to replace cash or credit cards anytime soon. It seems everyone (banks, merchants, and customers) are waiting for someone else to drive the market.
Banks:
Banks are waiting because the cards don't allow the float they need to pay for the production of Smart Card readers. Also, there isn't an industry standard regarding voltage, etc. Finally, many banks find the $200 per ATM cost to upgrade prohibitive.
Therefore, most Smart Cards in the U.S. are not owned by banks. According to the Mentis Corporation of North Carolina, global card production was 688 million in 1995, but of those 688 million, less than 5% were owned by banks.
Mentis Corporation believes that Smart Cards are taking off in Europe because they are a convenient way to get around the issue of multiple currencies. But, in the U.S., we do not have multiple currencies and banks have not budgeted for Smart Cards.
Consumers:
Consumers aren't in any rush either. Almost 50% of respondents to a recent survey by First Manhattan Consulting Group reported that they are taking a "wait and see" approach to Smart Cards. Only 11% considered it an important issue.
This attitude may be attributable to the fact that if the card is lost or stolen, there is no guarantee of protection. Also, the claims that Smart Cards are more convenient than cash fall on deaf ears because most consumers see cash as pretty darn convenient. Apparently consumers aren't convinced yet.
Merchants:
Merchants haven't been persuaded either. For merchants, Smart Card cards aren't better than cash because they still have to retrieve the money from the bank. They also have to purchase the terminal and pay transaction fees.
However, there are benefits to merchants, too. The risk of employee theft and error is lessened, and there is less money to handle at the end of day. Even with these small benefits, merchants will need to be convinced in a grander fashion that it is financially beneficial to invest millions of dollars in the technology to accept Smart Cards.
Which leads to the main problem facing the Smart Card industry -- customers won't use Smart Cards until more merchants accept them and more merchant's won't sign up if there isn't a demand from customers. This is the classic chicken or egg problem in marketing.
With the absence of banks jumping in to invest in Smart Card technology, non-bank organizations are announcing plans to join the Smart Card industry. Motorola, Inc., General Motors, and AMEX have set their sights on the Smart Card market. Only time will tell how smart that is.
