The Financial Post
Saturday, September 27, 1997

Where cash isn't king

Guelph, Ontario, tries living the cashless existence in a test of the Mondex stored-value card. Conclusion: Fewer people fumble for loose change - more people fumble with yet another piece of plastic
by Richard Blackwell

[Mondex card] GUELPH -- Eight months after the full-scale start-up of the pilot test of the Mondex stored-value card in Guelph, Ont., the jury is still out on whether the electronic purse is on the way to being a success.

The Mondex test is crucial to the future of electronic money in Canada. Now that all the big banks, plus Canada Trust, the Caisses Desjardins, Hongkong Bank of Canada, and the credit union movement support Mondex, virtually all of Canada's stored-value eggs are in one basket.

Visa has started up a pilot test of its Visa Cash card in Barrie, Ont., in conjunction with Bank of Nova Scotia, but Mondex is the clear leader now that everyone including Scotiabank has signed on with them. Even the Exact card test in Kingston, Ont., based on Proton technology from Belgium, is switching over to Mondex sometime next year.

With Mondex, users load cash value on the electronic chip contained in their card. They can do this at an automated teller machine, at one of the 250 specially equipped pay phones in Guelph, or at one of 2,500 special home phones that have been distributed to interested users throughout this city of 100,000.

When they make a purchase, the card is inserted in the vendor's terminal, and the value is transferred from the buyer to the merchant.

The pilot in Guelph is designed to test equipment and systems, along with public reaction. The banks running the test Royal Bank of Canada and Canadian Imperial Bank of Commerce, along with one local credit union, will ask the users how much they will be willing to pay for electronic cash. However, during the test the service is free to customers and merchants.

[Downtown Guelph] Electronic cash is accepted at about 570 retail outlets, and at other locations:

Even one corn stand in the country just outside Guelph accepts the cards. And beer stores in the city not only accept the card for purchases, they can load money back on a customer's card when bottles are returned.

Some enthusiasts even pay their kids' allowances with Mondex, says David Creech, the Guelph city administrator who has been a strong proponent of the pilot. The system allows person-to-person transfers, and thus kids can get electronic money from their parents and use it to pay for bus fares or purchases at corner stores.

So far, about 7,500 cards have been handed out, and they are accepted at retailers ranging from Eaton's and Sears to corner stores and restaurants. Mondex claims 90% of Guelph merchants who do a high volume of cash transactions accept the card, but a random survey of retailers in the city suggests that number is inflated somewhat.

According to Mondex, more than $1 million has been loaded on cards since the test began in February. While that's an impressive number on its own, in a city the size of Guelph it's a drop in the bucket compared to the overall commerce that takes place.

In interviews with a couple of dozen retailers, it's clear there is considerable ambivalence toward the Mondex test.

[Kevin McKitrick] At one end of the spectrum is Diane McCrimmon-Hall, owner of the Santa Fe Marketplace craft shop. She does not accept Mondex and has no intention of doing so.

Since the test began last winter only two people have asked if she accepts it, she says, so there is no incentive for her to join, even though she would get the terminal hardware free for the time being.

McCrimmon-Hall notes, however, that she was not an early supporter of the Interac debit card system, but she eventually came around and debit now makes up almost 50% of her sales.

Still, with cash, credit cards, and debit cards available as payment mechanisms, she sees no need to add another, especially when there appears to be little demand.

Other retailers have similar stories, and even those who accept the card say there are seldom more than a handful of users each day. Cara Bowman, who works at the post office counter in the Hallmark card store, says she sees a maximum of three Mondex users a day.

Bowman herself has no interest in carrying the card. "I don't need any more cards", she says. "I'm trying to simplify my life."

One retailer says she accepted the Mondex terminal and a special phone to download money into a bank account only because they were free during the pilot. As soon as the banks begin to charge, she'll drop it. "And I don't believe we'll lose a single sale because we don't have Mondex", she says.

Still, Mondex has its enthusiasts among retailers. Dan Brown, owner of the Kernels popcorn franchise in Guelph's Stone Road Mall, says the system is "suited tremendously for a traditional cash business".

His sales are mostly in cash, in the $2-$10 range, ideal for Mondex. Only four or five people a day are paying with it so far, Brown says, but higher usage would cut his cash handling at the end of the day, and speed up individual transactions because he wouldn't have to make change.

Another keen user is Kevin McKitrick, events co-ordinator at the Homewood Health Centre. He was instrumental in getting the Homewood cafeteria to accept Mondex, and he's an enthusiastic personal user.

McKitrick says the biggest advantage of Mondex is being able to download cash from his bank account to his card on his home phone. The fact that the card can be locked and then unlocked with a special code makes it more secure than cash, he notes. And because it has his name and his bank's name on it, it will likely be returned if lost.

McKitrick says he keeps between $30 and $50 on his card, and seldom carries much cash anymore. On occasion, he's gone into a variety store to make a purchase and found it didn't take Mondex. "I've had to leave because I have no cash."

But keen users like McKitrick are still rare in Guelph.

Guelph city administrator Creech acknowledges that use is not at the levels Mondex backers would like to see. "An additional marketing push is needed right now", he says. "We need to keep it in everyone's face."

[David Creech] Creech notes that one of the big problems with a pilot test in a place like Guelph is that many people who work in the city live elsewhere, and many who live in town work in Toronto, 80 kilometres away. To them, Mondex isn't ubiquitous enough to make it attractive.

That should change when the card is rolled out nationally, a process that will begin late in 1998, Mondex says.

But many industry players say it is now recognized that no stored-value card can make it on its own they just can't bring in enough revenue from fees to pay for implementation, including the huge costs of installing terminals and loading devices.

To make cash cards viable, they will have to be linked with other forms of payment, plus other services. That means creating a single chip card that can handle credit, debit, and cash value. In addition, the multi-use card could contain data relating to "loyalty" programs such as Air Miles points, and other identification or medical data.

That will happen eventually, says Rembert de Villa, an associate partner at Andersen Consulting in Toronto. Multiple-use smart cards could be in wide use in five to seven years, he says. "It's going to come. Customers really want them, provided you can combine payment with other things."

Retailers are clamoring for combined devices so they don't have to have debit, credit, and cash card terminals crammed on their sales counters.

In Guelph, the first step toward the multitiple-use environment is being made by Royal Bank and hardware maker International Verifact Inc., which will soon be retrofitting terminals at some Guelph retailers so they'll accept debit, credit, and cash cards in one device.

Combined cards, once they come into being, would likely have much greater appeal to users than the single-application cards available today. Mondex enthusiast McKitrick says he would be willing pay a fee for a card if credit, debit, and Mondex cash were all together on one chip.

"If they could combine it on one card, they'd have it made."

Copyright © 1997 by The Financial Post. All Rights Reserved. Reprinted with permission.