Introduction and summary
During the 1990s, some payment analysts suggested that smart cards
(1) with e-purse applications could be a promising new payment option
for certain types of transactions. An e-purse is a stored-value payment
device that offers the following features to the consumer: It holds
electronic monetary value that substitutes for cash; it does not require
online authorization; it records the value of each purchase on the card
rather than a central computer server; and it can be exchanged for goods
and services from various merchants. The device is generally stored on a
computer chip, which can reside on any one of a number of items most
consumers already carry, such as a payment card, mobile phone, key
chain, or even a watch. When the consumer makes a purchase, monetary
value is deducted from the microchip on the card.
The key difference between a stored-value smart card and debit,
credit, payroll, and gift cards is that value is stored directly on the
smart card rather than stored in an account on a central computer
server, and therefore, transactions are processed offline between the
smart card and the card reader at the point of sale (POS). In contrast,
debit, credit, payroll, and gift cards in the United States are offered
on magnetic stripe cards, and payment involves an online authorization
that requires a real-time connection with a central computer. The
purchase is approved or declined through the authorization process,
which checks whether there is sufficient value in the account for debit,
payroll, and gift card transactions and whether the credit limit has not
been exceeded for credit card transactions. The authorization process
may also check whether the card is fraudulent or stolen.
Some payment analysts predicted that smart cards could lead to a
cashless society, one in which e-purses would replace cash and coins for
low-value payments. As we know, this hasn't happened. Although a
number of e-purse programs have been implemented around the world, these
programs have experienced varying degrees of success, and many have
failed outright. Smart card adoption in the United States has been
slower than in the rest of the world. Many analysts argue that this is
partly because the U.S. already has an advanced telecommunications
infrastructure that can verify magnetic stripe card transactions quickly
and cheaply online. This results in relatively low fraud levels and
relatively high levels of satisfaction among businesses and consumers
with the current systems. If this is true, then smart card applications
may offer more value in other parts of the world with less highly
developed telecommunications infrastructures and higher incidences of
fraud in existing payments networks.
In this article, I review six e-purse smart card programs in Hong
Kong (one) and the United States (five). I chose these two regions
because Hong Kong has one of the most highly successful e-purse
programs, the Octopus card, and the United States has implemented a
number of e-purse programs, some of which have been more widely adopted
than others. I find that the most successful among these programs tend
to have the following characteristics: a captive audience that drives
critical mass, such as those found in the transportation industry or
government sector; an affordable cost structure relative to other
payment instruments; compelling incentives to consumers and merchants;
and a technology that is well tested and addresses standards issues
before the rollout.
Below, I survey the theoretical framework of previous smart card
studies, provide an overview of the payments environment in Hong Kong
and the United States, and analyze six e-purse programs in these two
regions and the factors that contributed to their success or failure.
Then, I discuss the implications of my findings for future e-purse
One of the greatest challenges in the adoption of a new payment
device is establishing a critical mass of users. Regardless of the type
of technology used, consumers are reluctant to use a new payment
instrument if few merchants accept it, and merchants will refuse to
accept the device because the cost of installing and maintaining the
supporting technology infrastructure, like card readers, may be
prohibitive, unless enough consumers want to use it. New payment
mechanisms gain momentum when enough people use them, which leads to
widespread acceptance by the merchant community. Critical mass, however,
is not only related to the number of users but also to the actual levels
of usage because the program's profitability is generally dependent
on high transaction volumes (Goldfinger, 1998). As Rochet and Tirole
(2003) observe, merchants cannot benefit much from consumers that hold a
payment card but use it only sporadically. The more frequently the card
is used, the more valuable it becomes to consumers and merchants.
Therefore, frequent use is one of the keys to a successful e-purse
Goldfinger (1998) estimates that a critical mass of one million
users was needed for a smart card program to attain profitability due to
the large fixed costs of the infrastructure, although these costs have
likely fallen in recent years. (2) To achieve this, Goldfinger argues
that program promoters have to be able to orchestrate a large-scale
deployment and initiate a migration/switching process from the existing
payment system to the smart card system. He takes the view that the
benefits that smart cards provide cannot be fully realized if there is
an alternative payment infrastructure present. While this is certainly
not the case for mature payment infrastructures--cash, checks, debit
cards, and credit cards coexist at most retailers--there may be some
validity to this argument in the case of an emerging payment instrument
like an e-purse.
In another study, Van Hove (2004) examines data on 16 e-purse
systems in Europe. Van Hove finds that successful programs are in
countries that are relatively small geographically or have phased
introductions; that have online debit card systems that are fairly
popular or cannot be used for low-value payments; that have stakeholders
that quickly agree on a common solution so there are no incompatibility
problems; that have major banks committed to and participating in the
program; and that have support from key players that operate and support
one or more of the following: public telephones, parking meters, vending
machines, or public transportation.
Chakravorti (2004) finds three other necessary conditions for a
viable new payment instrument: There must be benefits that are not
provided in existing payment instruments for at least certain
transactions; consumers and merchants must be convinced of these
benefits and, possibly, provided with incentives to change their
behavior; and the new system must be perceived as secure, with adequate
measures against credit risk and fraud.
Payments environment in Hong Kong and the United States
As I explained in the introduction, I am interested in comparing
programs in Hong Kong and the United States because Hong Kong has one of
the most highly successful e-purse programs, the Octopus card, and the
United States has implemented a number of e-purse programs with varying
degrees of success. As figure 1 shows, Dove Consulting (2003) reported
that in 2003 electronic payments surpassed other types of payments for
in-store purchases for the first time in the United States. However,
cash was still the most popular payment vehicle.
Cash is used even more widely in Hong Kong. Eric Tai, chief
executive officer of Octopus Cards Ltd., indicates that Hong Kong
residents use coins and currency 50 percent of the time. Checks are used
for retail transactions, where credit and debit cards are not accepted,
and credit cards have become increasingly popular, with over nine
million in circulation in 2001 (Bank for International Settlements,
Committee on Payment and Settlement Systems, 2003). Interestingly,
however, in Hong Kong, e-purse transactions are now growing faster than
either debit or credit card transactions--Euromonitor International
(2004) reports that they increased by 8 percent in 2003, compared with 7
percent growth in debit card transactions and 2 percent growth in credit
While the United States and Hong Kong have each implemented a
number of e-purse programs, only Hong Kong's Octopus card, which
began in the niche transportation industry and extended outward to
retailers, has been widely adopted by consumers and a diverse number of
merchants. More than 95 percent of Hong Kong's residents aged 15-65
carry the card. Over 50,000 smart card readers accept Octopus at public
transportation terminals, convenience stores, fast food chains, leisure
facilities, parking meters and garages, pay phones, personal care
stores, photo booths, photocopiers, school snack shops, supermarkets,
taxis, and vending machines (Tai, 2005). In August 2005, Octopus
announced an apparel retailer will accept the card at its Hong Kong
locations. Some e-purse programs in the United States that began in
niche markets are currently successful, but on a much smaller scale.
