Smart cards: Is E-cash a Dead End?

What if the pursuit of stored value cards turns out to be a complete and utter waste of time, energy and, ironically, money? Despite the Mondex hype, some analysts are questioning the logic and future of digitized dollars. "Stored value programs in

the U.S. are completely wrong, and banks and MasterCard and Visa are barking up the wrong tree with these systems," says Octavio Marenzi, principal of Needham, MA-based Meridien Research, Inc."If you look at European systems that have been in place, stored value has never been a successful application."

With a recent increase in consumer acceptance of debit cards in America, analysts may have a point. Visa has identified debit as a huge growth area and has spent millions promoting its Visa Check Card to consumers. Institutions like Chase, Charles Schwab and Fleet have already jumped on the check card bandwagon; now Citibank is beginning to pilot off- line debit. And though merchants have been relatively slow to accept ATM debit cards, multi-application smart cards could change all that.

Marenzi suggests that America follow Europe's lead and move the debit instrument to smart cards, reducing processing costs through use of chip technology. Lower processing costs of credit and debit cards could then make it worthwhile for merchants to accept low-value card payments. And should the smart cards be automatically issued by banks in conjunction with magnetic stripe, merchants would have the critical mass and promise of lower fees that would make conversion worthwhile.

Visa's Diana Knox, vp and head of the smart card business disagrees, saying stored value is a necessary application because despite efficiencies achieved with debit, the authorization and authentication systems required will always make debit more expensive than stored value and therefore unappealing to merchants of low-ticket items.

-bers tfn.com