A consensus is emerging that the success of smart cards hinges at least as much on merchants accepting them as on consumer acceptance.
Increased tax liability is one reason for merchants' muted enthusiasm--besides the fact that merchants are the only ones so far being asked to pay for using smart cards.
"There's a resistance to forms of payment besides cash," said Bruce Brittain, whose firm Brittain Associates, Inc., polled merchants that participated in the smart card test during the 1996 Summer Olympics in Atlanta. Some merchants admitted to understating their cash receipts so as to reduce their tax burden, he said. (Smart cards leave an electronic audit trail by recording deductions in card value each time merchandise is purchased.)
On the flip side, franchisors may push for the adoption of smart cards in their stores, since some Atlanta operators told Brittain, "they want to collect more fees from their franchisees." (The franchisor's cut of the receipts will be reduced if the franchisee understates his receipts.) Other sources said they heard the same thing.
The wish to under report receipts may pose a greater obstacle to smart cards when they undergo their next major test, in New York City next year, because more "Mom and Pop" stores will be participating, Mr. Brittain said.
Brittain's joint-venture partner in the Olympic research was Business Dynamics Inc., another Atlannta-based consultant. Jim Shanahan, a partner in the firm, said banks must change their "arm wrestling" attitude toward merchants who are "not nearly as enthusiastic as consumers" about the cards. Moreover, his research reflects the views of merchants who typically were not asked to pay for using the cards whereas they will be in future.
Mike Love, vice-president of First Union National Bank, Charlotte, NC, disagrees with Shanahan's assertion that "merchants hold the key to the kingdom."
First Union, one of three banks participating in Atlanta's ongoing pilot, thinks merchant acceptance will follow consumer demand. As evidence of that demand, he cites another First Union pilot, under way in Jacksonville, Fla. For two years attendees at the Jacksonville Jaguars' home games have been able to use smart cards to make purchases in the stadium. Now between 12% and 15% of Sunday purchases are made by smart card, he said.
Two things both sides agree on is that merchants need more training and more card-reading terminals. (Citibank, which will be one of New York's two issuing banks, said Atlanta's experience taught it the need for merchant acceptance and training.)
There's also general agreement that merchants' cost of doing business will be lower using smart cards rather than other cards or cash.
Although consumers say they like the cards it's not clear if they like them enough to pay for them. Vying research includes a Mondex poll, which found test users in Swindon, England, willing to pay the equivalent of $2 to $3 a month. However, a spokesperson for Wells Fargo, whose employees are testing the Mondex card here, said, in its current form, the card is not a compelling alternative to cash. But she said future applications, such as loyalty programs and Internet-based shopping, will make it so.
Visa was the only card company involved in the Atlanta pilot, but Visa and Mastercard both will participate in the first-quarter pilot on New York City's Upper West Side. This time reloadable cards will be offered by Chase and Citibank. Last time, Atlanta's participating banks--First Union, NationsBank Corp., and Wachovia Bank--offered mainly disposable cards, which were valid only for a fixed period.
Researchers of the Olympic trial say the release of early, skewed findings exaggerated the impression that consumers were disgruntled with smart cards. (The main complaint was that merchants said to accept the cards did not.)
It emerged from a follow-up survey of 600 users that 45% would use them in future. And, indicating consumer confidence, most will buy a $50 card next time versus a $30 card the first time.
Joe Schuler, director of sales and marketing with Schlumberger Smart cards and Systems, N.A., the Owing Mills, Md.-based card manafacturer, still expects the card to be used mainly for low-cost items.
Regarding an allegation that the New York pilot is being delayed by lukewarm results in Atlanta, he said, "there's nothing that came out of Atlanta that would impact the plans for New York."
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