Octopus processes over nine million transactions each day with an
average daily transaction value of about HK$65 million (US$8.3 million)
amounting to about 2 percent of Hong Kong's gross domestic product
(GDP) in 2003 (U.S. Department of State, Bureau of East Asian and
Pacific Affairs, 2004). (3) Retail purchases in Hong Kong using the
Octopus card grew from 5 percent in January 2002 (Trintech Group Plc,
2003) to 17 percent of total transactions in August 2005 (Wong, 2005).
With about US$1.4 million in average daily retail transactions, Octopus
takes in more in a single day than the widely reported Mondex and Visa
Cash trial in New York City did during the entire 15-month program. (4)
As I mentioned earlier, most payment analysts agree that smart card
adoption in the United States has been slower than in the rest of the
world because the United States has an advanced telecommunications
infrastructure that can verify magnetic stripe credit and debit card
transactions quickly and cheaply online. This results in relatively low
fraud levels and relatively high levels of satisfaction among businesses
and consumers with the current systems. Smart card applications may
offer more value in other parts of the world with less highly developed
telecommunications infrastructures and higher fraud incidences.
The business case for smart cards in the United States also depends
on a number of other factors. There are issues related to who would pay
for the extra chip on the card and to what fees merchants would pay on a
per transaction basis. In Hong Kong, merchants appear to be paying lower
rates on Octopus transactions than on credit card transactions.
There are also differences in the technology used for stored-value
cards in the two regions. Octopus provides e-purse capabilities on a
contactless smart card, which means the card does not have to be
inserted into a card reader like credit or debit cards. Instead, it is
held close to the reader and payment is registered in 0.3 seconds.
Meanwhile, Duetto cards offered by the coffee chain company Starbucks,
payroll cards that are used instead of direct deposit or paychecks by
some firms to deliver an employee's pay, and gift cards offered by
various retailers in the United States provide stored-value capabilities
on magnetic stripe cards. There are two ostensible reasons for using
magnetic stripe cards rather than contactless smart cards in the United
States: the cost of equipping stores with chip reading terminals and the
desire to include Visa, MasterCard, or private label branding since
these cards are processed by online readers. (5) In addition, some
payment providers in the United States offer contactless smart cards but
link purchases to credit card or debit card accounts rather than to an
e-purse--examples include ExxonMobil's SpeedPass, Bank of
America's QuickWave, and MasterCard's PayPass. In an
interesting development, in December 2004, the Washington Metropolitan
Area Transit Authority began piloting 20,000 MasterCard branded magnetic
stripe cards that also contain a stored-value chip for transportation
I examine six e-purse case studies that began in
"closed-loop" environments in Hong Kong and the United States,
meaning they were offered to what one might call a captive audience,
such as one found in a military facility or university campus. The
e-purse programs that were tested in open-loop environments in these two
regions have failed outright, such as the Mondex and Visa Cash trial in
New York City cited previously. (6) I chose the case studies to
represent a cross section of industries that have implemented e-purse
programs in recent years: transportation, government, and higher
education. The Octopus card's e-purse transaction volumes and
values are among the highest in the world. The Ohio Electronic Benefit
Transfer program, which has higher transaction values and volumes than
Octopus, is the largest smart card program for administering food stamps
in the United States. The University of Michigan Mcard represents one of
the largest university deployments of an e-purse in the United States.
The University of Central Florida UCF Card is one of the few campus
e-purse programs still in operation. The Navy Cash[TM] card and the
EagleCash card programs are two of three smart card programs
administered by the U.S. Department of the Treasury for the U.S. Armed
Forces. A synopsis of the six programs, as well as a detailed discussion
on how each card works, is included in the appendix.
The Octopus card began in the niche transportation industry when
Hong Kong's five leading companies for trains, buses, ferries, and
subways formed a joint venture in 1994 to oversee the implementation of
a smart card system. After three years of development and trials, they
launched Octopus in 1997. In 1999, 7-Eleven stores in Hong Kong became
the first locations outside the mass transit system where riders could
add value to cards. The convenience store chain liked the speed and ease
of the contactless technology so much that it installed readers in its
stores in the following year so that consumers could pay for goods using
Octopus. In time, consumers began to press other retailers to accept the
card as well (Ramstad, 2004).
A number of factors were crucial to the success of the Octopus
card: the support of five transportation companies; the interoperability
of the system; the manner in which critical mass was established by
leveraging the captive and niche transportation industry; the reliable
technology; and the compelling incentives offered to consumers and
Factors influencing success
Octopus has the support of Hong Kong's five major
transportation companies. Although some of these companies compete
directly for riders, the savings they achieved by implementing a shared
smart card system appear to have outweighed any competition concerns
(Poon and Chau, 2001). This also implies that the profit-sharing scheme
the transportation companies worked out is equitable enough to induce
cooperation. For consumers, the development of a single interoperable
system means they can access any public transportation in Hong Kong with
the same card. In contrast, 40 miles from Hong Kong in Macau, two bus
companies launched separate incompatible e-ticket systems that failed to
reach critical mass because traveling in the area typically requires a
combination of buses and most people were not willing to carry two
different cards (Uzureau, 2003).
Octopus has also been free of technology-related problems, unlike
several smart card programs that have had trials in the United States.
Very few failures of the Octopus card were reported during the first
month of operation. On average, station personnel needed to resolve
problems in only one out of every 11,000 journeys (Wynne, 1998). (7)
Octopus also uses radio frequency identification (RFID) technology,
which allows commuters to wave their card (or a purse or wallet
containing the card) within 4 inches of the reader at the ticket barrier
to register payment within 0.3 seconds (Business World Publishing
Corporation, 2002). Thus, an Octopus card transaction takes less time
than a cash transaction in which one may have to wait for change, and
takes significantly less time than the typical credit or debit card
transaction in which magnetic stripe technology is used. Moreover, the
durable smart cards have a potential life span of about 100,000
transactions (Tai, 2005). And Octopus's functionality has been
embodied in a variety of forms, including key chains, mobile phones, and
What about incentives? Initially, Octopus offered consumers a 10
percent savings and a 100 percent satisfaction guarantee to increase
adoption in the transportation sector and to remove uncertainty about
the new technology (Tai, 2005). These incentives, along with the
simplicity, speed, and convenience of the system's technology,
resulted in over three million cards being issued during the first three
months and established a critical mass of smart card users who were
familiar with RFID technology.
