The hothouse effort to force life into smart cards may be yielding little more than hot air, according to an increasingly vocal band of skeptics.
Though the development of the leading-edge cards with embedded computer chips has been a point of pride for many in the industry, critics are beginning to wonder if certain projects can live up to expectations.
Some sources, who spoke on condition that they not be identified, said Visa, MasterCard, and Mondex - three companies in the forefront of the smart card race - are exaggerating the progress their competing programs are making.
It is said that SmartCash, a consortium led by MasterCard, Electronic Payment Services Inc., and several major banks, is in disarray. Electronic Payment Services' own showcase of chip cards, which has been delayed repeatedly, is supposed to start in Delaware in July under the SmartCash banner. "There's not much chance of that happening," said an industry observer. "It seems they're still struggling."
Elsewhere, MasterCard's rollout in Canberra, Australia, heading into the pilot phase next month, was characterized as "a mess" by a former smart card consultant.
Mondex U.K., the joint venture of National Westminster Bank and Midland Bank that expected to issue 40,000 cards for a two-year test that began in Swindon, England, last summer, is up to only 10,000.
Even Visa U.S.A.'s highly publicized stored value card program, set to coincide with the 1996 summer Olympic Games in Atlanta, is the subject of rumors that merchants are dragging their feet to sign up.
The sponsoring organizations dismiss the naysayers. They point out that these projects are learning experiences, yielding hard facts about merchant and consumer attitudes toward a payment system in an embryonic state.
But even if the projects don't live up to expectations, there's no turning back.
"With electronic commerce coming down the line," said Mondex spokesman David Morton. "There's fear that other (industries) will take over electronic cash."
Though SmartCash leaders EPS and MasterCard are not talking about their new entity, they said the parties are in the midst of negotiations to put their joint venture on a firm legal footing.
Acting president Ashok Narasinhan, a former vice president of Verifone, said the group is "hoping to have the closing completed, with a number of additional players" in the next three to four weeks. Until then the company is maintaining a low profile, he said.
SmartCash's list of founding members includes Chemical Banking Corp., BankAmerica Corp., First Union Corp., Wachovia Corp., NationsBank Corp., and Wilmington Trust Corp. EPS's five bank owners - CoreStates Financial Corp., Banc One Corp., National City Corp., KeyCorp, and PNC Bank Corp. - round out the group.
First Union is firmly on board, said Alexis Ellison, a bank spokeswoman. The bank, which has been the most aggressive partner in the VisaCash Atlanta experiment has become "the driving force in the (SmartCash) project," she said.
In November, First Union announced a list of 12 merchants, including Baskin-Robbins, Blimpie's, Taco Bell, BellSouth, and Dominoes Pizza, that will accept VisaCash cards in Atlanta. The Charlotte, N.C.-based bank is close to announcing another "batch of merchants," said Ms. Ellison.
W. Doug King, executive vice president in charge of retail banking at Wachovia, another VisaCash participant, said the bank is "still involved in (SmartCash) proceedings."
Wachovia is attracted by the caliber of players involved, their aggregate market share and geographic reach, said Mr. King. "We certainly have the right kind of critical mass to make something like this move ahead and make it successful."
Mr. King also said the Atlanta project is "moving ahead." Winston-Salem, N.C.-based Wachovia recently began to test disposable VisaCash cards - they cannot be replenished after their stored value is used up - at its headquarters. The bank is rumored to have signed several merchants, though no announcements have been made.
MasterCard spent much of last year working to launch its Australian smart card project. Walter Greenberg, vice president of stored value product management, who recently returned to MasterCard's Purchase, N.Y., headquarters from Canberra, said all is on schedule.
The card association had been reticent with the press and even bank members for most of 1995, "because unlike Visa and others, we were not using someone's turnkey system," said Mr. Greenberg. "We were developing our own."
He was referring to Visa's purchase of technology that was developed for Danmont, the Danish electronic purse system, now in its third year of operation. The Danmont system uses disposable cards embedded with computer chips, and they are not linked to bank accounts.
"Ours is a relationship product," Mr. Greenberg said. Bank-issued credit or debit cards will be enhanced with the stored value function. Mr. Greenberg said Visa has been under pressure to deploy a system in time for the Olympic games, and will have to rebuild its product for worldwide consumption.
Visa International spokesman David Melancon took strong exception. He said Visa purchased the Danmont system as a "starting point," but it has been customized and adjusted for proprietary needs.
Though the system will continue to evolve to "meet the needs of our members as we go forward," Mr. Melancon said it will be the basis for future VisaCash programs, including those that meet the joint worldwide technical specifications of Europay, MasterCard, and Visa.
MasterCard's Canberra system is set to go live in February, with more than 1,000 employees testing the system at the participating banks' headquarters.
The banks - Australia and New Zealand Banking Group, Commonwealth Bank of Australia, National Australia Bank, and Westpac Banking Corp. - expect to sign 200 merchants by March; just over 20 are on board so far.
Consumers will be solicited by direct mail, beginning next week. Cards will be applied for and linked to a direct deposit account. Chips will be embedded into bank credit, debit, and automated teller cards.
Mr. Greenberg said there are no "giveaways." Australian consumers will pay fees for their cards. Merchants will buy or lease terminals.
"We want a real idea of consumer acceptance in terms of pricing," the MasterCard official said. He noted that certain pilots, like Mondex, which supply terminals to merchants, don't get a "real world" picture of acceptance and profitability.
"The members are very conscious of not setting unrealistic expectations," he said.
The Mondex trial, going into its eighth month, has attracted about 5% of Swindon's 190,000 inhabitants. Though early expectations for the program are not being met, Mr. Morton said the company is satisfied with its progress.
Though merchants were supplied with terminals to create an atmosphere of universal acceptance and consumer confidence, the cards are not free. "The experiment is about understanding people and what will make them apply for" Mondex, the spokesman said.
He added that the product will be launched nationwide, regardless of Swindon's numbers. The timing may be flexible, "but they are going to do it."
