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Forbes Magazine
Monday, July 20, 1998

Plastic, not chips

Mondex smart cash cards are not proving popular in trials.

by Sam Sternberg

Cosmo Carere, owner of Speed River Bicycle Inc., in Guelph, Canada, refuses to accept Mondex smart cash cards anymore. Sure, he'll take Visa, MasterCard, the Interac debit card, and, of course, cash so long as it's not in digital form. But since few of his customers bothered to use the Mondex card, he returned the transactional hardware -- a terminal and a merchant deposit card -- after fruitlessly testing it for more than a year.

"I don't know why I kept it that long", says Carere. "We only had 15 small sales in 18 months."

Carere, who never used the card he was issued and doesn't even know where it is now, isn't alone in his disdain for the smart card, if the results of two trials that Mondex has been conducting over the last 18 months are any indication.

Mondex, the London-based subsidiary of MasterCard International, pumped a lot of money and effort into its two trials -- one in Guelph, the other on the Upper West Side of Manhattan. But consumers have shown a stunning reluctance to adopt what Mondex has been touting as the future of money.

Is it possible that Mondex's dream of a cashless society may end up being just that: a dream?


A late-night shopper could buy beer and potato chips at a 7-11 with a smart card instead of fumbling for cash.

In theory, it sounds great. A smart card is a plastic card with a built-in microprocessor. That intelligence gives the card the potential to perform myriad functions -- from storing and transferring cash to holding entire credit and medical histories. A late-night shopper could buy beer and potato chips at a 7-11 with a smart card instead of fumbling for cash, or pay for telephone calls, taxi or bus rides, or even parking meters with the same piece of plastic and silicon.

Banks are very excited about replacing cash. Smart cards give them the opportunity to make some big bucks off interest-free loans from their customers. Once a customer transfers credit to a cash card, the bank can stop paying interest but gets to hold on to the cash until it's billed by a merchant. If 100 million people used a card with an average of only 10 unspent dollars on it, the banks would reap $1 billion a day of interest-free money to invest.

Banks want to believe that this is a win-win situation for all. But consumers don't seem to recognize the benefits.

Despite an intense media blitz that practically covered Guelph with the Mondex logo, only about 15 percent of the town's residents have signed up for a card since the test began 18 months ago. Participation in the Upper West Side trial has also been lackluster.

It's not as if Guelph and the Upper West Side haven't cooperated with Mondex. All of Guelph's parking meters accept the card, as do all local buses, taxis, and about 250 pay phones. Mondex even put money on every card so participants' first purchases were free.

And in New York, after a dismal start, Chase Manhattan Bank -- Mondex's New York trial partner -- simply gave customers living in the area a new debit or credit card equipped with a Mondex chip in it. It also put at least $5.00 of its own money on each card. More than 40,000 local residents received a card, yet the smart card remains as unpopular in New York as it is in Guelph. In both places, after an initial flurry of interest, card use has dropped to near zero.

So what's been going wrong?

Pick a card, any card

... Not interested

The first problem is that consumers just don't have a compelling need for the version of the smart card that Mondex has been touting.

"The public doesn't want it", says Harvey Rosenblum, the manager of Fairways, an Upper West Side grocery.

Fairways still accepts Mondex cards, along with Visa, MasterCard, NYCE debit cards, and Discover; and nearly two thirds of its customers pay with plastic. Of the approximately 33,000 shoppers each week who pay with some kind of card, only 60 use Mondex. And, Rosenblum points out, Mondex has experienced no growth in usage since the test began.

Although the future may indeed mean that a person's whole credit history, driver's license, tax records, and even medical histories will be stored on a chip card, and some cash, as well, the trials have been designed to test a simple cash card. Consumers, who already have wallets stuffed with credit, charge, and debit cards, just don't have a compelling need for them.

Another problem is that the technology hasn't been up to snuff. Robert Caballes, the controller for Zabar's, a $40-million-a-year specialty gourmet grocer located a few blocks from Fairways, says his store originally dropped out of the trial because of serious problems with the online terminal used to settle the receipts at the end of the day. This led to disputes between Zabar's and the banks on how much Zabar's was owed. Eventually, the glitches were fixed and Zabar's rejoined the trail after its account was settled.

"We just couldn't figure out why we need it."

Unlike a credit or debit card, if you lose a Mondex smart cash card, your money is gone forever. With a credit card you're protected against any loss exceeding $50 dollars. Losing a Mondex card is just like losing a wallet full of cash.

Although Michael Keegan, the MasterCard CEO, insists that "No effort has been spared in ensuring that the U.S. public's first experience of Mondex is a roaring success", and Mondex's promotional materials claim both trials are reasonably successful, the fact is that the trials have been a fiasco. Few of the consumers originally involved in them are using the cards now, and an earlier trial in Swindon, England also failed to gain consumer interest.

Viviana von Bertoldi, a Guelph University graduate student, is typical. She and many of her friends signed up for the cards at the beginning of the trial, but quickly stopped using them.

"We just couldn't figure out why we need it," she says.

Why does Mondex continue to fail? Because it has been putting the interests of bankers first. This is not surprising, since Mondex is controlled by MasterCard, a global payments system with 23,000 member financial institutions.

Both current trails continue, however, and new trials are being conducted. In New York Mondex is working with four Burger King stores to see if the cards work as an incentive system: buy a burger and get a credit. In Kingston, Canada, Mondex is taking over a failed trial run by Protean, another cash card system, to see if its card will be able to revive consumer interest.

Mondex and the banks don't want to give up on the potential windfall without a fight. Banks also love the low cost involved in running a cash card system. Unlike credit and ATM card purchases, cash cards can complete a transaction without the expense of a phone call to confirm your account balance. That's one feature merchants also love because it means they don't have the expense of running a card verifier system.

Unfortunately for Mondex, happy banks and merchants are not enough to make it a success. If it expects to make its smart cards the currency of the future, Mondex will have to figure out a way to please the consumers, too.


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Copyright © 1998 by Forbes Magazine. All Rights Reserved. Reprinted with permission.