Metro and rail transportation operators offer multiple ride tickets
on the Octopus card and single ride tickets on magnetic stripe cards
(Wong, 2005). This is significant because over 70 percent of Hong Kong
residents use some form of public transportation each day (Poon and
Chau, 2001) and are more likely to use the multiple ride tickets offered
by Octopus. Tai (2005) reports that constraining multiple ride tickets
to Octopus cards elicited little consumer dissatisfaction. Metro and
rail transportation operators provide discounts to Octopus cards over
single ticket cards; the discounts vary according to the distance
traveled. Smart card adoption for metro riders is 90 percent and for
rail commuters over 80 percent (Wong, 2005).
Transportation operators for buses, minibuses, and ferries accept
coins or Octopus cards, and fares are the same for each payment method.
Octopus card adoption on these transportation lines is somewhat lower
compared with the metro and rail lines--70 percent for ferry lines,
about 80 percent for minibuses, and over 80 percent for buses. Although
buses, minibuses, and ferries do not consistently offer a discount to
Octopus cardholders as do the metro and rail lines, they do sometimes
launch promotional campaigns that offer discounts to Octopus cardholders
Once a critical mass of smart card users was established in the
transportation industry, the proven technology was used to branch out
into the retail market, where consumers were offered a number of
benefits that helped foster adoption. Octopus is a single convenient,
multipurpose card that speeds retail transactions and replaces cash for
small purchases. In contrast to other e-purse programs, Octopus actually
allows cardholders to make purchases up to a negative value of HK$35
(US$4), so long as the card contains a positive value of HK$0.01 before
the purchase. Once the card has a negative value, it must be reloaded
before it is used again. Octopus recovers the negative balance through
the deposit and purchase price of the cards. For a detailed discussion
of the types of Octopus cards, deposit amounts, and card costs, see the
Merchants also enjoy a number of benefits. Octopus reduces cash
handling and in-store queues, and increases customer loyalty by allowing
merchants to offer ad hoc discounts to customers using the card. It is
difficult to determine the cost to retailers of accepting the card,
since data on hardware costs and merchant fees are confidential. The
World Bank's website indicates that Octopus has a two-part
transaction fee. There is a HK$0.02 charge for every transaction to
cover the costs of technical support, computer operations, and
replacement cards and a 0.75 percent charge on the transaction value to
cover card-control operations, legal, marketing, and depreciation costs.
Therefore, a HK$10 transaction would include a fee of HK$0.02 plus
HK$0.075, or HK$0.095 (Rebelo, 1999). However, Octopus Cards Ltd. has
indicated that these transaction charges vary depending on merchant
volume (Cheng, 2004).
Despite the uncertainty about exact costs, it appears likely that
retailers in Hong Kong benefit from lower transaction fees for the
Octopus card relative to transaction fees for credit cards, which vary
from 2 percent to 4.5 percent (Morgan and Snee, 1997). Although new
locations like McDonald's are accepting Octopus (Tai, 2005), some
merchants still find Octopus fees to be too expensive. In
CardTechnology, Balaban (2005) reports that a few retailers like
Starbucks have reduced the number of outlets that accept Octopus.
Ohio EBT program
In the United States, the U.S. Department of Agriculture, Food and
Nutrition Service (FNS) has shifted qualified low-income families from
paper food stamp coupons to electronic benefit transfer (EBT) cards. The
EBT program was designed to reduce fraud, to eliminate the cumbersome
manual processes associated with issuing and redeeming paper food
stamps, and to lessen the stigma associated with being a traditional
food stamp recipient. In 2003, 9.1 million U.S. households redeemed an
average of $1.7 billion in food stamps every month using EBT cards. To
reduce fraud, the system creates an electronic record of each
transaction that can help identify where food stamps are trafficked or
exchanged illegally (U.S. Department of Agriculture, Food and Nutrition
States have taken different approaches to administering the EBT
program. Forty-eight states have implemented magnetic stripe systems
that require online authorization from a host computer that keeps track
of value. Two states, Ohio and Wyoming, use offline smart card systems
that store value on a computer chip resident on the card. The state of
Ohio has announced, however, that it is discontinuing its smart card
program, Direction Card, which has been in place since 1996, and is
seeking bids for an online system (Welsh-Huggins, 2003).
Factors influencing failure
John Scaggs (2005), Ohio's EBT project director, indicated
that the decision to discontinue Ohio's offline system was based on
cost, as well as on the failure of credit card companies to build a
smart card infrastructure, which had been anticipated when the program
was implemented in the mid-1990s. The online system will be installed no
later than June 2006.
The decision to discontinue the program followed a 2002 study by
Abt Associates, Inc. (2002) that compared Ohio's program with the
findings of the three most recent EBT system evaluations. These included
the online system in the state of Maryland; the offline pilot in Dayton,
Ohio, on which the Direction Card system was later built; and the
offline system in the state of Wyoming. The study found Direction Card
was more expensive than Maryland's online system, but less
expensive than the offline systems in Dayton, Ohio, and Wyoming. Abt
Associates estimated that the total operational costs of the Direction
Card system were 56 percent higher than Maryland's system due to
more expensive hardware, software, and local agency costs. The Direction
Card was 29 percent less expensive than the Dayton pilot because of the
larger scale of the Direction Card program, the lower costs of building
the Direction Card system upon the Dayton pilot, and the decreased
technology costs resulting from technological developments that emerged
after the Dayton pilot was deployed. The Direction Card was 43 percent
less expensive than Wyoming's program due to lower local, state,
customer service, data center hardware, software, POS, and card costs
(Abt Associates, Inc., 2002). (8)
The Abt Associates study also reviewed advantages and disadvantages
of the Direction Card from the perspective of retailers. Ohio's
merchants received free terminal installation, initial user training,
and maintenance; however, they never found a cost-effective way to
integrate the offline system into their existing online POS devices.
Therefore, Ohio retailers bore the ongoing costs of training staff to
use the separate terminal, not to mention lost counter space. There were
also differences in costs related to equipping store lanes with EBT POS
devices. Even though the number of POS devices given to large retailers
by Ohio was more generous than the FNS mandated, large retailers did not
have enough terminals to equip every checkout lane in the store. To do
so, they would have to pay for extra POS devices. In contrast, online
merchants that integrated EBT transactions into existing POS devices
could service EBT customers in any lane. However, most online systems
did not pay the costs of integrating cards into existing POS devices,
which then shifted the costs of doing so to the merchant. Those online
merchants that did not integrate EBT transactions into existing POS
devices either used the state's allotment of EBT terminals or paid
for extra equipment, but online terminals were less expensive than
offline terminals (Abt Associates, Inc., 2002).
