The vast quantity of physical cash in circulation around Australia is targeted for rapid reduction as the electronic payment revolution gathers momentum.
Liberalisation of access to the payment system - which paves the way for participation by telecommunications carriers and retailers - and the related pressure on financial institutions to reduce the considerable overheads involved in handling cash and cheques is driving the rapid introduction of smart cards.
While the widespread delivery of smart cards is expected to give birth to a range of applications related to information storage and retrieval, stored-value is the prime driver to the roll-out of these systems. According to a recently released study from market research company Killen & Associates, smart cards worldwide are expected to be recharged more than 27 billion times - an amount roughly equal to 80 per cent of the total number of credit card transactions in 1997.
The study also says consumers will elect to charge their smart cards at public telephones, gas stations and ubiquitous merchants such as McDonalds, as well as at home, using personal automatic teller services. This behavioural change, the report claims, launches a huge market for financial institutions, telecommunications and entrepreneurs that can provide card charging infrastructure and capabilities for multiple use and clearing. Existing credit card specialists MasterCard and Visa are already conducting trials of rival smart card products ahead of national roll-outs in Australia scheduled for the new year.
MasterCard acquired in February this year a 51 per cent shareholding in Mondex International - the parent body of Mondex Australia, which is owned as a franchise by Australia's Big Four banks - the National Australia Bank (NAB), Westpac, the Commonwealth Bank of Australia (CBA) and the ANZ. Westpac is currently trial-ling Mondex smart card-based electronic cash ahead of the large-scale roll-out, which is scheduled for July-December 1998. The trial - which started mid August - involves more than 200 Westpac employees utilising the bank cafeteria at Epping in Sydney's north-west.
However, introduction of the Mondex Australia system has not been without a number of headaches. The franchise-holders of Mondex Australia have been forced to issue a public guarantee that they will back the entire value of the scheme, even to the extent of repaying counterfeit value that may enter the system.
Mondex and its partners are continuing development of a multi-application operating system - known as Multos - which allows third parties to write applications onto smart cards. A number of parties - allied under the banner of MAOSCO - are seeking to progress Multos as an open smart card industry standard. These include Dai Nippon Printing, Gemplus, Hitachi, Keycorp, MasterCard International, Motorola and Siemens. The standard is designed to allow the secure downloading of applications to the card from a remote location by going online to the issuer via the telephone, automatic teller machine or in-branch, or via a PC across the Internet.
Visa International is set to launch its own smart card scheme in the second half of the year. The card specialist recently wound down a trial of Visa Cash on the Gold Coast after almost two years of offering the product as an alternative to notes and coins to Gold Coast residents and visitors for their small value purchases. Visa executives said recently that the program was already gearing up towards the next phase "and there are a number of developments under way which will extend the cards' functionality into areas such as mass transit, access security and loyalty programs via use of an open chip technology platform".
According to Visa officials, since the inception of Visa Cash, over 225,000 disposable cards have been issued, more than double the original expectation of 100,000. In addition, more than 8000 reloadable cards were issued. The number of transactions passed the 500,000 mark recently, bringing the total value of all transactions to over $4 million, with an average value of $7.70.
The Visa trial in Australia follows a recent agreement between the Bank of America and Visa to conduct tests of stored value chip card transactions on the Internet.
The trial involves several hundred employees of the Bank of America using reloadable Visa cash cards and their personal customers to conduct low-cost, cash-like transactions from participating merchants on the World Wide Web with their virtual "Visa Cash".
American Express recently signed an agreement with card systems supplier ERG allowing Amex to issue cards incorporating the BankSys Proton e-purse and use the Proton network in Australia and New Zealand. Amex executives indicated the company had plans to deliver a range of smart card applications to the marketplace, including network and Internet access, identification and security access and ticketless travel.
Telecommunications specialist Telstra - spurred by the Federal Government's recent decision to liberalise access to the nation's payment system - is also seeking a role as a key player in the smart card arena. The Australian telecommunications carrier recently announced the selection of the multi-functional Chipper card system - licensed from Chipper International, a 50:50 joint venture between the Dutch bank ING Bank and carrier PTT Telecom - to deliver a smart card system for a customised pay telephone network. Some 29,000 to 35,000 pay phones are expected to be customised to accept up to a maximum of four brands of cards, including the Telstra cards.
