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. Last Updated: 07/27/2016

U.S. Bank Giants Quit Test of Electronic Cash




NEW YORK -- Electronic cash may be joining jet packs, video phones and other world's-fair wonders that never move from the future to the present.


In the latest of many notable failures for what has been promoted as the future of money, Citibank and Chase Manhattan have decided to shut down their test of electronic cash, the nation's biggest trial of the technology to date.


The banks issued the so-called smart cards - cards with embedded computer chips - to nearly 100,000 people who live on the Upper West Side of Manhattan. Customers could transfer cash from their bank accounts onto the cards at automated teller machines and spend the money at 600 merchants. In theory, this would make small purchases faster and easier than with coins and bills.


But in reality, most people who tried the system never loaded their cards a second time. And with few people using the cards, two-thirds of the merchants dropped out. Indeed, in the program's first year, less than $2 million was spent using all of the cards.


"Unfortunately, we weren't able to make the consumer's life easier," said Carole Lockie, a vice president of Visa USA, which worked with the New York banks and Mastercard International on the test.


Chase and Citibank customers with smart cards will be able to load their cards and spend money at the remaining merchants until the end of the year. They will then have until six months after the expiration date on their cards to transfer any remaining cash from the cards to their bank accounts.


Other similar tests of electronic cash have produced similar disappointments. Visa introduced its Visa Cash smart card at the 1996 Summer Olympics in Atlanta with the hope of continuing to operate and expand the system there. In fact, the system has all but shut down and most of the banks have withdrawn.


Last year, Mastercard closed the introductory test of its Mondex smart card system in Swindon, England. And it just said it would end a similar test in Guelph, Ontario.


"Smart cards are a technology chasing a business case," said Richard Speer, chief executive of Speer & Associates, a financial consulting firm. He said that the widespread acceptance of inexpensive terminals that merchants can use to accept credit and debit cards has undercut the need for electronic cash.


Proponents of smart cards maintained that the technology will ultimately prove popular; in the test by Chase and Citibank, they said, consumers were discouraged because they could not use their cards in all parts of the city.


"When you localize your test on the Upper West Side, you realize your usage will be suppressed, because everyone leaves the Upper West Side," said Judy Darr, director of smart card programs at Citibank, a unit of Citigroup.


Yet the banks found it too difficult to expand the number of places accepting the cards because there was little appeal to merchants to take it.


"This is a real chicken-and-egg case," said Ronald Braco, senior vice president of Chase. "Merchants don't want something where they get only a few transactions a day."


While smart-card technology may eventually prove to be faster and easier than cash, merchants found that the versions in the tests were slow and cumbersome. Customers chose mainly to use the smart cards at grocery stores, which already take credit and debit cards.


Moreover, the card couldn't be used in pay telephones, vending machines or other devices that require change.


The New York smart-card test was announced in April 1996 and introduced in October 1997.