The Abt Associates study also compared the experiences of
Ohio's EBT cardholders with those of EBT recipients accessing
online systems. While Ohio recipients had higher levels of service due
to hands-on training at Direction Card system offices, this specialized
training also required extra time from the cardholder and sometimes
necessitated an added trip to the local office. In contrast, states with
online systems piggybacked on the widespread use of magnetic stripe
cards for other applications, as well as typically providing cards,
training materials, and personal identification numbers (PINs) by mail.
There were also differences in loading value onto the card. Ohio EBT
recipients are required to load their benefits at any one of three
stores of their choosing or at their local food stamp office. In
contrast, EBT recipients with magnetic stripe cards do not have to load
value on the card at any specific location because value is stored on
the central computer server (Abt Associates, Inc., 2002).
In addition, EBT smart card recipients may have experienced more
confusion about the current value on their cards. Almost 90 percent of
the Direction Card calls to customer service centers were to check the
card balance. Similarly, the majority of customer service calls for
online systems were to check account balances. The report indicates,
however, that there may be an additional reason for balance inquiry
calls for offline cards. The Direction Card system deducts the purchase
amount from the chip on the card at the time of purchase. Information
about the transaction is sent to the central computer server via batch
processing at the end of the day when the beneficiary's account
information is updated. In contrast, online systems verify transactions
real-time against the central computer server, and balances are updated
immediately. Thus, offline card users may have been confused by the
balance information on the audio response unit, which obtains
information from the central computer server on a lag basis, compared
with their knowledge of the available balance based on known card
transactions and expected benefits (Abt Associates, Inc., 2002).
The Abt Associates report also considered the transferability and
adaptability of Ohio's Direction Card to food stamp programs in
other states. The main obstacle cited was the need to build a system
from scratch, since few retailers have POS devices capable of reading
smart cards because consumer demand for these cards has not reached a
critical mass. Moreover, EBT recipients outside Wyoming and Ohio benefit
from the interoperability of online systems, allowing them to access
benefits in 48 states. Ohio and Wyoming recipients can only use smart
cards in their own respective states, unless an out-of-state store is
specially equipped to accept them. (9)
Campus smart cards
Numerous e-purse programs have been implemented in closed-loop
college and university environments for a variety of reasons: Students
are open to new technologies; universities are able to implement more
secure IDs that are not as easily duplicated as magnetic stripe cards;
and schools are able to reduce administrative costs and to generate
transaction fee income. Despite these benefits, most campus smart card
trials have failed. In University Business magazine, Villano (2004)
reports that of the approximately 50 schools in the United States that
implemented smart card programs from 1997 to 2002, only a handful are
still using them and relatively few take full advantage of the
capabilities the technology provides. Failures are attributed to the
high costs of offline systems compared with those of online systems,
lack of interoperability, and delays in batch processing that mean card
balances may not be updated for up to 24 hours.
University of Michigan
One of the largest e-purse deployments at a campus in the United
States began at the University of Michigan in 1995 in response to
students' and merchants' requests that the school's
Entree Plus system be extended off campus (Mayer, 1996). Entree Plus was
a funds pool into which parents put money at the beginning of the year
for meals at residence halls and snack bars, as well as for on-campus
purchases at vending machines, bookstores, and laundry facilities
(Mitchell, 1998). As it turned out, it was not feasible to expand the
Entree Plus system off campus, so the university developed a proprietary
offline POS network called the Mcard (Mayer, 1996).
In June 2001, the university announced that smart cards would be
gradually discontinued and replaced with magnetic stripe cards (Avisian,
Inc., 2002). A number of factors influenced the failure of the offline
system, including technology problems; the overall cost relative to
online systems; the lack of a critical mass of users and merchants;
confusion related to concurrent programs on the card; (10) and the
apparent lack of a business case at the outset.
Factors influencing failure
In terms of technical problems, outdoor card readers did not
function well in cold weather, and transaction times took longer than
cash (Mitchell and O'Brien, 1999). In addition, the chip on the
Mcard malfunctioned nearly one-quarter of the time when it was first
implemented (Doyle, 2005). Some cashiers had not been properly trained,
which resulted in delays, and students became frustrated and eventually
mistrustful of the card (Michigan Daily, 1996).
Over time, the school found that the Mcard was more useful as a
coin substitute than as a paper currency replacement. As such, the
school required technology that would support pay phone, parking meter,
and central parking facility transactions, but these were beyond the
capability of the system (Doyle, 2005). Faced with an obsolete
technology, the university sought bids from Visa, Mondex, and Proton to
update the program. However, costs were considered too high, and the
school announced it would revert to an online system (Kuykendall, 2001).
Moreover, usage of the Mcard was lower than expected. Over a year
after its implementation, transaction volumes were 20 percent less than
anticipated and dollar values 30 percent to 35 percent below target
(Chakravorty, 1996). Although usage rates would generally be lower at
the beginning of any new payment technology, the Mcard illustrates a
classic dilemma: Cardholders wanted more merchants to accept the card,
while merchants wanted more cardholders to use it.
It was also hoped that the Mcard program would provide students and
staff with a convenient payment tool that would generate revenues for
the school. The Mcard included a microchip for payments, a bar code for
checking out library books, and a magnetic stripe that functioned as a
debit card as well as provided building access. Phone card functionality
was also included on the card (Mitchell, 1998). The University of
Michigan received part of the ATM transaction fees and calling card
revenues in addition to 50 percent of the merchant transaction fees paid
to the school's bank, First of America (Doyle, 2005). However,
students and parents were confused by the many concurrent programs that
operated separately on the card. In addition, students preferred the
Entree Plus program to the e-purse program. With Entree Plus, parents
could deposit funds to a university account that students could draw
from to make on-campus purchases, whereas with the e-purse, students
typically used their own money to load value onto the chip (Mitchell and
Moreover, the on-campus rollout of the Mcard was not well
coordinated, and merchant fees were viewed as high. Only one of the
campus's 22 libraries accepted the card for photocopies because
most had already implemented their own copy systems prior to
Mcard's launch (Doyle, 2005). Some other campus locations did not
accept the Mcard, and the number of purchases with the Mcard was lower
than with credit cards. On-campus merchants initially paid fees of 4
percent for transactions on the chip and BankStripe (a closed-loop debit
card linked to a First of America checking account), which were later
lowered to 2.8 percent, while off-campus merchants consistently paid 4
percent (Doyle, 2005). Merchant interest in the program was also low due
to the high cost of the card reader, $900, resulting from the lack of
competition from other vendors (Gale Group, Inc., 1998). (11)
Finally, it is unclear whether a business case for smart card over
magnetic stripe technology was fully developed. The Mcard program was
originally piloted as a magnetic-stripe ID card. When the supplier that
provided the cards and readers was purchased by a leading smart card
vendor a few months after the pilot began, the university's bank
suggested that a microchip be added to the magnetic stripe card to
facilitate faster on- and off-campus payments and to provide students
with a cash substitute for pizza deliveries to dorms and for meals in
restaurants (Mitchell, 1998).
