Right on the heels of DigiCash, learning that consumers are not accepting the idea of digital micropayments, Citibank and Chase Manhattan have found that consumers are also not accepting the idea of Smart Cards.
The New York Smart Card Trial was cancelled after 14 months when it failed to catch on with consumers. The trial, which started in October 1997, was not scheduled to end until the end of this year.
While the trial did fail, it succeeded in producing a terminal that would accept both Visa Cash and Mondex e-cash. But, merchants still had to settle the two separately at the end of each business day. "We had two technologies under the hood of the same terminal," Visa spokesperson Greg Jones said. "What we found was that this is more expensive for terminal manufacturers and too cumbersome for merchants."
100,000 Smart Cards were issued to Upper West Side residents who could transfer cash from their bank accounts onto the cards at ATMs, and spend the money at 600 local merchants. Jones reported that a total of approximately $1 million was spent using the cards, which works out to about $.83 per month per card. "Unfortunately, we weren't able to make the consumers' life easier,'' said Carole Lockie, a vice president of Visa USA. Since consumers weren't using the cards, merchants dropped out. Of the original 600 merchants, just 200 remained when the pilot was cancelled.
"People have plenty of payment choices today in the U.S.,'' said David Weisman, a technology analyst with Forrester Research Inc. in Cambridge, Mass. "Smart Cards don't really solve any problems for us here in America," added Matthew Norden, also of Forrester.
As we've reported in The Green Sheet, Smart Cards are successful overseas, but before they enjoy the same success in the states, consumers will have to find a financial incentive to use them. In other words, the cards have to do MORE than function as cash. For instance, at college and military bases the cards are used because they also serve as ID cards, library cards, club passes, etc. "Multifunction cards is really what is going to drive Smart Cards in this country," Visa spokesman Jones said. "All of the parties learned from the trial."
According to Jerome Svigals, an electronic banking consultant in Redwood City, California, the biggest problem in developing a market for Smart Cards is that they aren't yet profitable for the issuers, which are now banks. These banks can charge for their use but they will not make any money until consumers are willing to pay. Consumers won't pay until they feel they are paying for something valuable. "If we don't offer these programs, non-banks will,'' predicted Ronald Braco, a senior vice president at Chase.
Non-banks have stepped into traditional bank-only arenas before--it could happen again.
