Smart Cards: Cash? Who Needs Cash These Days?

Someday, you might be walking around town with a card that lets you board a train, buy a newspaper, and store your emergency health information. When you get home, you'll sit down at your PC, log on to the Internet, and review and pay all your bills. These two technologies--smart cards and electronic bill presentment--were hot topics at American Banker's recent "Future Money" conference in Philadelphia. Both are being tested in selected markets, but receiving bills over the Net is closer to widespread use.

CheckFree, Intuit, Microsoft, Integrion Financial Network (owned by IBM, Visa International, and others), and smaller outfits such as Princeton TeleCom are pushing bill presentment as a way for companies to reduce costs and better get to know customers. It also has appeal for consumers, and not just because you save on stamps.

CHIP CHANGE. Here's how it will work: When you visit an online bank or broker's Web site, you'll find a summary of major bills all in one place. Say you sign up for E-banking at Wells Fargo. You'll tell the bank which companies send you bills regularly. The bank will then arrange to have the bills presented to you online at no extra cost. You'll be able to pay the bills instantly or schedule payments later and have your account debited. If you want a paper record, you'll print out statements, and if you have a question about a charge, you'll be able to send E-mail or click on a link that will take you to the company's site.

MSFDC, a joint venture between Microsoft and First Data, is currently running electronic pilot tests with Banc One, KeyBank, Norwest, Wells, and Merrill Lynch. Meanwhile, CheckFree has signed up Chase Manhattan and 22 other companies, including, most recently, AT&T. By fall, AT&T's residential long-distance, wireless, and WorldNet Internet customers will be able to view and pay bills at the Web sites of AT&T or various banks. Eventually, you'll be able to customize the way a bill appears on the screen, and click on a phone number to bring up a reminder of whom you called.

Smart cards are being promoted as an electronic replacement for cash--and more. They look like ordinary credit cards but contain chips that hold large amounts of data and turn them into versatile pieces of plastic. Credit cards usually rely on magnetic strips, which can't store as much information.

Smart cards seem to have the most potential in closed environments such as military bases, corporate offices, and hospitals. Already, University of Michigan students use an "Mcard" to enter buildings, check out library books, or buy pizza. It also lets them make phone calls and get onto the Net. And it can store up to $50 of cash value.

Broader uses of smart cards are still on the horizon. Although they have caught on in parts of Europe, they've been slow to move into the U.S. In a test on Manhattan's Upper West Side, consumers have been reluctant to embrace the cards that Citibank and Chase want them to use at dry cleaners, newsstands, and coffee shops. These Mondex and Visa Cash cards work at the same point-of-sale terminals and are the equivalent of cash--so if you lose one, you're out of luck. There's no single standard for smart cards yet, so while there are hundreds of other tests worldwide, people generally need separate cards for each program.

FREE FOOD. Nonetheless, you'll continue to see market trials. Burger King and Mondex USA, which is owned by seven financial institutions, have begun testing smart cards at Burger King outlets on Long Island. Preloaded $10 or $20 cards are available at dispensers in the stores. Diners can also add value to their cards as they are depleted. To encourage use of the cards, every dollar spent earns points toward free food. In another test, some 200 parking meters near Boston University are being converted to accept smart cards this fall. Meanwhile, New York City officials are talking about replacing their magnetically encoded MetroCards with smart cards to pay bus and train fares. Unlike the MetroCard, which commuters swipe through a turnstile, users will merely wave the smart cards at an electronic reader as they enter, speeding up entry to the public transportation system.

Holding back the spread of smart cards are unanswered questions over liability for loss, theft, or malfunctions. Over time, they'll probably be addressed. But you'll likely be handling bills online well before the day you make smart cards your E-money of choice.

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