Ray Van Eng (09/01/98)                                   

Though much of the real world smart card applications take place in Europe, there are good indications that the technology can be effectively applied to the North American market. And what better way to examine the situation than to take a look at what Macdonald's Restaurants is doing in Germany?

More than 870 restaurants from the fast food chain are installing smart card terminals from Verifone Corp., a business unit of Hewlett-Packard, to allow consumers to download digital cash onto smart cards dubbed GeldKarte.

This marks the first time consumers are able to carry out such financial transactions at the point-of-sale (POS) rather than at the ATMs where previously mandated. This latest implementation is an extension of an earlier pilot in which 55 Macdonald's restaurants carried out more than 30,000 transactions in a 10 week period. The average spending is US$5.6 per visit.

Under Germany financial regulations, the GeldKarte cards can store up to a maximum of 400 DM or US$224. Almost 40 million Geldkarte cards have been distributed since 1997 in Germany.

GeldKarte is not the first smart card that appeared in the German market, the eurocheque-cards is and there are already more than 60 million of them in use. However, the appeal of the GeldKarte is convenience. It can be reloaded easily at the POS and the transaction itself can be handled off-line as the card is designed for small payment use (under 25,00 DM or US$ 14) while the eurocheque-cards are for more expensive purchases. For big ticket items, the German consumers are encouraged to use their regular credit cards.

The Verifone cash loading machine is known as the Transaction Automation Loading and Information System (TALIS) and it features a large, touch-panel and a multimedia display which provides a walk- through of the cash downloading process. A PIN (personal identification number) is required to offer extra security for the card holder. To protect itself against vandalism, the touch panel is shielded by a bullet-proof glass.

During the time when the card reader is being connected to the customer's financial institution to enable the transaction, marketing messages can be programmed to flash across the screen and some have suggested that incentive programs such as a customer loyalty scheme can also be added to the system.

The TALIS terminal is essentially a PC running on Pentium power and MS Windows 95 software with a multimedia display and high quality graphics presentation capabilities. Since the machine can also be hooked up to a telephone, ISDN or other telecommunication lines, it could potentially be an ideal vehicle for interactive marketing, product ordering and other consumer e-commerce opportunities.

After the GeldKarte card is loaded with cash, it can be used to pay for a meal at the Macdonald's restaurant where a Verifone SC552 smart card reader will deduct the correct amount from the smart card. The card can also be used at other places where smart cards readers are present.

Of course, Germany is not the only country in Europe where smart cards usage is taking off. France is another big user of the technology. Even in England where the Mondex electronic cash card trials have been less than successful (only about 60,000 Mondex cards are in circulation out of a total population of 60 million), people there are anticipating that things might turn around soon.

NCR Corp. of Dayton, OH has just cut a $23 million deal with the Association for Payment Clearing Services (APACS) to upgrade 11,000 ATMs or about half of all the ATMs in the United Kingdom with smart card readers. APACS is a body that regulates the British banking industry. The readers will incorporate the Europay Mastercard Visa (EMV) standard to ensure interoperability with products from the three major card issuers in Europe.

There is one major reasons for this push to smart card technology -- Credit card fraud.

The current magnetic stripe cards are very susceptible to cheats and the Brits have found that frauds are more common at the POS than at the ATMs. This latest move by APACS to lay a nationwide smart card infrastructure is to encourage bankers and retailers to make more frequent use of smart cards.

According to Simon Rubin, director of NCR Self-Service Division in the UK, the plan is that "by the end of 1999, all the ATMs in the (UK) will be able to accept smart cards," and within the next two years, 65% of all transactions in that country will be smart card based.

Market research in the UK also indicated that 75% of the people would like to use the ATMs for more than withdrawing cash, they like to use terminals to purchase theater tickets, phone cards and stamps. Customer loyalty programs would also be an attractive application if smart cards were used, consumers say.

Back in America, smart card is also in the minds of many industry insiders.

Hypercom Corp., the Phoenix, AZ based electronic payment solutions provider and POS system manufacturer recently did a survey with about 150 of its own distributors/customers and found that although people are unsure about the exact time frame that smart card will take off in this country, many agreed that the future use of POS terminals are shifting from the cashiers to the customers because of the migration from mag stripe cards to ones with chips embedded. This calls for a new generation of smart card readers and the laying of a new infrastructure like the one NCR is doing for England.

In that survey, Hypercom customers indicated that healthcare (45%) and loyalty programs (32%) are two of the most important vertical markets for multi-purpose cards. They also agreed that retail (33%), telecommunication (28%) and financial and banking (22%) are three of the fastest growing vertical markets for smart cards.

Many e-commerce experts observe that trails like the one Macdonald's has with the German public could have a spill-over effect in North America.

"Seeing smart card solutions in the streets of Frankfurt and Berlin will cause multinational merchants and financial institutions based in the United States to more actively consider the benefits of adopting a multipurpose smart card solution, which includes increased convenience, security and profits," said Vernon Keenan of Keenan Vision Inc. in San Francisco, an Internet analysis firm.