To: cypherpunks@toad.com For personal use only as directed... Heading #1 Search: 04-05-1994 10:09 ^S/^Q: start/stop; ^C/<ESC>: interrupt; ^T: Paging ON/OFF 2185964 PERSONAL FINANCE - Seeking the Card That Would Create A Cashless World. The Washington Post, April 03, 1994, FINAL Edition By: Albert B. Crenshaw, Washington Post Staff Writer Section: FINANCIAL, p. h01 Story Type: News National Line Count: 105 Word Count: 1164 Now that credit cards are in the hands of virtually every living, breathing adult in the country-not to mention a lot of children and the occasional family pet-and now that almost as many people have ATM cards, card companies are wondering where future growth will come from. At *Visa* International, the answer is: Replace cash with plastic. Last month, the giant association of card issuers announced it had formed a coalition of banking and technology companies to develop technical standards for a product it dubbed the "Electronic Purse," a plastic card meant to replace coins and bills in small transactions. A second coalition of manufacturers and suppliers will seek to develop low-cost equipment for use with the card. The concept is much like a Metro Farecard. Consumers would prepay-or electronically "load"-the card with a small sum, typically $40 or less, according to *Visa* officials, and carry it with them to use in pay telephones, highway toll booths, vending machines, parking meters and thousands of other small-ticket transactions. Unlike a Farecard, though, the card would be reusable. It would contain a memory chip that could exchange information with bank ATM terminals for "loading" and with terminals at vending machines and other places for payments. *Visa* envisions it both as a stand-alone product and as a feature that could be incorporated into credit or ATM cards. "There are a number of benefits to different players" in the market, said Albert Coscia of *Visa*. In theory, machines that would take the "electronic purse" would be used with small-change kinds of devices, such as phones and parking meters, so for consumers, it would eliminate the problem of having the right change. In addition, depending on what consumers want and what the technology can accomplish, the cards might have other features, such as the ability to remember specific transactions so that a consumer could keep track of exactly what he or she spent the money on and where. Budget-conscious individuals or business travelers doing their expense accounts might find that very appealing. For vendors, the card would cut the need for sorting and counting coins and carting them to the bank. The day's transactions would be totaled instantly. Also, vendors would be less likely to lose sales because a potential customer didn't have change. Since transactions would be electronic, it would be tougher for employees or others to dip their hands into the till. But while the idea certainly has appeal, it is far from certain that *Visa* and its allies can make it fly. People have been talking about a cashless society for years, but the number of cash and check payments continue to dwarf those made on plastic. Robert B. McKinley of Ram Research Corp., a Frederick research and publishing company that tracks the credit card market, noted that putting in all the terminals and other equipment "has a horrendous price to it." In addition, he said, "smart cards," those with chips in them, have in the past proved expensive to make and easy to break. Also, a smart card that replaced all your credit and debit cards as well as checks and cash would become "a gateway to your entire financial being, and without some kind of safeguards," loss or theft of the card could be a disaster, he said. Putting in safeguards such as a personal identification number (PIN) would make the card cumbersome to use for small transactions and require more elaborate equipment at the point of sale. The card "certainly (could be) a personal financial management tool" and might evolve into a global payment system-*Visa*'s goal-but it has a long way to go, McKinley said. "It's all pretty much concept stuff right now." *Visa* concedes that there are major technical and market hurdles to overcome. Coscia said the company expects that the concept will spread faster in other countries where telecommunications and on-line systems-that allow instant credit checks and debit transfers-are less developed and less established. Where such systems are not as advanced, off-line systems such as the Electronic Purse are more appealing because they offer the merchant the assurance of payment without external verification. Cards containing microchips cost anywhere from $3 to $8, depending on the sophistication of the electronics, but *Visa* officials said they think that with the volumes they envision, the cost would drop to around $1. Coscia also said that pilot programs in Europe indicate that the physical durability of the cards is improving. "Dropping it won't wipe it out," he said. He indicated that some of the apparent conflicts might be resolved through technology; perhaps it could require a PIN for credit and debit transactions but not for those that tap the prepaid funds carried in the card. As chips become more and more sophisticated, more alternatives become possible, he said. Coscia said *Visa* doesn't expect the Electronic Purse to come into widespread use for years. The purpose of the alliance is to develop standards that would ensure that cards and terminals could talk to each other no matter who makes them or country they are in. "We want to eliminate the possibility that someone gets too far down the road" with a system that is incompatible with others, as happened in videocassette recorders with the VHS and Beta formats, he said. He said the consortium hopes to have its first pilot application of its new standards operating by the end of next year. Besides *Visa*, the consortium includes two large U.S. banking companies-NationsBank Corp., based in Charlotte, N.C., and Wachovia Corp., based in Winston-Salem, N.C.-as well as Electronic Payment Services Inc. of Wilmington, Del. The non-U.S. members are Banksys of Brussels; Financial Information Systems Center of Taipei, Taiwan; Groupement des Cartes Bancaires of Paris; Sociedad Espanola de Medios de Pago of Madrid; and Sociedade Interbancaria de Servicos of Lisbon. The consortium will accept other members in the future, *Visa* said. Both critics and proponents of the Electronic Purse point to the debit card as instructive. The technology to use debit cards at the point of sale-that is, to transfer payment from the customer's bank to the merchant's bank right on the spot-was around for years before they came into widespread use, such as at many grocery stores. It was the growth of one form of debit card-the ATM card-that finally pushed them into general use. Proponents look at that history and say it is only a matter of time, while critics argue that unless some particular use comes along to give it a shove it may never go anywhere. Ultimately, *Visa* hopes to become a true international payments system. Consumers could use its cards for credit or debit transactions or in place of cash and get a single statement with all the currency conversions already done. "If you look at payment alternatives, with a credit card you pay later, with a debit card you pay now, and with a prepaid card you pay before," Coscia said. CAPTIONS: CHANGING PURCHASE PATTERNS (Graphics are not available.) Jerry Edwards helps Isabel Ernst use a credit card at the Georgetown Safeway. Card issuers are now looking beyond credit cards to a card to replace coins and bills in small transactions. ORGANIZATION NAME: *VISA* INTERNATIONAL DESCRIPTORS: Credit cards; Banking industry; Money --- WinQwk 2.0b#1165