Smart cards pose technology problems

By Keith Newman

A lot more fine-tuning is needed before firms will be able to persuade customers to forget about carrying cash.

More than 100 trials have been staged around the world to try and find the magical mix of services to convince consumers that smart cards can complement or replace their current wallet full of plastic.

Visa has taken part in 70 trials and others have been held using Mondex or proprietary smart card systems.

Mondex, which is licensed by the big trading banks here, has an optional pocket-sized wallet device with one or two card readers and its own electronic purse, keyboard, and a screen.

Wallets can transfer value to and from Mondex smart cards, allowing person-to-person payments without handling cash.

There have been some failures, where the public all but ignored the new system.

More widespread commercial deployment is expected once technology standards are achieved and a convincing business case can be proven which offers stored value and loyalty-based incentives.

Both VisaCash and Mondex have held trials in New Zealand but there are no specific plans as yet for a commercial roll-out.

Britain is making a big push with smart cards with plans to replace about 90 million domestic magnetic strip cards over the next 18 months.

Japan and Singapore also have smart card systems in operation.

"We have a long way to go in the chip market in New Zealand and not everything that's first out of the blocks will be the best," said 1998 Mondex New Zealand secretary Kevin Donaldson.

Visa New Zealand manager Daniel Jeffares does not believe smart cards will replace cash within the next 10 to 20 years, but will make carrying cash an option.

Visa has its hopes on a Wellington City Council initiative to supply smart cards to its residents, but is unsure what form the card might take.

It may simply be another disposable piece of plastic to turf in the bin after expiry. The next level up is re-loadable and can extend to reward and loyalty programmes. Eventually the smart chip would become part of existing ATM cards.

The technology is still being firmed up and there are the ever-present security concerns. Every time a new encryption level is achieved for Visa or competitor Mondex, some hacker cracks it. And there is uncertainty as the banking community completes year 2000 upgrades and tests to ensure that basic services work before adding new and complex layers of processing.

For Visa and Mondex partners there will need to be computer upgrades at their main servers. The banks will have to complete some systems work to accept the cards and there will be the cost of changing the Eftpos network, installing new terminals at retail outlets or upgrading the existing software.

Simply issuing the cards is also a big cost at $7 for each one. This will need to be met by retailers through perceived benefits from high-use loyalty programmes.

Perhaps a lower transaction fee than existing cards - or no fee at all - might help encourage use. At present Eftpos fees are about 35 cents per transaction.

And, while retailers and banks battle with how they are going to work together to introduce the next generation of personalised currency, the technology companies are still trying to sort out how they plan to deliver it, with technology differences to sort out.

Visa has adopted the VisaOpen platform which can handle applications based on Sun Microsystems' Java programming language and is behind the common electronic purse standard which has been adopted by American Express and others.

Mondex, 51 per cent owned by MasterCard and backed by banks around the world, has its own proprietary operating system, Multos, which it is trying to establish as a standard. The two are incompatible.

Banks have a vested interest in both systems. The two are likely to compete side by side as they do in ATM cards, although there are rumours that some banks are becoming more outspoken in the push for a single operating system.