Forbes Magazine
Monday, July 20, 1998

Digital Epitaph

Will the Mondex version of smart card survive?

by Sam Sternberg

The future of the smart card looks bright. It's the American e-cash card that has been slow to catch on.

"Around the globe smart cards are succeeding, but in ways that don't necessarily involve banks or Mondex", says Henry Dreifus, president of Dreifus Associates Ltd., a card technology consulting company based in Longwood, Fla. He estimates that 15 million smart cards will be in use this year, most of them in Europe, a 50% increase over the 10 million cards in circulation worldwide in 1997.

Dreifus says the market is growing in unusual places. Only 5% of all smart cards are bank cards, with the other 95% falling under the rubric of specialized cards. Much of the increase in usage is generated from new technology markets, such as satellite TV receiver systems, sales of which are booming around the globe. Cash card readers are built into all satellite TV systems so subscribers pay for fee-based special programming. Card reader-equipped cell phones are also capturing new markets. Consumers like them because they eliminate the need for a contract, and phone companies love them because users prepay their monthly call time.

Another large chunk of growth comes from the conversion of existing systems to smart card usage. Smart card readers are built into most European phone booths. They save customers from carrying a pocketful of change, and they save the phone companies the costs of coin handling, and do away with theft from the coin boxes. Dreifus estimates that those costs can eat away more than 15% of revenue in some countries. The potential savings led Teléfonos De México to move rapidly on converting its entire pay phone network to card-based payment.

The cards are also being used for purposes as diverse as building security cards, customer incentive systems, and health information cards, which are just coming into use in the U.S. All of these applications emphasize the data-carrying capacities of smart cards. For example, in the medical realm, smart health cards speed patient check-in, improve fraud control, simplify patient recordkeeping, offer fully portable patient records, and yield fast and accurate billing to the insurer. For the holder of a smart medical card, the most valuable improvement will be the elimination of that frightening delay at the hospital emergency room.

Multi-use cards may be the future for smart cards in North America, which means the design of Mondex's barebones smart cash card needs to be extended to meet consumers' needs. Efrem Lipkin, a Berkeley, Calif.-based electronic commerce consultant, says cash handling, along with special applications, should all go on a single card. Lipkin -- who worked with Mondex as an electronic commerce consultant for Sun Microsystems to design a system for using the cards over the Internet -- is not impressed with the Mondex technology.

"Their technology is poorly chosen for its intended use", Lipkin says. He believes that a successful card needs to be multifunctional and act as an electronic wallet. Card users should have control over the software and transactional data on the card, not Mondex, so it can be used with payment systems from any company the consumer chooses.

But unless Mondex can find a way to keep its cards in consumers' pockets, it has no future in the cash card business.

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