An overwhelming majority of consumers are willing to pay a fee to use stored value cards, according to a study by Carmody & Bloom Inc., Ridgewood, N.J.
Of 400 adults interviewed, 90% were receptive to fees for prepaid cards, which can be loaded with value and debited on each transaction. Current uses include train fares and phone calls, and many banks are exploring ways to offer the cards for promotional purposes or as an electronic alternative to cash.
More than 80% of the consumers in the Carmody survey who were willing to pay fees favored annual over per-transaction charges..
The findings are an important indicator of how the public will respond to prepaid applications for smart cards, which resemble traditional credit and debit cards but also feature a computer chip that can store and update electronic funds and cardholder data.
Financial institutions are interested in smart cards because of their high level of security and their ability to be tied in to home-based and other remote banking services.
"This is the hottest button in the industry right now," said David Van Lear, chairman and chief executive of Electronic Payment Services Inc. in Wilmington, Del., which is preparing to test a prepaid "electronic purse" card next year.
"This is a technology that is going to have a significant impact on consumer
spending patterns and behavior," Mr. Van Lear said.
The Carmody evidence about consumers' willingness to pay reinforces that of a survey in Delaware last year by Electronic Payment Services, while the preference for annual fees was stronger. The EPS survey showed that 67% would use a card that cost one cent per transaction, 43% would pay five cents per transaction, and 39% would pay $15 a year.
The favorable attitudes toward prepaid-card fees are consistent with consumers' proven willingness to pay for automated teller machine transactions. However, as with ATMs, there are clearly limits to what consumers will pay.
The experience with ATMs will also have a bearing on smart card usage, insofar as cardholders often would be visiting remote terminals to replenish the chips with electronic value.
While the ATM model may have helped bankers to anticipate consumer reaction to smart cards, the Carmody study indicates that many consumer preferences currently run counter to what industry leaders expect.
In the consulting firm's survey of 250 financial industry executives, more than 85% said mass transit and pay telephones are ideal places to introduce consumers to stored value applications.
But consumers indicated that supermarkets, gas stations, and drug stores are the most appropriate places to use such a card.
Consumers' and financial executives' opinions also diverged on the issue of placing multiple applications say, debit and credit, and any number of financial and nonfinancial services - on one card.
While nearly 70% of the executives stated a preference for placing prepaid applications and straight debit applications on the same cards, a majority of consumers said they would prefer a separate card for each application.
"As we start juxtaposing what financial executives are thinking and consumers thinking, I think it becomes very clear that executives need more information on what consumers want," said Linda Zitelli, director of research for Carmody & Bloom.
Consumers and financial executives did agree on some points. For instance, 97% of consumers favored the use of personal identification numbers with prepaid cards, and 70% of the financial industry executives favored this security measure.
