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July 8, 1993


By CBR Staff Writer

Verigem – a joint venture company in the process of being formed by point-of-sale manufacturer, Verifone Inc, and Smart Card supplier, Gemplus SA (CI No 2,199) – is, according to its parents, about to lead the industry into the next frontier of payment processing – the automation of cash. In yet another attempt to replace cash with plastic, Gemenos, France-based Gemplus, will supply Smart Cards – to be marketed as SmartCash – for this momentous task, while Verifone will provide transaction automation systems.

Major banks

Such systems include stations to issue and credit SmartCash cards with value; terminals to read and write information to the cards at the point-of-sale; networks to link terminals with banks and other service providers; and a settlement system to transfer funds from one participant to another. According to Verifone’s regional marketing manager for Europe, Tricia Carter, the Redwood, California-based group will also bring systems integration skills to the venture, plus relationships with all the major banks – it claims a 65% share of the transaction processing market worldwide. The first products will be launched in a couple of weeks, and, said managing director Ken Hansen, are already being used in pilot sites around the world. How soon they become commercially available, he added, will be determined by how fast they move along at the pilot sites, but everyone that is banks, retailers, franchise operators and consumers worldwide – must participate to make the offering commercially viable. Smartcash, like telephone cards, will start off as a closed system, but the aim is eventually to make it open, so that anyone can use them any time, any place, any where. Pricing, however, will be determined by the market, Hansen said, although he does realise that costs must be kept low to appeal to the masses. Ms Carter envisages that first products will be sold via banks and payment processing service providers, although things are still at the discussion stage. Possibilities include using SmartCash as a pre-paid card in a similar way to telephone cards. The big difference though, is that SmartCash is re-useable. The idea is that the user will buy a card from his bank complete with credits.

By Catherine Everett

When the credits are used up, he returns to his bank to have it replenished by means of a SmartCash automatic teller machine. The bank will charge a small fee for the service. Another option is implementing SmartCash as a more secure form of credit card security levels would be decided by the issuing bank. Because smart cards incorporate embedded microcontrollers and memory chips, the customer’s personal identification number can be stored on the card. To use it, he will not only have to sign his name, but state his identification number too. Ms Carter also sees potential applications in health care and home use, for example with mobile phones or videos. The advantages of SmartCash from a user’s point of view, Verifone claims, is that it is less bulky than a purse or wallet and more secure. Moreover, customers will no longer have to produce exact change, or waste time in check-out queues counting money or writing cheques. From a merchant’s standpoint, the card drastically reduces cash-handling costs, including labour, armoured car transport and insurance. It speeds up transactions and provides him with more payment options. Banks, likewise, gain from lower cash-handling costs and decrease the risk of cash shrinkage as a result of loss, error or theft. They also have the chance to generate additional revenues by issuing the SmartCash cards, charging to re-value them as well as process transactions made with them. The intention is that VeriGem support its offerings via local offices, probably in Europe initially. But it will also be able to use the resources of both Verifone and Gemplus’s offices around the world. Although for years companies have been trying and failing to make a dent in the cash market by means of debit cards, Ms Carter reckons there is significant potential for SmartCash p

roducts. The past failure of debit cards is attributed partly to stiff competition from credit cards, which generally provide a 25-day float. As a result, customers with good credit histories can delay paying their bills. Furthermore, many people are reluctant to give governments or credit agencies the chance to track their transactions – want to know periodically where a person is through the day? Just follow his on-line transactions.

Stripe reader

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But the two partners hope their size and market position will help them develop this new market. To show its potential value, they cite the Nielson Report, which indicates they have barely scratched the surface so far. Consumer cash transactions in the US during 1992 reportedly totalled $160,000,000m, or 68% of all such business undertaken, while consumer credit and debit card transactions made up only 9% of this figure. Ms Carter would not predict how much of this massive cash market SmartCash might realistically grab. But she does believe that Smart Card technology is starting to take off, particularly in the US and Scandinavia. In many regions, unfortunately, the huge installed base of magnetic stripe card readers has, in the past, put people off implementing such technology.

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