BUSINESS

A plastic revolution

Canadian shoppers put the ‘smart card’ on trial

TOM FENNELL January 20 1997
BUSINESS

A plastic revolution

Canadian shoppers put the ‘smart card’ on trial

TOM FENNELL January 20 1997

A plastic revolution

BUSINESS

Canadian shoppers put the ‘smart card’ on trial

As Drew Pullman lined up with Christmas shoppers at Mrs. B’s Gift House in downtown Guelph, Ont., he had to wait as customers fumbled for cash or signed off credit-card slips. When he finally reached the till, Peter Amy, the owner of the small shop, was relieved when Pullman pulled out a shiny cash card, a so-called smart card that its sponsoring banks say will revolutionize how people pay for things—from a child’s weekly allowance to a new suit. With the smart card, now being tested in selected markets, consumers

will use specially equipped telephones to transfer money from their bank accounts to the cash cards. When paying, the card is slid into small countertop terminals and the money is instantly deducted. Parents may even move funds from their own cards to their children’s for use in school vending machines or to board a bus. The major banks, which are introducing the cards in Guelph and Kingston, Ont., also hope the cards will advance the use of computerized banking. In the meantime, Pullman is enjoying his cyber-cash. “I love it,” he said as he used a cash card again last week at Mrs. B’s. “It’s so convenient.”

Using computer chip technology, the new instruments resemble ordinary credit cards or the debit cards that draw money from a bank account like a cheque. But that is where the similarity ends. They are actually microcomputers with a memory that allows them to store and retrieve information on purchases and even store data such as frequent flyer miles awarded for the purchase of airline tickets. The new plastic is a key part of the banks’ aggressive move into electronic commerce. The country’s major financial institutions, most recently the Bank of Montreal through its mbanx program, have introduced Internet banking. Cash cards take cyber-commerce one step further by giving customers instant access to their money and allowing them to pay for products over the

Internet. And if Canadians use cash cards as enthusiastically as they have used credit and debit cards, paper money will become almost obsolete, bankers contend, and banks will be a place where people go for investment advice, and not to get cash. “Canadians are taking to new technology,” said Donald Gregg, general manager of Stored Value Cards for the CIBC. “Smart cards are taking off like wildfire.”

Unlike debit cards, which were introduced in 1992 and are now widely used in Canada, cash cards do not require consumers to enter personal identification numbers. Instead, once the money is downloaded, the card becomes the equivalent of cash. To use it, a consumer merely slides it into a slot in a small unit and the virtual cash moves from the card to the retailer’s merchant card in a chip-to-chip transfer.

When placed in a tracker, a thin piece of equipment carried in a wallet and not much bigger than the card itself, the card becomes a computer. Balances can be called up and previous purchases reviewed. In future, even different currencies can be added. For security, the tracker can also lock the card so that it cannot be used without entering a specific code. A second device about the size of a hand-held calculator transfers cash between cards.

The banks plan to start distributing the cards nationally in 1998. Eventually, Gregg said, medical records or a driver’s licence could be carried on one

card and a person’s financial records, from cash in a bank account to mutual

fund records, would be stored on another. They could then be downloaded to computers. “The cards will be incredibly powerful,” said Gregg. “People will carry them the way they now carry laptop computers.”

Before that, merchants in Kingston and Guelph look to the cards to simplify their operations. Among them is James Brown, owner of Brown’s Fine Foods in Kingston. His company now supplies vending machines to 12 schools in the city. At the end of each school day, Brown’s employees empty the machines and count hundreds of coins. As part of the smart card’s introduction in

Kingston, the Bank of Montreal, TorontoDominion Bank and Canada Trust are encouraging students to use the new device in vending machines. If they do, Brown will be able simply to download the electronic transfers to his bank and have an immediate record of the day’s receipts. Said Brown: ‘We hope to quit lugging cash all over town.”

So far, cyber-cash has met with acceptance in Guelph, where the cards are being introduced by the CIBC and the Royal Bank of Canada. But some consumers fear the banks will use the cards as an excuse to levy more service fees. Said Michelle Cartier, a saleswoman at a Japan Camera store: “A lot of my friends think the banks will just use them to make more money off of them.”

Bank spokesmen, however, claim cash cards could actually save money for consumers who now use debit cards. Under the current fee system, most banks charge about 40 cents every time a customer uses a debit card. But with smart cards, clients are charged the same rate to download money onto their plastic as they are each time they withdraw cash from a bank machine. In subsequent transactions, the card is used only between retailers and their customers or in person-to-person transactions, and, unlike debit cards, the present programs involve no bank fees.

The new cards could cut costs for the banks. Tom Delaney, president of Torontobased Tom Delaney Financial Group and a spokesman for the Consumers’ Association of Canada, said that banks want to cut the number of branches they operate and electronic banking will help them do so. “They are determined to get rid of branch banking,” said Delaney. “That is their number 1 priority.” And the new smart cards are their latest weapon.

TOM FENNELL