Europeans are still three and a half years away from being able to touch and hold their single currency, the euro, but until then the credit card industry is in a unique position to make it more than a virtual reality.

In the transitional stages, purchases denominated in euros can be made with credit cards, and this has sparked a kind of public relations contest among banks vying to appear the most euro-friendly.

The first companies to offer euro checking, savings, and card accounts will claim a competitive advantage.

"Europe sees the euro as a competitive issue," said Visa International spokesman Peter Halliday.

Credit card companies want to seize an early chance to promote their products and increase their use by educating consumers.

"The bigger opportunity will be to offer various things to help consumers understand the euro," said Eric Sagerman, senior vice president of international development for American Express Co. in London.

American Express, which operates in the 11 European countries that are so far committed to the euro, plans to provide such explanations with its customers' statements.

Mr. Sagerman contended American Express will have an advantage in being able to explain, on the statement, "the price differentiation between products in different countries."

U.S. card issuers without operations in Europe, on the other hand, will not be affected by the euro, experts say. It is simply another currency they must recognize.

The euro will become an official currency electronically next Jan. 1. Actual notes and coins will not be available until 2002. Consumers will be able to open euro accounts and buy items with euros using credit or debit cards next year.

Many card issuers plan to create a column on billing statements to report purchases in euros, as well as continuing to provide information on currency conversions to people making purchases outside their home countries.

Some stores in Belgium are already trying to familiarize their patrons with the euro by posting prices in both euros and Belgian francs, even though there is no official exchange rate yet for the euro.

But for banks, the euro conversion will be costly. Experts put the typical Europe-based bank's cost at about $200 million. That would be evenly split between the loss of foreign exchange fees and the cost of system upgrades, said Peter Warner, director of risk management for Europay International in Waterloo, Belgium.

The upgrades include revamping or producing new point of sale terminals. According to Visa, terminals will either process transactions in one currency, the local one or the euro; one currency with the euro equivalent displayed on the screen; or dual currencies, which allow cardholders to select the transaction currency.

The last form of terminal will be found at major travel and entertainment merchants and those with large international clienteles, Visa said.

Retailers have three years to convert their terminals, but banks in the meantime must be able to tell if a purchase is being made in euros or another currency.

"The main issue for (credit card banks) is from an acquiring rather than an issuing side," said Mr. Warner of Europay. Banks are absorbing these merchant processing costs by "slowing down product development and production and general innovation," he said.

Moreover, year-2000 issues are making it harder for banks to handle so much change at one time, experts said.

Automated teller machines are another area of concern. They will need to be upgraded to understand whether a cardholder is requesting euros or another currency. The machines will also have to provide information on euro account balances.

"This is frustrating, because (such upgrades) are not necessary for forever, only for a three-year period," said Mr. Warner.

Further complicating the ATM scenario is a European Commission rule allowing local currencies and the euro to co-exist for six months past the 2002 deadline.

"It is hard to imagine that banks will redo their ATMs to deliver both euros and local currencies for just six months," said Steve Perry, chief financial officer of Visa International in London.

The elimination of foreign exchange fees could be partly offset by a transaction charge-but this would probably be a flat fee not influenced by the sale or withdrawal amount. Foreign exchange revenue can account for up to 20% of a European credit card issuer's revenues, said Kevin J. Wilford, executive vice president and regional director of PSI Global in the United Kingdom.

Mr. Perry speculated that banks will not even charge a flat fee because, "there will be so much competition within the industry."

Some banks may absorb the international processing cost, while others may charge a fee based on all transactions rather than single ones. But the outlook is cloudy, because "the banks are not announcing what they will do," Mr. Warner said.

The costs aside, card companies are mostly upbeat about the euro.

"It will have a more positive impact for us than negative," said Mr. Sagerman of American Express.

In particular, credit card companies anticipate growth in corporate cards and the volume they generate.

"The market for corporate or purchasing cards is relatively untapped, and the euro is sure to accelerate demand, because the accounting conveniences become significant if a whole company is running on euros," said Linda K.S. Moore, a card industry consultant based in Paris.

Multinational European companies that want to start using the euro before 2002 will provide an impetus for this growth.

"They want the euro for their payroll, tax systems, and vendors," Mr. Perry said. "As soon as they begin to use the euro they will want it for their expense systems too.

Visa has 1.2 million corporate cards in Europe, generating $7 billion in annual spending. American Express, the industry leader, says it issues corporate cards for two-thirds of the fortune 500 companies in Europe..

Siemens AG, the German electronics company, said it plans to convert all of its systems to the euro on Oct. 1, 1999, but will be ready to handle euro transactions as of Jan. 1. A spokeswoman for Siemens said it expects American Express, with which it has its corporate credit card account, to accommodate euro accounts by October.

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