Network Pushes Ahead with Smart Card Trial

Electronic Payment Services Inc. is forging ahead with its smart card trial in Delaware, undaunted by the fact that other tests - like Visa U.S.A.'s plan for the Atlanta Olympics next year - will be far bigger.

Wilmington-based EPS, best known for operating the MAC automated teller machine network, began an in-house pilot test in February that will act as a model for the rollout to two New Castle County ZIP codes in early 1996.

"Before we roll out, we want a thorough understanding of consumer needs and perspectives" relating to the new chip technology, John F. Beahn, chief marketing officer, said recently in the company cafeteria while eating a lunch purchased with one of the stored-value cards.

The cards, which have been distributed to the 400 employees at EPS' headquarters, function at nine vending machines, six cash-to-card loaders, three stamp machines, three public telephones, and the cafeteria.

Although the company has been running a 4,000-employee test at CoreStates Plaza in Philadelphia since 1991, the newer program includes updated technology that will mirror the Delaware rollout, said Mr. Beahn.

Upon entering the main building of the EPS compound, on 26 green acres just outside downtown Wilmington, employees can load value onto their cards at the cash-to-card dispensers in the electronic banking center.

The microcomputer chips in the cards, manufactured by Gemplus of France, track the cash-equivalent debits and credits. The initial cards were free; an extra card costs $1.

Karen Strauss, technology training manager, loads a weekly cash allotment onto her card and carries it in her employee identification pouch, which clips onto her clothing.

"We do a lot of running around here," she said while standing in line at the cafeteria. Now "I don't have to go upstairs to get money" for lunch, she said. "It's right here."

While employees are learning about the convenience of stored value, EPS is ironing out the kinks for the larger project, previously scheduled to begin in October but delayed until early next year, said David M. Van Lear, chairman and chief executive officer.

In that trial, 50,000 cards issued by a still undisclosed group of participating banks will be linked to consumers' checking accounts. Users will be able to add value through automated teller machines and to purchase goods from about 150 merchants.

In a recent presentation, EPS executive Bernard David listed banks heavily represented in New Castle County: Bank of Delaware, Beneficial National Bank, Delaware Trust Co., Mellon Bank, and Wilmington Trust Co.

Until only a month ago, EPS' program was regarded as the most ambitious stored-value pilot planned for the United States. But Visa's 1996 Olympics program, led by First Union Corp., NationsBank Corp., and Wachovia Corp., "has already overshadowed" EPS, said Liam Carmody, president of Carmody & Bloom, Woodcliff Lake, N.J.

"The Atlanta pilot will be very visible; the Olympics get a lot of attention," the consultant said.

Visa said at least one million disposable and rechargeable cards will be distributed during the Olympics, for use at 5,000 participating merchants.

Mr. Van Lear, 53, chairman of EPS for the past year and a half, said the launch in Atlanta would not affect the plans of EPS, a joint venture of Banc One Corp., CoreStates Financial Corp., Keycorp, National City Corp., and PNC Bank Corp.

The technology to be used in the Olympics effort "is not the long-term solution," said Mr. Van Lear, a former Banc One executive.

Diane Wetherington, senior vice president of chip card marketing for MasterCard International, said as much last week when MasterCard said it would launch its own stored-value pilot in Australia in the fourth quarter.

Visa's pilot "is an event-related situation," Ms. Wetherington said. "What's more interesting for us is an ongoing relationship with the cardholder, as opposed to something cardholders can use for only four weeks."

First Union said it is planning an open system, scheduled to kick off in Atlanta this September with 300,000 chip ATM cards issued to residents. But some industry observers doubted First Union could meet those goals.

Mr. Carmody pointed out that various competitive approaches "can come together," with the initiatives eventually building off each other.

Mr. Van Lear said EPS will be on the leading edge, having "influence over the marketplace."

He added that international standards must be set so merchants the world over will be able to use the same equipment to accept the cards.

To that end, EPS is involved with the International Standards Organization, the American National Standards Institute, and Visa's international stored-value working group.

EPS has yet to join the Smart Card Forum, a multi-industry group promoting testing and standardization, though there have been rumors that EPS is opening up to the possibility. It was concerned about sharing results of its advanced work with competitors.

The EPS trial will "prove a lot of stuff" about what you can do with the card, said Mr. Van Lear. "We'll compete on the application side, getting banks to issue our cards" rather than those of competitors, he said. The banks will "belong to our network."

Mr. Van Lear said the delay until 1996 was partly to ensure that the technology will not be quickly supplanted by something more advanced.

The Delaware rollout will emphasize vending machines, transportation, and retail points of sale. Some activity may eat into debit card volume, Mr. Van Lear said.

Other stored-value programs around the world, like the Danmont program in Denmark, focus on small-change purchases such as newspapers, phone calls, and parking meters, and are said not to cannibalize debit or credit cards.

"We're going for ubiquity," said Mr. Van Lear. "We don't want multiple cards, we want multiple applications (on one card). We're going for the highest value."

Mr. Van Lear foresees considerable interest in vending machine areas in supermarkets, selling everything from stockings to batteries, six-packs of soda to suntan lotion.

Danyl Corp., a Schlumberger division headquartered in Moorestown, N.J., is manufacturing the smart card readers for the pilot. Peter J. Truscello, Danyl's president, agrees there is a big market for unattended vending machines.

Mr. Van Lear said merchants will embrace the technology, which would help reduce labor costs by shrinking lines in supermarkets.

But Dan Shanahan, vice president, point of sale for Tops Friendly Markets in Buffalo, said, "People like variety. We have 32 (shelf) feet of stockings - that's very wide. You'd need a big vending machine."

Vending machines can work for items like a pack of gum, he said, but for many things "people love to shop."

Mr. Shanahan said the stored-value concept would be most useful at express registers where people insist on using cash.

Still, Mr. Van Lear said, EPS got "very positive reaction from merchants" in Delaware, who see the new technology as cheaper than cash.

Gas stations, toll collections, and fast food are other areas where the system should be popular, Mr. Van Lear said.

As the technology catches on, issues regarding ownership of money stored in the cards but never spent - sometimes called float or breakage - will prove complicated.

Mr. Shanahan said banks shouldn't control electronic money once it's out the door. But Mr. Van Lear said money stored on the card hasn't exactly left the bank until its spent.

"It's a transaction waiting to occur," he said, adding that the settlement questions will not be answered overnight.

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