University of Central Florida
Another campus card program was implemented in 1998 at the
University of Central Florida (UCF) and remains in operation. The UCF
Card is a required student ID and includes a magnetic stripe for debit
card transactions and a computer chip with three separate e-purses.
Cardholders must have an account with SunTrust, the issuing bank, to use
the debit card functionality. (12) The main reason the program was
implemented was to complement the university's image as a
cutting-edge technology school. Three factors appear to be influencing
the current success of the UCF Card: in-house processing, the
requirement for the card to be used in the computer lab, and merchant
and student interest in expanding the program off campus.
Factors influencing success
Tamara Kidder (2005), the UCF Card manager, reports that the
university now performs its own transaction processing, which is quicker
than the processing offered by their initial vendor. Moreover, the
number of students and staff using the UCF Card increased from 20
percent in 2003 to 50 percent in the summer of 2004 as a result of the
computer lab requiring the card for print copies. Students also enjoy
the security of two PIN-protected e-purses; if the UCF Card is lost or
stolen, these funds can be transferred to a new card.
Similar to the evolution of the Octopus card, the expansion of the
UCF Card off campus was driven by both student and merchant demand.
Currently, the card is used to purchase on-campus pizza deliveries and
off-campus meals at six fast food and other restaurants. Twenty
additional merchants are interested in joining the program (Kidder,
2005), which suggests that the 3 percent merchant discount fee is not
viewed as a barrier.
Military smart cards
One other sector where e-purse applications have been developed and
implemented successfully in the United States, albeit in a fairly narrow
range of cash management applications, is the U.S. government. Since the
inception of its stored-value card (SVC) program in 1997, the U.S.
Department of the Treasury has issued more than 1.4 million smart cards
that support specific business processes within each branch of the U.S.
Armed Forces (Mackenzie, 2004). (13) The program aims to end the float
loss associated with the more than $2 billion in coin and currency in
circulation on military bases, ships, and other locations worldwide--and
the associated cost of securing, transporting, and accounting for cash
held outside the Treasury. The cards also eliminate the manually
intensive back-end operations necessary to support scrip, vouchers, meal
tickets, money orders, traveler's checks, and other paper payment
mechanisms used in closed government environments. Two types of SVC
cards currently in use are Navy Cash[TM] and EagleCash. (14)
Navy Cash[TM] card
Navy Cash[TM] reduces the cash handling and fiduciary costs
associated with safeguarding and storing large amounts of paper currency
and coins on board ships by combining two technologies on the same card:
smart card chip and magnetic stripe. The e-purse on the chip is used for
onboard purchases, and the magnetic stripe is used for purchases during
shore leave. On a recent voyage of the USS Harry S. Truman, which has a
crew of 5,000, there were over US$1 million in sales using the Navy
Cash[TM] card (Gosnell, 2004). As of September 30, 2005, 66 ships have
been deployed with Navy Cash[TM], and a total of 160 are scheduled to
convert to the system by 2008 (Straw, 2005a).
Factors influencing success
A number of factors are influencing the current success of the Navy
Cash[TM] program, including cost savings for the Navy, high customer
satisfaction among crew members, and powerful incentives that drive
Navy Cash[TM] reduces labor-intensive cash handling as well as
lowers fiduciary and reporting costs by decreasing the need for paper
currency and coins on board ships by 50 percent to 60 percent. In
addition, a "cashless" shipboard environment allows more time
for crew members to focus on core mission functions. Navy Cash[TM] also
provides crew members with greater services and security, and supports
access to home bank and credit union accounts. The Navy Cash[TM] system
has been taken successfully around the world with a high rate of
customer satisfaction (Straw, 2005b).
The Navy is very motivated to cut costs, and provides cards free of
charge to crew members. While adoption of the program by servicemen and
servicewomen is voluntary, those crew members who choose to forgo the
card cannot make onboard purchases at retail POS terminals or at vending
machines. Instead, they only receive standard food and supplies issued
by the Navy, as no cash is accepted on the ship (Rivers, 2004).
A second military stored-value smart card called EagleCash began in
1999. It is used by U.S. Army and civilian workers in parts of the world
with weak telecommunications and banking infrastructures. Personnel use
the reloadable card on bases to purchase goods and services as well as
foreign currency. First deployed in Bosnia, the EagleCash smart card is
also used in Afghanistan, Honduras, Kosovo, Macedonia, Qatar, and
Uzbekistan. Future deployments may include military bases in Iraq,
Kuwait, Saudi Arabia, and the Sinai (De Jesus, 2005).
Factors influencing success
The current success of the EagleCash program can be attributed to a
number of factors. Staff is able to pay for goods in countries where
banking and telecommunications infrastructures are weak and benefit from
faster checkout lines at on-base POS terminals, where checkout times
decreased by an average of 45 seconds (Federal Document Clearing House,
Inc., 2000). The military benefits from a reduction in U.S. currency in
hostile areas, which could potentially be used to fund terrorism due to
the stronger market value of the U.S. dollar in these regions (Thompson,
2004). The risk of counterfeiting and black marketing is also
diminished. In the Balkans, EagleCash lowered U.S. currency in
circulation by $160 million (De Jesus, 2005).
Implications for future e-purse programs
A review of six e-purse programs in Hong Kong and the United States
reveals that the successful programs operate in captive markets and
sometimes require use of the card to establish a critical mass of users
as seen in the Direction Card, Navy Cash[TM], UCF Card, and Octopus
programs. For example, the Direction Card program required EBT
recipients to migrate from paper food stamps to smart cards. Navy
Cash[TM] is almost mandatory, since service personnel are unable to make
onboard purchases without the card. University of Central Florida
students are required to use the UCF Card in the school's computer
lab, and this requirement resulted in an increase in the number of
students and staff using the card from 20 percent to 50 percent. Octopus
leveraged the transportation industry in Hong Kong, where over 70
percent of its commuters take public transportation every day. Commuters
who travel via rail and metro can only purchase multiple ride tickets
using the Octopus card. Of course, required use of smart cards is
possible in closed-loop environments; however, mandatory usage of smart
cards has little chance of successful implementation in open-loop
environments where consumers are accustomed to payment choices.
