SMART CARDS START SLOW

Byline: Deena Amato-McCoy

NEW YORK — Shopper participation in the first large scale test of smart cards, now under way on the Upper West Side here, could only be described as lukewarm, but retailers are still bullish on the technology.
“From a merchant’s point of view, this is a great option because there is no need to handle cash and there are no processing fees like those attached to credit card transactions,” said Anton Vataj, manager and part owner of The Athlete’s Foot on Broadway here.
The smart card test, expected to run at least six months, was launched on Oct. 6. In addition to The Athlete’s Foot, more than 700 retailers, such as Duane Reade, Lechters, Tates Clothing, Sterling Optical, Cohen’s Optical, and D’Agostino Supermarkets are involved.
While the technology — involving plastic cards with embedded microprocessor chips that can contain stored amounts of money and other information — is fairly new in the United States, experts see great potential for expanded use of the cards.
In Europe, for example, the cards are already widely used for small purchase transactions. Smart cards offer customer convenience and eliminate the fees associated with processing credit card transactions, according to industry observers.
Ultimately, if smart cards take off, retailers expect cashiers to spend less time handling cash, which will enable customers to move faster through the checkout line.
Earlier this month, about 50,000 cards were sent out to customers with $5 already stored on the card along with a list of area merchants accepting the cards. Upon presenting smart cards as payment, customers insert the card into a terminal at the point of sale. Special kiosks or ATMs throughout the test region can be used to add money to the cards.
While this is the first broad-scale consumer pilot of the technology, smart cards have been tested in controlled environments, such as the 1996 Summer Olympic Games in Atlanta. A test with a small group of Wells Fargo Bank employees in San Francisco, which has been in place for more than two years, is ongoing. Smart cards have also been tested on a limited basis on college campuses and theme parks.
The smart cards used in this pilot, unlike credit and debit cards, house a microprocessor chip and can store up to $500 in cash value.
The card, designed originally as a substitute for coins and small denominations of paper money, offers a logical solution for small transactions such as dry cleaning or movie rentals. Because the cards in the test program can store up to $500, however, apparel and home furnishings retailers are also closely watching the test.
The smart cards being used during the test were distributed by Chase and Citibank here and supplied by MasterCard and Visa USA. The terminals are provided by the sponsoring banks. During the test period there is no cost to participating merchants, but there may be a charge once the cards are rolled out.
The terminals enable fund transfers between the card’s computer chip and the chip embedded in the point-of-sale reader.
So far, use of the cards has been nominal, according to participating retailers. Lechters estimates it is processing an average of only three smart card transactions a day.
“Customers are aware of the card and want to use it, but more important, this is a less time-consuming payment option for our cashiers to process,” said assistant store manager Thomas McCrea. “This will make an impact on our cashier productivity.”
More consumer education may be needed before the cards gain wider acceptance.
“The biggest problem is that customers have a tough time determining that this is an advantage over using their automated teller machine card,” The Athlete’s Foot’s Vataj said.
“They don’t understand that a smart card is not linked to their personal bank account. No signature or personal identification number is required, and it is less time-consuming to make purchases. I wish more of our customers would use it.”
Customers can load and replenish the card’s cash supply by transferring funds from a bank account or credit line at special kiosks or ATMs available throughout the test region. After inserting a bank card, the ATM instructs the customer to insert the smart card into the unit as well. The machine then flows funds from the bank card to the computerized card. New cards, however, are issued with $5 already loaded.
“We had the kiosk in place about a week before the test actually began, and since we are the only retailer in the immediate area with a kiosk, we expect to see more customer traffic through the store,” said Thomas Boyd, store manager of Food Emporium on Broadway and 68th Street.
Merchants need to retrofit their point-of-sale systems with a terminal that specifically processes the chip card transactions. The cards are expected to be a benefit to merchants that normally handle cash transactions.
“The cards cut the expense of handling cash,” said a Chase spokesman. “Merchants are charged for activity on their bank accounts. They also reduce theft since there is little or no cash in drawers. In addition, they are also more sanitary, as the cards are not handled by the cashiers.”
The disadvantage, however is that if the card is lost or stolen, it is not replaced.
“Losing the card is like losing cash,” said the MasterCard spokesman. However, Chase said that a lock can be placed on the card when it is not in use.
“The card comes with a reader to show the dollar amount available and transaction dates. In addition, the card can be locked by pressing a button on the reader,” Chase’s spokesman said. “A personal identification number unlocks the lock. The card needs to be unlocked to be used for purchasing.”

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