This month Chase, Citibank, MasterCard and Visa kick off their long-awaited smart card pilot, taking Mondex technology out of IT labs and campus cafeterias and onto the streets of New York City's Upper West Side.

Until now, neither merchants nor consumers were willing to be the first to invest in the relatively expensive Mondex technology-including wallets, cards, and terminals. But Chase will now put brand new Mondex ATM cards into the hands of 25,000 of their retail customers, who can then transfer money from their checking or savings accounts onto the card as Mondex money (Citibank, for its part, will distribute Visa Cash stored value cards to 25,000 of its customers.). At press time, the two banks had signed on more than 500 merchants from a wide spectrum of venues including pharmacies, newsstands and dry cleaners, says Chase's Ron Braco, svp for electronic commerce.

It wasn't too difficult to bring in merchants-Burger King, Fairway, Duane Reade, Gristede's, Sloan's, The Athlete's Foot, Lechter's and Crunch Fitness, among others-says Braco, because the benefits are clear. Taking value from consumers' Mondex cards is much quicker and easier than cash. With more of their transactions migrated from cash to digital value, stores would not be holding as much physical cash and would therefore not be as vulnerable to employee or other kinds of theft. And possibly most important, by getting in the game early, they put themselves in a position to co-develop loyalty programs with their banks. "Consumers tend to make greater purchases when it's a piece of plastic than when it's cash and coin. Psychologically, there is a difference. So (merchants) view this for the potential of increased sales," says Braco.

And, as further incentive, the banks will be funding most of the expense for the point-of-sale terminals for the pilot. Merchants will receive a credit toward the purchase of the most simple and basic smart card terminal. If they choose to add any bells and whistles-which would include integration of the smart card POS terminal and application with existing debit and credit card technology-they would pay for the additions, says Braco. Going forward, banks would likely charge merchants fees to deposit Mondex cash. "It would probably be a little bit more than (the fees for) cash deposit, but less than credit and debit," says Cynthia Bengier, director of product management and marketing for Mondex USA.

Stored value, at least initially, will be the only application used for the New York pilot, but it's only one small part of the plans Mondex has for the technology, says Janet Hartung Crane, president and CEO of Mondex USA. MULTOS, an open multi-application operating system for smart cards is now available for licensing by application developers, which would make it easier for banks and merchants to develop sophisticated loyalty programs for Mondex. The cost of the more elaborate cards will probably be shared among merchants, banks, and possibly consumers, depending on the level of convenience it affords and whether banks feel customers would pay for it. Crane estimates that between 25 and 35 of the nation's big banks have already approached the company to license Mondex technology. The company is also working on rolling out Mondex for the Internet, which Crane estimates will happen in 1998.

If Mondex is indeed a success, it will be because of this multi- directional approach, says David Weisman, director of Money & Technology Strategies for Forrester Research. Stored value alone will not be enough to justify the cost of the cards to most banks and will not result in their widescale proliferation. "It's really about the power of the smart card as a mobile computing environment to do more," he says. "You need to look at the card's ability for card authentication for security both on the Internet and (in) the physical world and for storing personal profiles." Corporations, for example, may justify the expense of smart cards for all employees if it means more security for their networks and employees. Once the smart cards are in hand, new applications can be added. And, if applications are written for MULTOS in Java as Weisman thinks they should be, consumers will be able to download new applications from a bank's Web site through a PC or at an ATM.

Though Chase's Braco says the banks don't expect to make any money off the New York pilot, gaining experience with the technology and with user habits will prove invaluable. And with companies like Microsoft watching from across the street, there is no time to waste. Even organizations like the Manhattan Transit Authority, which issues the Metro Card Gold stored value product for subways and buses, he says, could be in a position to steal bank business.


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