Octopus's initial focus on the transportation sector also
supports Van Hove's (2004) observation that successful smart card
programs typically receive support from key players in at least one of
the following: public transportation, public telephones, parking meters,
or vending machines. Public transportation proved to be the conduit for
establishing critical mass in Hong Kong. Is such a system feasible in
the United States? Greg Garback (2005), executive officer of the Finance
Department of the Washington Metropolitan Area Transit Authority,
indicates that U.S. transportation companies are investing $1 billion to
improve their payment infrastructures through the use of contactless
smart card technology. Cities with multimodal public transportation
(trains, buses, subways, or ferries) like Chicago, Seattle, San Diego,
Los Angeles, Boston, Houston, Atlanta, and San Francisco have installed
contactless smart card systems. These regional transportation systems
may one day lead to a single transit card that can be used in multiple
The Netherlands is currently installing such a cross-country
transportation system, which should be completed by 2006 (ASK, 2004).
Octopus is providing back office support and operational expertise on
the project (Tai, 2005). However, compared with the United States, both
the Netherlands and Hong Kong are extremely small geographic areas,
which certainly facilitate the implementation of a systemwide or
countrywide e-purse strategy, as Van Hove (2004) observes. Furthermore,
Hong Kong residents use public transportation daily. By comparison, the
U.S. Census Bureau (2004) reports that there is only one U.S. city where
the majority of the population (55 percent) takes public
transportation--New York City. Other cities with a population of 250,000
or more have a smaller percentage of the population that takes public
transportation each day.
Because the vast majority of commuters in the United States as a
whole (77 percent) drive to work alone, some payment analysts argue that
the RFID technology currently used in tollway systems in some
metropolitan areas may be expanded to the retail sector in the future.
(15) In fact, the E-ZPass system used by commuters in the northeastern
United States conducted such a trial at two McDonald's drive-thru
windows on Long Island, NY. In the American Banker, Wade (2004)
reported, however, that the co-owner of these fast food restaurants had
no plans to accept E-ZPass at the four other McDonald's he owned;
that he was more excited about the possibility of accepting credit cards
because they are more ubiquitous; that the E-ZPass system was more
complicated to set up; and that it would be an uphill challenge to reach
broad-based adoption. Part of the difficulty relates to the technology.
The transponder that drivers use to store value and record tolls is
about the size of a deck of cards, which makes it practical for tolls
and drive-thru restaurants but not for a typical retail environment.
Moreover, a widespread number of merchants would have to bear the cost
of installing smart card readers and a critical mass of consumers would
have to prefer the device over other payment alternatives to make it
While we have seen that some programs require smart card usage,
this strategy does not guarantee success. The Ohio Direction Card
program, which required EBT recipients to access benefits through the
Direction Card, had the highest average daily transaction values of the
six e-purse programs surveyed, well above the one million users that
Goldfinger (1998) estimated would be necessary to offset infrastructure
costs. However, Ohio's EBT system failed on account of the higher
cost of the offline infrastructure relative to online systems. The Mcard
program failed for the same reason. Therefore, a second key factor in a
successful smart card program is overall cost compared with other
payment alternatives. As such, the Navy Cash[TM], EagleCash, and UCF
Card programs should be monitored over time. If the overall costs of
these programs are higher than other payment technologies, their
long-term success may be in jeopardy. This concern may be mitigated to
some extent for Navy Cash[TM] because of the security that the card
provides for ship check in.
A third key ingredient for a successful e-purse program is
compelling incentives for consumers to use and for merchants to accept
the new payment device frequently. In terms of Chakravorti's (2004)
framework, Octopus offers consumers and merchants simultaneous benefits
that are not provided by existing payment systems. For consumers,
Octopus completes transactions faster than cash, provides an automatic
reload feature, offers loyalty programs, and is the only e-purse
surveyed that allows the purchase of goods up to a negative value.
Merchants that accept the Octopus card benefit from quicker transaction
times and ad hoc loyalty programs, as well as lower fees compared with
those for credit cards. Nevertheless, a handful of retailers have found
that the merchant transaction fees are too high and have withdrawn from
When analysts predicted the success of e-purses during the 1990s,
the main benefit envisioned was a cash substitute for small-value
purchases. Octopus concentrates on the micropayments environment and
provides merchants with reduced cash handling costs. However, Van Hove
(2001) argues that merchants experience increased costs in the short
term by supporting two separate infrastructures until a critical mass of
e-purse users is established. The Navy Cash[TM] program was successful
in substituting cash entirely for crew members on board ships, resulting
in significant cost savings. Despite the University of Michigan's
desire to replace coin-intensive transactions like those for pay phones,
parking meters, and parking facilities, Mcard's technology was
unable to support these devices.
In the United States, credit cards rather than e-purses may fill
the micropayments gap. For example, some parking meters in Chicago
accept credit cards, and the credit card industry plans to continue
introducing contactless cards to speed payment. JPMorgan Chase &
Co., the largest credit card issuer in the United States, has announced
that it will issue millions of new contactless credit cards. American
Express Co. plans to issue its contactless card, ExpressPay, to new
customers in June 2006. More importantly, Visa, MasterCard, and American
Express have agreed to a standard that enables properly equipped POS
readers to accept contactless credit cards (Sidel, 2005). The success of
contactless credit cards in filling the micropayments gap relies on two
factors: a critical mass of consumers that are able to find enough chip
reading terminals to use these cards frequently and a widespread number
of retailers that view fees for small-value transactions on these cards
The final critical ingredient for a successful smart card program
is technology that is well tested and addresses standards issues before
rollout. As seen in the Mcard program (see appendix), technological
difficulties decreased the adoption rate and contributed to the overall
failure of the program. (16) In contrast, Octopus had very few problems
in the initial rollout, and after 7-Eleven's implementation in the
retail sector, Hong Kong's consumers pressed other merchants to
accept the card as well. The UCF Card program reflects a similar desire
from merchants and users to expand card usage; however, the UCF Card
program is the only one with multiple e-purses and requires merchants to
select the correct e-purse from which to deduct a transaction. A more
streamlined technology that includes a single e-purse may increase
adoption, but at the same time, a single e-purse may negatively affect
parents' sense of control over funds being spent for school-related
Octopus also established interoperability between the various
transportation providers before the program was launched, which smoothed
its expansion into the retail sector. Still, Octopus may face
interoperability issues in the future as Asia migrates to
Europay/MasterCard/ Visa (EMV) compliant credit cards. EMV facilitates
the introduction of chip technology into the international payment
systems by developing joint specifications for issuance, acceptance, and
interoperability of chip-based debit and credit card transactions. An
ePaynews.com article (Trintech Group Plc, 2004) reports that the Chinese
banking industry is scheduled to complete a Chinese version of the EMV
standard prior to issuing EMV chip cards.