According to Telstra's national sales and customer service manager, Grant Burtenshaw, the carrier is rolling out disposable smart phone cards to customers ahead of the late-1997 distribution of multi-application functions.
Completion of national roll-out of the smart phonecard to retailers is scheduled for mid-1998, according to Burtenshaw, with the sealing of partnerships between Telstra and third parties scheduled for the end of next year.
Burtenshaw unveiled the reasons for Telstra's unwillingness to participate in either the Mondex or Visa schemes. "The biggest problem [with Mondex] is that there's not a disposable [card] option; [and] a large proportion of the community is not going to get access to the Mondex reloadable card, while Visa said their Gold Coast trial was not a success without multi-functionality." He also nominated the ownership of Mondex Australia by the Big Four banks as a further obstacle to participation in the franchise.
Several other government or quasi-government agencies are sufficiently convinced of the prospects for smart cards that they are already commencing projects in the area. Queensland Rail and Card Technologies are undertaking a one-year trial of smart card technologies on the Gold Coast rail corridor. Card Technologies also has arrangements with Cabcharge Australia, the largest taxi payment processor in Australia and Westbus, which operates the largest private commuter bus fleet in Australia. The Sydney metropolitan commuter rail network, CityRail, has entered into a memorandum of understanding for a trial in Sydney.
Under the arrangements, CityRail will install smart card readers in Western Sydney and the Sydney Central Business District.
However, despite the market bullishness about the future of smart cards, not everyone believes consumers are likely to embrace the technology with open arms. A major report from global market intelligence and forecasting specialists BIS Shrapnel has warned that overcoming customer inertia could be a major problem. "Current cards are working well and the customer does not see the need to upgrade," the report, entitled The Smart Card Game in Australia, claims. "The latest co-branded cards, for example Telstra, Qantas and Visa, are already providing the many applications which appeal to those users seeking to reduce the number of cards in their wallets".
The report said the introduction of smart cards to Australia would have to be carefully managed as "consumers remember the initial introduction of cards as one where they had no choice. No-one canvassed consumers as to whether the plastic card was wanted or acceptable," the BIS Shrapnel report said. "They were simply sent the card, unsolicited and unexpected."The consultants warned that unless there was "at least an appearance of" choice, consumers would regard a card as being "forced upon them" and consequently react negatively to a smart card initiative. "Smart card suppliers will need to build confidence and this will require that:* the consumer is informed of the benefits* security of the technology is explained* consumers become aware of the convenience* applications are understood* outlets are clearly identified, and* processes involved in using the card are simple."The study also found that consumers wanted to manage their cards so as to avoid interest and maximise benefits, taking advantage of interest-free periods and seeking additional benefits through incentives. "It will be vital, therefore, that any fees and charges for new cards be held to acceptable levels - consumers expect to be encouraged to take up smart cards with an incentive in the form of a waiver on fees and charges in the introduction phase - most consumers prefer a one-off fee and would accept an annual charge where costs are known up-front.
"The second most popular option," according to the report, "would be a low charge per transaction, no annual fee and no charge for reloading. Nonetheless, consumers expect that card providers will collect fees at several points:* on issue of the card* on reloading, and* as a monthly administration charge.
Interestingly, in light of the competitive threat to the banks posed by market liberalisation and general poor public perception of the banking industry, most consumers expressed a preference for smart cards to be introduced by one or all of the Big Four banks as opposed to other suppliers. "Banks are perceived as well-established, experienced in financial transactions and providing the best guarantee of performance and security," the report said.
Another interesting point derived from the research - particularly in the light of the Mondex consortium's problems - was the expectation that smart cards were viewed as "less private" than other options (due to concerns over chip technologies) and also "more expensive". Still, consumers generally believe the cards would be more convenient than current options - due to their multi-functionality - and more flexible.
However, the report revealed that resistance to any move to completely dispense with cash remains high. "Most consumers will still require both cards and cash," it said. "Australians do not want to move to an entirely cashless society."The penetration of electronic cash, stored value and smart card systems into Australian society is likely to ramp up dramatically in 1998. However, questions remain over key issues associated with such roll-outs, with the nation's privacy commissioner warning of the privacy of individuals represented a core concern.
Also in question is the consumer's willingness to accept smart cards, given that market's natural suspicion and resistance to radical change and the more specific concerns about privacy and security. Big dollars are likely to be spent by commercial interests backing smart cards over the next few months to ensure these perceptions are eroded.
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