McDonald's Inc. is taking its first national plunge into smart cards-in Germany.
The fast-food giant announced this week with its equipment supplier, Verifone Inc., that customers can load cash on cards and spend it in more than 870 German restaurant locations.
It is the biggest commitment to smart cards by the largest of the quick- service restaurant chains and likely foreshadows more such implementations by McDonald's and its competitors. McDonald's Deutschland, the German subsidiary, said expansion into Austria and France is under active consideration.
The German installation is significant because of both the size of the network and the fact that most of the locations are company-owned rather than franchised. The latter is a sign that McDonald's could be moving toward a corporate commitment to chip cards on a global scale, said Verifone president and chief executive officer Robin Abrams.
Verifone is providing SC552 smart card readers at points of sale and, for the first time, customer-operated devices called TALIS-Transaction Automation Loading and Information System.
"This is one of the bigger deals like this that we have seen outside Japan," said Bob Goodwin, senior vice president of Killen & Associates, a technology research firm based in Palo Alto, Calif. (McDonald's has introduced a separate program in Japan that does not rely on smart cards; see story below.)
"Smart cards have rolled out slowly in the United States but the rest of the world is moving along at reasonable speed," Mr. Goodwin said. "For them to crack the U.S. market, it may take multinational companies building on what has been happening outside the United States, and McDonald's could be one."
Smart card advocates have long regarded fast food as an ideal venue for stored value payments on a chip card, perhaps enhanced by customer-loyalty incentives.
Cards with embedded computer chips "improve customer service, reduce the need for cash in the till, are more convenient for customers and more secure," said Ms. Abrams.
Fast-food companies have been active participants in smart card trials around the world, though many of those were on smaller scales than the 55- store McDonald's pilot earlier this year that led to the German deployment decision.
Since May a handful of Burger King restaurants in the Long Island suburbs of New York City have been testing a combination of electronic cash and loyalty rewards-free meals after a certain number of purchases-on Mondex cards. Burger King is the nominal card issuer but the program is supported by Chase Manhattan Bank and other owners of Mondex USA, which is concurrently sponsoring the joint test of the competing Mondex and Visa Cash brands on Manhattan's Upper West Side.
McDonald's is using the TALIS terminals to send marketing messages while customers are adding value to their cards-in this case the Geldkarte electronic purse. The system is also capable of storing loyalty points on the cards and of using Internet connections to manage the programs and marketing messages centrally.
Ms. Abrams said, "McDonald's is setting the pace by leveraging the TALIS terminal's marketing capabilities ... . We expect this implementation will help drive smart card acceptance globally as other restaurant and retail chains will want to achieve the same speed of service, efficiencies, security, and marketing advantages."
McDonald's worked on the smart card system with the German association of savings banks, which in turn are part of the Geldkarte program. With more than 40 million cards distributed, Geldkarte is one of the largest in the world. That number of potential customers helped spark McDonald's interest.
"We plan to expand our leadership position through convenience, superior value, and excellent operations," said Rolf Kreiner, senior vice president of marketing, McDonald's Deutschland. "The smart card is an accepted means for making payment and speeding service, but consumers had limited access to reloading terminals. McDonald's saw an opportunity to deliver value to our guests through this technology, while also increasing loyalty through the TALIS terminal marketing messages and loyalty programs."