It is difficult to anticipate what impact the EMV initiative might
have on Octopus. One possibility is that merchants may be reluctant to
have two separate smart card readers--one for Octopus cards and one for
EMV credit and debit cards. Instead, they may want the computer chips on
Octopus cards to be EMV compliant and POS terminals for the Octopus card
and for EMV credit and debit cards to be integrated. This option will
likely result in additional costs related to issuing new cards and to
integrating existing card readers for both Octopus Cards Ltd. and its
merchants. Some of these costs will likely be passed on to consumers.
Another possibility is that the relatively low cost of Octopus
transactions for merchants may offset the expense of maintaining dual
Military cards may also face interoperability and cost issues
because of some new initiatives in the United States, such as the
Government Smart Card (GSC) initiative and Homeland Security
Presidential Directive (HSPD) 12. GSC is designed to adopt smart card
technology for every federal employee for a wide range of purposes, such
as building access. HSPD 12 establishes government-wide standards for
secure and reliable forms of identification issued by the federal
government to its employees and contractors (White House, Office of the
Press Secretary, 2004). Open standards on how to build a smart card
infrastructure across all federal agencies are being published, and
presumably, military cards will need to conform to these standards.
Of the six e-purse programs reviewed, Octopus and Navy Cash[TM]
have come closest to creating the cashless world foretold by many
analysts in the 1990s. While the Navy Cash[TM] program entirely replaces
cash on board ships equipped with the system, the scale of the program
is far smaller than that of Octopus, which used the transportation
industry to achieve critical mass. The Octopus model may be difficult to
replicate here because the U.S. population is much larger, is more
geographically dispersed, and does not rely as heavily on public
transportation. In addition, the United States is a less cash-intensive
society compared with Hong Kong, where an e-purse for small-value
transactions may have more utility. The United States also has an
efficient, advanced, and inexpensive telecommunications infrastructure
for debit, credit, payroll, and gift cards that has relatively low
levels of fraud.
One way to establish critical mass is to require use of smart cards
over other payment alternatives, as seen in the Direction Card program
in Ohio. However, even if usage is mandatory, the overall cost of a
smart card system relative to other payment options is critically
important to its success. Required usage is also impractical in an
open-loop environment where consumers are accustomed to payment choices.
Successful e-purse programs also provide consumers and merchants
with powerful incentives to use and accept the card. Octopus has been
highly successful in this regard; still, a handful of merchants have
found the fees too high and defected from the program. Finally,
technology that is well tested and addresses standards issues before
rollout is another factor in a successful e-purse program. Inferior
technology helped doom the Mcard program, while Octopus provides a
highly interoperable system with a low error rate.
APPENDIX: E-PURSE PROGRAMS E-purse Octopus card
Status Successful Cards issued 12,700,000 Average
usage $1.00 per transaction Average daily $1,411,000 (a)
transaction value Locations
Over 50,000 accepting card Reader Contactless
How it works Choice of three cards: On-Loan
Anonymous costs HK$150 ($19) and includes
a HK$50 deposit and a HK$100 stored value amount;
Sold Octopus costs HK$70 and has no
stored value; and Personalized
Octopus costs HK$100 and includes a HK$50 deposit,
a HK$20 printing and handling charge, and a stored
value amount of HK$30. Consumer
can automatically reload personalized cards
through credit card or bank account, and most
banks and credit card issuing
companies offer bonus points or cash rebate
for automatic reload feature. Consumer can reload
all three cards with cash. Maximum stored
HK$1,000 ($128) value Merchant Reduced cash handling,
quicker incentives transaction times, marketing
information, lower fees than credit
cards. Consumer Speed, convenience, purchases incentives
up to negative value, security,
loyalty discounts. Other factors Cooperation of major related to
transportation companies, or failure leverage of
industry to establish critical
mass, reliable and interoperable
technology. Adoption Voluntary Other payment
Primarily cash, but credit instruments cards, debit cards,
checks accepted at at some locations. point of sale E-purse
Direction Card Status Failed Cards issued
3,203,066 Average usage $29.50 per transaction Average daily
$2,765,102 (b) transaction value Locations 5,123 accepting
Contact How it works Ohio EBT recipients
receive cards for free and are
required to load their benefits
at any three stores of their choosing or
at the local food stamp
office. Maximum stored n.a. value Merchant Free
terminal incentives installation, training,
maintenance. No transaction costs. Consumer
High levels of customer incentives service, standardized
procedures. Other factors Overall costs,
related to success interoperability. or failure Adoption
Voluntary Other payment Primarily cash, but credit cards,
cards, debit cards, checks accepted at at some
locations. point of sale E-purse Mcard Status
Failed Cards issued 92,000 Average usage $0.43 per
transaction Average daily n.a. transaction value Locations
342 accepting card Reader Contact How it works
Card was required ID on campus and included
microchip for payments, bar code
for checking out library books, and magnetic
stripe for building access.
The magnetic stripe also functioned as a
debit card, called BankStripe,
linked to a First of America checking
account. Card also had calling card capabilities.
Value could be added to the
e-purse at 23 CashChip machines on campus. Maximum
$50 value Merchant Lowered cost of terminal and
merchant discount fees from 4 percent
to 2.8 percent. Consumer Coupons, free transfers from
checking to chip, discounts when used
instead of cash. Other factors Malfunctioning technology, related
to success long transaction times, or failure poor training,
low merchant discounts, costly readers. Adoption
Voluntary Other payment Cash, checks, credit
cards, debit cards. accepted at point of sale E-purse
UCF Card Status Successful Cards issued
120,000 Average usage $3.98 per transaction Average daily
$6,691 transaction value Locations 359 accepting
card Reader Contact How it works Students and
parents add value through the WebRevalue
online service, fax, mail, or
phone. Students and parents can also visit the
UCF Card Services office and
provide cash, check, debit cards, or credit
cards. Students and parents can
load money to the first e-purse by using
Cash-to-Chip machines on campus. Transfers among
e-purses require a visit
to the UCF Card Services office. Maximum stored
E-purse 1: $100, for on-campus value
purchases at vending machines,
photocopiers, laundries, and printing facilities.
