A Cash-Free France? Don't Bet the Store

Its smart card could be the Next Big Thing, or the next Minitel

Once again, France is hearing the siren song of a new technology. On Nov. 6, Parisians will be invited to take a big step toward a cash-free economy when a group of French banks introduces a microchip-embedded smart card designed for making small, everyday purchases. The e-cash card, dubbed Moneo, can be loaded with $20 to $100 worth of credit from your bank and recharged when depleted. The cards have been introduced over the past few months in several French cities, where shoppers are already using them for an estimated $1.5 million in transactions each month. "It's the future; everyone will soon use it," says Liliane Chambrette, a Dijon shopkeeper who says more and more of her customers are using the Moneo cards to buy cigarettes, newspapers, and other items.

But are the French blazing a trail into a cul-de-sac? That's what happened with some earlier French technological marvels such as the supersonic Concorde, fast-breeder nuclear reactor, and the Minitel, a telephone-based Internet precursor, that failed to find global markets.

True, e-cash has a ready base of support: bankers and merchants eager to cut down on the labor and expense of processing small transactions made with checks and bank debit cards. Trouble is, e-cash already has been tested elsewhere in Europe and the U.S.--and it has mostly flopped. In Germany, banks have distributed e-cash cards to an estimated 50 million customers, but few use them. "It complicates life; at least that's what our customers feel," a German banking executive says.

Still, the French have reasons for optimism. Proton, an e-cash program in Belgium, has posted steady growth since its launch six years ago, with 30% of the country's 10 million citizens now using smart cards for purchases expected to total some $500 million this year. That's still peanuts compared with the $21 billion Belgians ring up annually on their debit cards. But, says Marina De Moerlooze of banking consortium Banksys, which oversees Proton, Belgians who use the card for expenditures as small as parking meters and vending machines say it makes things easier.

France could prove equally fertile territory for e-cash. For one thing, French consumers seem to hate carrying cash. For years, they were the world's most prolific check-writers--until French banks, swamped with check-processing costs and a growing bad-check problem in the 1990s, persuaded them to switch to debit cards. But that created headaches for merchants, who say the fees banks charge for handling debit-card purchases can eat up as much as 20% of revenues on small transactions. With e-cash, the merchant can deduct credit from the user's card without dealing with a bank.

Early reaction to the Moneo experiment has been encouraging. Billetique Monetique Services, or BMS, the French banking consortium that's promoting the card, says it has already been adopted by 10% of the people in the regions where it has been introduced. It's especially popular with young people and with anyone still confused by the euro. "With the introduction of the euro and the new coins, it's very convenient," says Nathalie Chopard, 23, a student in Dijon who says she uses her Moneo card to buy cigarettes and snacks.

For their part, the banks say they are trying hard to make e-cash hassle-free. They're inviting customers to have Moneo capability added to their current debit or credit cards, so the same card can be used for big-ticket purchases as well as small e-cash transactions. Users can check their Moneo balance and request a recharge from their bank whenever they make a purchase, using the merchant's card reader. Banks charge users an annual fee ranging from $5 to $12. Parents can order extra cards for their kids--but don't worry, only the account holder can O.K. a credit recharge.

Still, Moneo backers aren't naive enough to expect a cashless society. Even after three or four years, they project that no more than 15% of French consumers will use Moneo. "It's going to take a long time to develop," says Pierre Fersztand, director of the BMS consortium. "We are not going to replace pocket change overnight." Debit cards didn't catch on overnight, either, so who knows? With enough buzz, a Moneo card might someday be what every Frenchman uses to buy his café au lait and croissant in the morning.

By Carol Matlack in Paris, with Karim Djemai in Dijon and David Fairlamb in Frankfurt

    Before it's here, it's on the Bloomberg Terminal.