The two international credit card associations have begun buttressing the case for stored-value payment cards through market research.
Most of the results so far are qualitative; more definitive quantitative surveys are on the way. But the indications are clear: Consumers are ready to embrace plastic as a replacement for cash, primarily for transactions no larger than $10 to $20.
Diane Wetherington, senior vice president of chip card marketing at MasterCard International in New York, and Mary Buckley, vice president of cash products for Visa International in San Francisco, revealed some of their early conclusions last week at an AIC Conferences seminar in New York.
MasterCard had already announced its intention to make a stored-value product its first venture into chip card technology, starting with pilots in 1996. Ms. Buckley said Visa members from 15 countries have asked to participate in pilots that are expected to begin this year.
MasterCard also released the results of its first global consumer research study on the cash replacement cards.
Most speakers at the New York conference pointed out the driving force for stored value is convenience. Cards are easier to carry than cash; they obviate the need to come up with exact change; and they are perceived as being more secure than cash.
The U.S. banking industry, while waiting for uniform chip card technology, has been slow to issue the new payment method, leaving it to telecommunications companies and government agencies, said Ms. Buckley.
Banks will not necessarily benefit from "the opportunities that stored- value systems will create," she told the crowded conference in the World Trade Center.
"Technology is enabling the metamorphosis of payment platforms from ATMs and terminals to electronic equipment such as smart telephones . . . transforming consumers' concepts of payment methodologies," she said.
Prepaid telephone cards have become a popular consumer item, for both use and collecting, with a projected $850 million of sales expected in the United States by the end of 1995, according to MultiMedia Publishing Corp., which publishes TeleCard World, a trade magazine. Volume is much higher elsewhere; the cards are in broad use in more than 180 countries.
Except in places like France, where computer chips on payment cards are well established, few such telephone cards actually have value stored as memory in their encoding mechanism, to be debited with each use.
Mass transit authorities in several U.S. cities, including New York, Washington, and San Francisco, issue stored-value cards. Other government agencies are doing tests for parking meters and other city services.
In France, chip or smart telephone cards are as common as quarters are in the United States. Finland and Denmark, among others, have initiated national stored-value systems, creating "electronic purses" for purchasing newspapers, train tickets, vending machine items, and cafeteria food.
But as the groundwork for consumer acceptance of stored value is laid by these nonbank competitors, the international card associations are testing the waters for a globally accepted form of the stored-value card, linked to a consumer's credit or debit account.
"The U.S. payment landscape is changing dramatically," said Ms. Wetherington. She noted that both baby boom and Generation X cohorts, totaling 123 million people, would be the first to embrace the new payment option.
MasterCard's focus-group interviews worldwide indicate a significant opportunity for the global stored-value application and a high level of consumer awareness and interest consistent around the globe.
One concern for banks is that stored-value cards, which don't promise the interest or interchange income of credit cards, would eat into profits from other card products. MasterCard's research indicates that the stored- value cards are most likely to encroach on low-end cash transactions.
Visa has estimated that consumers spent $8.1 trillion worldwide in cash in 1993, with $1.8 trillion for purchases of $10 or less - the target for stored value.
Ms. Buckley said banks "should regard stored-value cards as an important strategic product that will help them transform the cash market and provide new services."
But the threat of nonbank competition still looms. Microchip technology enables telephones, home computers, and interactive television sets to become transaction platforms and cash dispensers, Ms. Buckley said, which is why the card associations are involved.
"Members need to offer new services, or someone else will," said Ms. Wetherington. "Consumers like payment choices."
Stored-value cards will reduce cash-handling costs for banks and merchants while offering consumers a convenient service, said Ms. Buckley.
Ms. Wetherington made the case for the associations' playing a dominant role. Global payment systems like Banknet or VisaNet, serving millions of cardholders around the world through strong brand identification, make it "easier to launch new applications," she said. "To be successful, it will be helpful to have the existing infrastructure."
In cooperation with MasterCard and MasterCard's European affiliate Europay, Visa is establishing global technical specifications for the integration of chips in payment cards to help members adopt the new technology.
"The convergence of technology, applications, and market opportunity has occurred," Ms. Buckley said in closing her presentation. "It is now the time to mint the new global currency."