2: $5,000, for tuition and on-
campus purchases at the book store; PIN
protected. E-purse 3: $5,000, for retail purchases
on and off campus; PIN protected. Merchant
Access to nearby student incentives population. Consumer
Security, discount at vending incentives and
copy machines, off-campus restaurant options. Other
factors Gives parents some control related to success
over funds being spent for or failure school-related
purchases. Adoption Mandatory for computer lab;
voluntary for other uses. Other payment Some locations cash
only; some instruments locations cash, checks, credit accepted
at cards, debit cards. point of sale E-purse Navy Cash[TM]
Status Successful Cards issued 68,883 (c) Average usage
n.a. per transaction Average daily
$25,000 transaction value Locations 892,000 ATMs
and 32 million accepting card merchants worldwide. Reader
Contact How it works Onboard purchases and chapel
donations are made through
the chip. Purchases ashore, over the phone, or
on the Internet are made though the
magnetic stripe at any location
accepting MasterCard. Onboard cashless
ATMs can be accessed to check
balances; move money from stripe to chip and vice
access bank or credit union
accounts to transfer money; complete a ship
"check in" when reporting aboard for
permanent or temporary duty; and
transfer money from one crew member's account
another. Maximum stored $1,000; PIN protected,
value although purchases under $25 from vending machines
do not require PIN. Merchant None incentives Consumer
Free card, no transaction incentives fees, greater security,
access to home bank accounts.
Other factors Reduces cash handling, related to success
fiduciary, and reporting or failure costs. Adoption
Voluntary Other payment None for crew members; instruments
visitors may be allowed to accepted at use cash and checks.
point of sale E-purse EagleCash Status
Successful Cards issued 56,659 Average usage n.a. per
transaction Average daily $15,000 transaction value Locations
n.a. accepting card Reader Contact How it works
Value added through payroll deposits, bank
account transfers, and checks. Departing
staff turn in card, and any
remaining amount is refunded in cash. Cards have an
date, so staff who forget to turn
in their card have the remaining
balance deposited directly to their bank accounts.
Maximum stored $9,999.00 value Merchant None
Free card, payment incentives instrument for
use in hostile territories with
weak banking and telecommunications
security. Other factors Decreases costs of related to success
transporting and safekeeping or failure currency and reduces
of U.S. currency falling into
the hands of terrorists. Adoption Voluntary Other
payment Cash, checks, credit cards, instruments debit
cards. (d) accepted at point of sale (a) $8,300,000 average daily
transactions multiplied by 0.17 (percent of retail transactions). (b)
2004 Ohio food stamp benefits divided by 365, based on information from
the U.S. Department of Agriculture, Food and Nutrition Service (2005).
(c) Number of cards issued and average daily transaction value for Navy
Cash[TM] and EagleCash provided by the U.S. Department of the Treasury.
(d) The U.S. Army Finance Command has issued a communication that
EagleCash is the standard in the field, but the decision to accept other
payment instruments at the point of sale rests with local command.
Notes: Amounts in U.S. dollars, unless stated otherwise. n.a. means not
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Vol. 2, No. 4, Summer, pp. 5-26.
White House, Office of the Press Secretary, 2004, "Homeland
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Wong, Joey, 2005, interview with public relations manager, Octopus
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(1) Smart cards are credit-card-sized plastic cards embedded with a
microchip that are more difficult to counterfeit and can store more
information than magnetic stripe cards.
(2) The geographic concentration of the potential users of an
e-purse is also important. For example, it would be cheaper to support
one million smart card users in a concentrated market like Hong Kong
versus one million smart card users in the whole of China.
(3) Hong Kong has had a stable exchange rate of HK$7.8 to US$1
since the mid-1980s; its GDP was US$158 billion in 2003.
(4) For a detailed discussion of the New York City trial, see Van
(5) While some retailers and credit card companies, such as Target
Corporation and American Express, have added computer chips that do not
have stored-value capabilities to their cards, their customer programs
have either failed or have not established a critical mass of users.
(6) For a discussion of the open-loop Mondex trial in Hong Kong,
see Westland et al. (1998). Electronic Transaction Association (2001)
discusses the Atlanta Olympics e-purse trial. Again, for a detailed
discussion of the New York City trial, see Van Hove (2001).
(7) Total Octopus transactions in 1998 are unavailable. Using
current statistics of 8.3 million daily Octopus transactions, this would
represent a failure rate of 0.01 percent.
(8) There have been no announcements of Wyoming's intention to
discontinue its smart card program, which is used to administer the EBT
program and the Women, Infants, and Children (WIC) program. An industry
source indicates that if an online WIC program pilot by the state of
Washington proves to be a success and a good business strategy, then
Wyoming will be open to the best business case when it rebids its EBT
(9) Out-of-state stores accepting smart cards are generally located
near Ohio's and Wyoming's state borders.
(10) The Mcard's concurrent programs included Entree Plus,
BankStripe, a calling card program, and a chip program. Entree Plus
transactions were deducted from the school's pre-established funds
pool. BankStripe transactions were deducted from the cardholder's
First of America checking account. Calling card transactions were billed
in one of two ways--on the student's phone bill or on a prepaid
basis through Ameritech. Chip transactions were deducted from the stored
value on the card (Doyle, 2005).
(11) Enhancements to the Mcard were offered late in the program,
but failed to have a positive effect on usage. These included migrating
to an open debit card network, offering free funds transfers from First
of America checking accounts to the chip, providing visitors with loaded
Mcards for meals and other sundries, promoting merchants in monthly
newsletters, and reducing the cost of terminals. Other incentives
included distributing coupons from participating merchants to students
paying with the Mcard, offering students who watched a training video
about the card $5 on the chip, and providing vending machine and
merchant discounts when the card was used instead of cash (Doyle, 2005).
(12) Unless indicated otherwise, information on the UCF Card is
from the University of Central Florida (2005).
(13) Additional information was taken from the U.S. Department of
the Treasury, Financial Management Service (2005).
(14) A third program, EZpay, provides all U.S. Army, U.S. Air
Force, and U.S. Marine basic trainees with a disposable EZpay card with
a fixed amount of electronic currency for purchases at base stores,
beauty and barber shops, cleaners, gift shops, museums, phone centers,
photo stores, and video stores. The amount loaded on the card is
deducted from the trainee's first paycheck (Mackenzie, 2004).
(15) After paying for tolls in advance, drivers are issued a
transponder about the size of a deck of cards that is mounted on the
windshield and allows them to pass through a tollbooth without stopping
the vehicle. The card can be linked to a consumer's debit or credit
card to automatically replenish funds.
(16) Malfunctioning technology also impeded card adoption in the
Mondex and Visa Cash trial in New York City.
Carol L. Clark is a payments research manager at the Federal
Reserve Bank of Chicago. The author gratefully acknowledges the
assistance of Erin Davis, Juan A. De Jesus, David Doyle, Tamara Kidder,
Graham Mackenzie, John Scaggs, Barbara Straw, Eric Tai, and Joey Wong in
the completion of this study and the helpful comments on previous drafts
by Sujit Chakravorti, Geoffrey Gerdes, Richard Porter, Tara Rice, and
Leo Van Hove.
How U.S. consumers made in-store
Credit card 21%
Debit card 31%
NOte: Table made from pie chart.
Source: Dove Consulting (2003).