Money in New York is becoming cashless. In the biggest test since the 1996 Olympics in Atlanta, the New York Smart Card Program got under way earlier this month with the support of Citicorp, Chase Manhattan Corp., Visa USA and MasterCard Inter national.
In an effort to enthuse all those who live from 60th to 96th Street on Central Park West to Riverside Drive, both banks are mailing 25,000 cards - which are empty but active - to their account holders in the Upper West Side of Manhattan. The location has been chosen for its affluence and density of population.
The new smart card will work just like a regular ATM card, but will have a computer chip which will allow consumers to load cash value onto their smart card at an ATM or special kiosk. Citibank cards are being issued with the Visa Cash stored value product. The Chase Banking Cards are being issued with the Mondex electronic cash product, complete with wallets that tell you how much money is stored on the card.
The maximum amount allowed on the card is $200 for Chase and $500 for Citibank users. For those who don't have an account with either bank, there are about 15,000 stand-alone cards available which can be loaded at branches or kiosks or from home using a personal ATM device and telephone line.
There was little evidence of interest in the experiment in the immediate aftermath of its introduction. Chase displayed a big sign over its 72nd St branch promoting the "Smart Chip that carries cash to pay for everyday things". And another had a photo of a bag of chips from Burger King with a slogan stating "buy these things and let the card keep the change".
A waitress at the Mad Fish restaurant said her employers had signed to accept the free hand-held terminal "to offer one more convenience to the customer".
And that's the purpose of the smart card - to do away with cumbersome change. However, the merchants who accepted the card were not that visible. I did manage to try my Citibank-branded Visa Cash card in three stores on Broadway - Gryphon Books and Records, Ricky's Pharmacy and Pita & Stuff - with impressive results. Although I was their first chip card customer, the staff knew how to use the smart card readers. With the help of training by bank representatives and easy to read manuals, they followed their instructions, showed me how to follow mine, and seemed just as pleased as I was when the transaction was accepted and the reader printed a receipt. When I bought a second-hand book for $1, that amount was debited from my card and the reader recorded that the remaining balance was $4.
In one instance, the owner of Pita & Stuff was more concerned about educating me in how to use the card than about a scuffle between two men that broke out on the street just outside his door. He's obviously more used to crime than to using chip technology.
Citicorp's executive vice-president of advanced development, Edward Horowitz, says that the Upper West Side is a "technology test to see if Mondex and VisaCash can inter-operate at point of sale and to see if the customer cares".
Getting the customer involved is the key. While those I talked to were interested in the concept, they remained sceptical. "Why use more plastic when you have a debit card?" Todd Bristol, a wary consumer asked. There's also a problem if the card is lost or stolen. Whoever finds it can use the amount remaining unless the customer has phoned the bank to put a block on it.
Others likened it to the MetroCard, another New York innovation introduced in July. Although this is a magnetic stripe card that replaced tokens for subway train travel, it required the addition of free bus transfers to encourage public interest - with usage quadrupling as a result.
"The problem with the MetroCard though," said Alice Dayton of Makovsky & Co, the PR firm for the smart card program, "was that they announced it was available to consumers but forgot that some subway stations weren't equipped to accept the cards. The banks this time wanted to avoid that and so made sure that the merchants had terminals and the consumers had cards all at once."
But that is not yet the case. In fact, only 300 of the 672 merchants that have signed contracts to accept the smart cards have been equipped with the readers. When questioned, a subway station manager had sold many MetroCards but had never seen a chip card and said: "We only accept cash!" It remains to be seen if the smart card will become part of the payment furniture in Manhattan.
Nationally, the smart card - originally a French invention - is being redefined. Some 18 months ago, it was seen only as a disposable stored-value card. Now there is a concensus that it may also be used for authentication. The question is, though, how quickly can systems be modified to accept smart cards and how soon will financial institutions find a business case for using them? For now, in New York, the two banks believe they will benefit from reduced costs by having to process fewer cash and cheque transactions. At the same time, they will be solving a cash management problem for small merchants.
