By Glenn Drexhage

Imagine a world without cash. No fumbling for coins, no sifting through rumpled bills. Just cold, hard e-currency at your fingertips, all stored on a plastic card that fits in your wallet.

Sounds good? Well, it might be. Indeed, some Canadians have been cashing in on the possibilities.

But payment-oriented smart cards have also had a rough ride on their drive to widespread use. And the technology recently hit another bump in the road when Mondex Canada wound down a pilot project for its stored-value card. That move has renewed doubts that this particular payment option will ever catch on in Canada as it has in Europe. At the very least, smart cards will have to perform more tricks before they grab the public's interest, and that may not happen any time soon.

Smart cards are typically plastic wafers that hold memory chips and a processor. Used by consumers as stored-value cards to make purchases, the units offer convenience and speed. They can also help businesses reduce the cost of handling bills and coins. Depending on the product, the cards can be loaded with virtual cash (often referred to as e-cash or Internet cash) at special terminals, compatible ABMs and even over the telephone or on a PC. Some cards can also be bought with pre-determined values. When the cards are used at participating merchants, the purchase amount is deducted from the on-board balance. While the technology has advanced, the concept is hardly new. The first such cards were developed in France in 1969. Indeed, Europe remains at the forefront of their adoption, spurred largely by a costly landline telephone system that is less reliable than North American infrastructures. Chip-enabled smart cards, which offered a cheap and secure offline payment process, flourished in this setting. By contrast, transactions made with magnetic-stripped credit cards and debit cards are often done over telephone networks.

So Europe is a key market for the big smart card players, such as Visa. Of Visa's 42 million smart cards in use worldwide, 34 million are in Europe. Asia has six million cards, while other regions-such as North and Central America, Central and Eastern Europe and the Middle East and Africa-account for the remainder.

Canadian reticence

So why has Canada been such a reluctant adopter of smart cards? "At this time, it is a solution looking for a problem," says Joe Greene, vice-president of Internet solutions research at IDC Canada. Consumers are already used to credit and debit cards. "Why would you carry around extra cards if you've got a debit card?" And debit is a popular plastic. Last December, a study conducted by The Strategic Counsel revealed that, of more than 2,100 Canadians surveyed, 42 per cent selected Interac Direct Payment as their most-used purchase method, compared to 35 per cent who used cash. For the first time, Interac had claimed the top spot among Canadians.

With such findings, Greene views the future of smart card firms in Canada as bleak "unless they come up with some kind of killer application."

Predictably, smart card pioneers disagree with Greene's view. "He's not thinking about his history," says Catherine Johnston, president and CEO of ACT Canada (Advanced Card Technology Association of Canada), noting that similar doubts accompanied the introduction of cheques, credit cards and debit cards. Johnston certainly isn't worried-she forecasts more than 51 million smart cards will be used in Canada by 2006.

And it seems the "killer app" may well be the availability of more applications. This is the lesson acknowledged by Mondex in April when it pulled the plug on its "e-cash implementation" in Sherbrooke, Que. The project began in August 1999 and involved more than 25,000 cardholders, 600 merchants and 750 vending machines, parking meters and other devices. Nearly $3 million worth of e-cash was issued.

Royal Bank and Le Mouvement des caisses Desjardins issued the cards (seven other big financial firms also belong to Mondex Canada Association). An earlier Mondex pilot project in Guelph, Ont., came to an end in October 1998 when leading Canadian firms would not participate or pulled out of the exercise. After the latest attempt, Mondex conceded consumers and merchants in Sherbrooke wanted more places to use e-cash, and also wished for greater convenience, flexibility and features.

"A smart card is really like a PC in your pocket," says Joanne De Laurentiis, president and CEO of Mondex Canada Association. "And if you provide only one application, it would be like issuing PCs with Word [software] alone." Smart cards of the future will have to serve a variety of functions: credit, debit, e-cash and other offerings.

Other companies are also beginning to understand this criteria. In May, Toronto-based Oasis Technology Ltd. announced the formation of Solstice, an alliance with five other U.S. and European firms "to develop and market an Internet-capable, multi-application smart card payment suite." The company also stated that the alliance was "timed to coincide with the imminent rollout of EMV (Europay, MasterCard, Visa) implementations," which aim to replace magnetic-strip cards with hybrid chip and stripped credit cards.

Neil Parmenter, Oasis' manager of public relations, adds that discussions are being held with a major unnamed Canadian bank. A pilot project may be in place by the end of 2001; however, widespread use will likely be years down the road.

Future use

Mondex, too, is heading in a "multi-app" direction. Its Sherbrooke pilot project was the first time a single card featured both Mondex's e-cash along with debit payment. De Laurentiis says Mondex will "definitely" pursue the multi-application strategy in the future, and notes that "financial institutions in Canada are now convinced" of this approach. But she expects that the development of a multi-application smart card will be a "five- to 10-year project." In the meantime, the Mondex Canada Association is slimming down and plans to work with other payment systems to develop a "broader chip infrastructure" for multi-application cards. De Laurentiis says she'll be leaving the company before the end of 2001.

With Mondex Canada changing course, Visa Canada is now the major "live" cash card in the country. Since October 1997, the company-along with partner Scotiabank-has offered its Visa Cash card in Barrie, Ont. At first, 25,000 of the electronic money cards were issued for students and Canadian Forces members; since then, Visa estimates that up to 60,000 cards have been issued, typically for "small value purchases." For example, rather than digging for change, people can use Visa Cash cards to pay for transit fare or a cup of coffee.

More than 130,000 transactions have been made, totalling more than $380,000. Walt Lemon, vice-president of emerging products for the Visa Canada Association, notes that the banking industry wants a single card with many applications. The company has taken steps in this direction: in Barrie it offered a card that featured Visa Cash along with transit and loyalty programs. The student card hosted the same functions, along with photo ID, a library barcode and a magnetic strip for gym access.

Lemon's ultimate goal is to move all of Visa's credit functions onto a smart card. Visa Canada members (which include 22 financial institutions) have agreed in principle on the idea, he says, but it takes time. As he notes, the real value of this integrated approach comes when a saturation point is reached-in other words, when enough users and merchants are persuaded of the benefits. But that point may not be reached until the end of this decade. "My role is to try to make it happen," says Lemon. "It's never fast enough."