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Taking tips from smart card trial

Sponsors of the largest U.S. smart card trial say they learned valuable lessons about technology and usage patterns, even though the trial wasn't a huge hit.

Sponsors of the largest U.S. smart card trial say they learned valuable lessons about technology and usage patterns from the Manhattan trial, even though it wasn't a huge hit with either consumers or merchants.

The trial, winding down next month after a 14-month run, issued 100,000 cards loaded with electronic cash and involved more than 600 merchants on Manhattan's Upper West Side. But most consumers never reloaded e-cash on their cards, and two-thirds of the merchants dropped out during the trial.

"We never set a benchmark in terms of numbers on what would be a valuable pilot," said vice president Carol Lockie of Visa International, one of four sponsors of the trial. "It had so many components to learn from, not just transactions. We were not just were looking for volume, we were looking to the perceptions and impacts to the consumer and the merchant."

The high-visibility test also involved Mastercard, Chase Manhattan Bank, and Citibank. Its chief technical advance was the ability for merchants to accept e-cash from a single smart-card reader for both Visa Cash and Mondex, two incompatible schemes for so-called "stored value."

"It seems like the trial kind of rolled to a halt, which makes me wonder about the value of smart card pilots in that kind of an environment," said Scott Smith, an e-commerce analyst with Current Analysis.

"It's hard to see how results from New York apply to middle America--nobody cuts you any slack in New York," Smith added. " If they wanted to put themselves in the worst environment, they did it."

Indeed, the New York trial has been dogged by bad publicity, in part because it's a media center. Visa's Lockie said the trial was conducted in Manhattan because the two big banks wanted to do it there and because the sponsors figured the tough New York environment could teach lessons that might not be learned in a more benign environment.

The U.S. market for smart cards has lagged behind Europe and Asia, so advocates like Visa are pushing not the single-purpose cards like the ones in the New York trial but multifunction cards that combine electronic cash, credit and debit cards, and loyalty or frequent-user programs to reward customers who return to the same merchants.

Smart cards, also called chip cards, are plastic cards the size of credit cards with an embedded computer chip. The card companies are eager to move to smart cards from today's standard magnetic stripes on the back of cards so that more data or applications can be loaded onto cards.

Since the Manhattan trial was launched in October 1997, for example, Visa has added the ability to make Internet purchases using Visa Cash, a capability not available for the New York trial.

The Manhattan experience has led Visa to join a European effort to standardize so that smart cards, credit cards, and debit cards from different vendors can be handled by a single machine. Mondex and MasterCard, which owns a controlling interest in Mondex, have not yet endorsed that effort

Grocery stores turned out to be the most popular spot for the cards to be used, somewhat undercutting the business case for e-cash on smart cards because of the broad use of debit and credit cards in grocery stores. Banks and card associations have positioned smart-card-based e-cash as a substitute for cash, not debit or credit uses.

Visa's Lockie said the Manhattan trial was hampered because residents of the Upper West Side, selected because they are early technology adopters, couldn't use their smart cards when they went to work in other parts of Manhattan.

Within that neighborhood, however, any interested merchant was allowed to join the e-cash program, leading to some bad press when many dropped out.

"The press picked up on merchants who were not acceptors anymore, even though the merchants decided the size of their average ticket wasn't enough," Lockie said. "That created a negative buzz in the marketplace, and we were never able to shake it." But the lesson learned was that the pilot wasn't appropriate for low-volume or low-value transactions.

Visa plans no specific e-cash on smart card trials; instead future pilots will address multiple uses of smart cards.

"The challenge for us now is that many see smart cards as digital cash," said Visa spokesman Greg Jones, adding that Visa needs to broaden that perception to push its multiapplication smart card agenda.