The scene is repeated several times a day outside Vietnamese banks: Satchel-toting couriers cart away bundles of the country's currency - the dong - in bags flung over their shoulders or strapped to the seats of motorbikes.

Given the low value of the dong, piles of paper money are needed for routine purchases. Small boys peddling goods on the streets of Hanoi look like barons as they produce thick wads of cash to make change.

"It is often joked that the leading cause of back injury in Vietnam is going to the bank," said an Asian banker.

Indeed, Vietnam is an extreme in a region that has become a giant laboratory for smart card technology. Both MasterCard and Visa are developing pilot projects. Many banks issue credit cards with chip technology. And most governments have mandated the use of the technology in an attempt to leapfrog a check-based society or to make currency obsolete.

By far the most ambitious project is the joint venture between Mondex and giant Hongkong and Shanghai Banking Corp. The plan is to have an open system ready to operate across the region by the end of 1996. Bankers say the region is poised to lead the world in broad acceptance of the technology.

"This is nothing new in a lot of the Asian countries," said Eric Tai, senior executive for retail banking at HSBC Holdings, the parent of Hongkong and Shanghai Banking. "Stored value has been around for many years."

Adds Craig Welch, head of chip card market development for Visa's Asia/Pacific region: "It seems that people are constantly ready for other forms of smart cards. You've got a region here where people don't mind at all embracing chip card technology."

Many Asian governments want the technology developed not only for currency uses but also to employ as a national identification card and to store medical records.

For now, countries like Singapore are focused on more practical applications. In a society where magnetic-stripe cards are regularly used to pay for transit rides and local telephone calls, the government is hoping by the year 2000 for a broader application in the form of a reloadable electronic purse.

"The idea is to replace all high-frequency, low-value transactions with a card," said Richard Chang, a country manager for Visa International.

But some bankers say that for a true cash alternative to succeed it must be more widely used. They point to Taiwan as an example. In Taipei, a government-led effort has placed about 100,000 smart cards in the hands of consumers. A spokesman called the program a success, but others said the lack of universal application is a drawback.

"You can't use the cards for enough things," said a Taiwanese banker. "The general feeling is, if this technology is going to be successful, you have to be able to use it for just about everything."

Tim Jones, chief executive of London-based Mondex, disagrees and insists that his product is different.

"It is important to understand that Mondex is not a smart card initiative. Mondex is a product called electronic money," he said. "There are a number of people who will say they are doing a smart card initiative (when it's really) a multiapplication initiative.

"My personal view is that I think those are less likely to lead to dramatic commercial success than clearly focused, very strong product(s) that happen to use a smart card."

"I believe that one of the reasons that smart cards have not been more successful to date is that there has been a confusion," Mr. Jones said. Bankers "have thought of them as a product. The product is the application. Most of the ones that I have seen that are winners are single-application products."

To reinforce his point, Mr. Jones said research shows that Western consumers will use this product in a few key transactions, like buying goods from vending machines or paying for a taxi.

While bankers agree that consumer acceptance is important, they are more focused on issues like the lack of audit trail, which raises security concerns and the cost of the technology.

"If this costs $5 for the chip alone, it could be prohibitive," said a banker in Singapore. "Everyone wants to provide the technology to make a big product splash that helps our competitive position, but if you lose money on it, it is not smart business."

In interviews, more than a dozen Asian bankers expressed similar concerns. Mondex's Mr. Jones admits that cost is an issue but says his company is working with chip makers to stimulate lower-cost technology in order to encourage mass development.

"We are talking with the silicon people about the need to take a longer- term view and not try to earn back their costs in 24 months or less," he said.

Even so, Mondex officials believe their system will be paid for through cost savings. For instance, giving customers an electronic alternative to cash reduces significantly the need for human tellers to handle transactions.

"The big problem with delivery channels at the moment, especially for banks, is the physical money" being dispensed, Mr. Jones said. "Bank branches are uniquely advantaged because they are the only place you can get hold of or get rid of money."

He added: "What Mondex does is change those rules by saying that you can get hold of money anywhere and in any currency." For cell-phone-crazy Asia, that could mean a hand-held phone that allows the caller to load value onto a Mondex card.

HSBC's Mr. Tai points out that banks also have the ability to earn fee income. Users could be charged a fee for loading value onto the card, for instance, but that would be new to consumers in a market where most automated teller machine and debit transactions are free.

"We want to maintain the integrity of money, in that it doesn't cost you to use money," he said.

The cards may be good for consumers, but they leave little opportunity for merchants to charge for offering this new alternative payment system. Mr. Tai insists that - like banks - merchants would benefit from lower costs with the cashless technology.

"The cash-handling charges would be a major savings, too," he said.

But such issues will be critical as Mondex and other players look to establish networks of merchants who accept their product. "The ability to build a merchant base is the first real test," said Hang Chaing, who oversees North Asia for MasterCard International. "Consumer acceptance is not the issue here."

Again, the cost of technology for merchants is likely to be a deterrent. In Singapore alone, it is estimated that 10,000 terminals would need to be installed. With an average cost of $1,000 per unit, that would be a $10 million investment.

"The cost will go down with volume, but you have to have someone committed to that kind of critical mass," said one Singaporean banker. "In Bangkok alone, it is estimated you would need 20,000 units. No one wants to pay for that just yet."

Manufacturers insist that, where customers go, merchants will follow.

"Merchants will accept it because competitors have it or because consumers want it," said Tom Sak, director of business system solutions at Verifone. "The real trick is to change the consumer's perception. It's a chicken-egg problem."

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