VISA Electronic Purse

[Duncan Frissell]

To: cypherpunks at toad.com

For personal use only as directed...

Heading #1          Search: 04-05-1994  10:09 ^S/^Q: start/stop;
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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



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