NEW YORK -- Electronic cash may be joining jet packs, video phones, and other world's fair wonders that never move from the future to the present.
In the latest of many notable failures for what has been promoted as the future of money, Citibank and Chase Manhattan have decided to shut down their test of electronic cash, the nation's biggest trial of the technology to date.
The banks issued the so-called smart cards -- cards with embedded computer chips -- to nearly 100,000 people who live on the Upper West Side of Manhattan. Customers could transfer cash from their bank accounts onto the cards at automated teller machines and spend the money at 600 merchants. In theory, this would make small purchases faster and easier than with coins and bills.
But in reality, most people who tried the system never loaded their cards a second time. And with few people using the cards, two-thirds of the merchants dropped out. Indeed, in the program's first year, less than $2 million was spent using all of the cards.
"Unfortunately, we weren't able to make the consumers' life easier", said Carole Lockie, a vice president of Visa USA, which worked with the New York banks and Mastercard International on the test.
Chase and Citibank customers with smart cards will be able to load their cards and spend money at the remaining merchants until the end of the year. They will then have until six months after the expiration date on their cards to transfer any remaining cash from the cards to their bank accounts.
Other similar tests of electronic cash have produced similar disappointments. Visa introduced its Visa Cash smart card at the 1996 Summer Olympics in Atlanta, with the hope of continuing to operate and expand the system there. In fact, the system has all but shut down and most of the banks have withdrawn.
Last year, Mastercard closed the introductory test of its Mondex smart card system in Swindon, England. And it just said it would end a similar test in Guelph, Ontario.
"Smart cards are a technology chasing a business case", said Richard Speer, chief executive of Speer & Associates, a financial consulting firm. He said that the widespread acceptance of inexpensive terminals that merchants can use to accept credit and debit cards has undercut the need for electronic cash.
Proponents of smart cards maintained that the technology will ultimately prove popular; in the test by Chase and Citibank, they said, consumers were discouraged because they could not use their cards in all parts of the city.
"When you localize your test on the Upper West Side, you realize your usage will be suppressed, because everyone leaves the Upper West Side", said Judy Darr, director of smart card programs at Citibank, a unit of Citigroup.
Yet the banks found it too difficult to expand the number of places accepting the cards, because there was little appeal to merchants to take it.
"This is a real chicken-and-egg case", said Ronald Braco, senior vice president of Chase. "Merchants don't want something where they get only a few transactions a day."
While smart-card technology may eventually prove to be faster and easier than cash, merchants found that the versions in the tests were slow and cumbersome. Customers chose mainly to use the smart cards at grocery stores, which already take credit and debit cards. They were less interested in using the cards at newsstands and other stores that typically only accept cash.
Moreover, the card couldn't be used in pay telephones, vending machines or other devices that require change. The New York banks did put smart-card readers on laundry machines in some apartment buildings and found that cards were used 30 percent of the time.
The New York smart-card test was announced in April 1996, and introduced in October 1997. At its introduction, promoters said that the combination of New York's two largest banks and the world's two biggest credit-card companies would give the test the critical mass it needed to overcome the problems that earlier tests of the technology had faced.
Beyond the difficulties the banks faced in getting customers and merchants to use the system, their prospects of making money from smart cards remained daunting. Initially, the banks hoped that consumers would pay $1 or $1.50 a month to use the cards and that merchants would pay fees to accept them, just as they do now to take credit cards.
But during the test, the banks were forced to give cash rebates to customers to try the cards and to merchants to promote acceptance.
Still, neither of the banks is giving up on smart cards completely. Braco said that Chase is working on a new smart-card product it hopes to test next year. The new version will have multiple features, including the ability to make purchases over the Internet and to keep track of bonus points at various merchants' frequent buyer programs.
"We've learned it takes more than just a plain vanilla stored-value product to be successful", Braco said. "People find that if there is an incentive to use the card, they will use it more often."
Chase and Mondex are already testing a smart card system at four Burger King restaurants on Long Island that reward customers for frequent purchases.
And Citibank says there is likely to be more use of smart cards outside of the United States. It is going to introduce electronic cash products in Mexico, Hong Kong and other countries.
The banks and credit card companies say there are also numerous applications for smart cards in closed environments like college campuses and military bases, in which the cards can be used both for payment and identification.