With no takeoff in sight for the North American smart card market, Giesecke & Devrient is directing some of its energies elsewhere.
The German chip card vendor is selectively scaling back, saying it will be in a position to pounce if the market picks up.
But for now, the company is moving its Toronto and Reston, Va.-based research and development operations back to the Munich headquarters, to better focus on the more mature European smart card market.
G&D manufacturing facilities in Toronto, Cleveland, and Mexico City will remain open, but will primarily put out magnetic stripe cards. Layoffs will be "modest," the company said.
"We have absolutely no intention of leaving the United States and Canadian markets," said Willi Berchtold, chairman of G&D's management board, though he admitted to "some disappointment" at the response to smart cards.
Other top card vendors, including the Big Three of Gemplus, Schlumberger, and Bull, have been through a number of reorganizations and reassessments of North American strategy. All remain committed, but their growth is elsewhere-either geographically or in other industries, notably telecommunications.
G&D entered the North American card market in December 1995 when it acquired Security Cards Systems, a leading Canadian maker of conventional magnetic-stripe cards. In April 1997, G&D bought Cardtech, a card producer in Cleveland.
G&D said it spent $50 million on the purchases and on upgrades of their facilities to accommodate chip card production.
The company ranks among the world leaders in both magnetic stripe and chip card production and saw great potential in the United States after serving as a principal card supplier for Visa Cash at the 1996 Atlanta Olympics, and for other Visa and Mondex trials on New York City's Upper West Side and in Canada.
Many industry experts have written off the New York pilot as a failure, at least in terms of consumer and merchant response, and there is little movement toward the basic stored-value, or electronic purse service that gave smart cards their initial boost in Germany, France, and other European markets.
"Consumers have been slow to adapt to the new payments technologies," Mr. Berchtold said in a statement.
G&D cited the absence of government mandates in the United States as one reason that it lags the European smart card experience.
"If you could have used the card (from the New York pilot) on the public transit system, the results would have been different," said Patrick J. Nichols, director of government relations and international business development at G&D America in Reston, Va. "You generate the float on the card by having one main use for the card."
Mr. Nichols said the emphasis in the U.S. will be on magnetic- stripe cards through at least 2000.
"The business case for value-added cards has been weak because it's hard to convince the consumer that using one type of plastic is better than the other," he said.
Another problem with chip cards in North America is that their applications are "too scattered," Mr. Nichols said. G&D, like many others, is looking at electronic commerce as a driving force for smart cards and their security capabilities. It became a member and supporter of the Global Chipcard Alliance in hopes of promoting cross-system interoperability.
The company, which markets the Starcos and Starcoin operating platforms, also said it expects to keep taking part in North American trade shows and also stay close to the market through memberships in the Smart Card Forum and Smart Card Industry Association.
G&D officials view Latin America and Asia as the current emerging markets for smart cards. The company recently announced it would build card manufacturing plants in Brazil and Australia.
"In less-developed situations, like Brazil or Mexico, where you don't have anything like the kind of credit-scoring models that the U.S. has, smart cards will take off quicker," Mr. Nichols said.
"The payment card industry began in the United States and industry leaders have always had a great record of innovation and customer service," Mr. Berchtold said. "When the financial services and health care industries begin to transition to chip-based solutions, there will be global implications."
