Special Issue Update
This paper is included in the First Monday Special Issue #3: Internet banking, e-money, and
Internet gift economies, published in December 2005. Special Issue editor Mark A. Fox asked
authors to submit additional comments regarding their articles.
The article below, which was written in 2000, showed that initial expectations about
consumer uptake and retailer acceptance of e-purses were unrealistic. The article concluded
that “the initial euphoria ha[d] faded away and, at best, ha[d] turned into cautious optimism”.
Today, things look even bleaker. In Europe several schemes have simply been discontinued
and only a handful are doing reasonably well, particularly in the Benelux (see Van Hove, L.,
“What Future for Electronic Purses?”, forthcoming in Lammer, T. (ed.), Handbuch E-Money,
E-Payment & M-Payment, Springer Verlag, 2006).
My original article noted that experts who still believed in e-purses saw two major ways in
which the new payment instrument could eventually be brought to the top of consumers'
wallets. The two magic formulae put forward were 'multi-application' and 'electronic
commerce'. Today, it can safely be stated that the Internet is unlikely to save e-purses.
However, the first formula might still do the trick. For example, in Hong Kong retail usage of
the Octopus transit card is growing steadily. And transit operators around the word are
following in Octopus’ tracks. In Europe, London’s Oyster card is the case to watch. Starting
in January 2006, Transport for London will extend the use of the card to low-value purchases
at retail stores in the capital.
This paper uses a unique data set covering 12 national systems to document the current state
of electronic purse projects in Europe. Specifically, it presents and compares rates of
penetration and use, and analyses their evolution over time. While one or two EPs perform
significantly better than the others, retailer acceptance and consumer uptake invariably fall
short of expectations. This does not bode well for the use of EPs on the Internet, and
particularly since the virtual world presents a number of additional hurdles. On the other
hand, it may also present additional opportunities.
Contents
Introduction
The Data
Cards
Terminals
Frequency of Use
Float
Conclusions, Part 1: A Long Way To Go
Conclusions, Part 2: Which Way To Go?
Introduction
In the first half of the 1990s, when the technology underwent its first implementations, many
of the operators of electronic purse schemes - and many analysts, for that matter - had high
hopes. Europay Austria, for example, was confident that the Quick EP would displace 20% of
cash transactions within three years from the date of launch [1] (see Figure 1). Today, even
the more conservative targets - such as Proton's 5% in 5 years - have turned out to be
challenging. Indeed, recent news from the EP front has been rather sobering. It is true that EP
operators and other payment organisations representing more than 90% of the EP cards now
on the market have endorsed the Common Electronic Purse Specifications (CEPS). This move
towards standardisation is undoubtedly a positive development - especially for the future of
EPs as a means of payment in the virtual world (Van Hove, 1999a). But the negative news
predominates. Over the past couple of years several important pilots have been shut down
because of a largely indifferent public. Other pilots are still up and running, but with limited
success.
Figure 1: Overview of Predictions Made by EP Operators
Compiled from different sources; see Van Hove (1997, p. 468).
In the UK, Mondex discontinued the Swindon pilot after three years [2]. In the end some
14,000 cardholders [3] were involved (Mondex International, 1998; Böhle et al., 1999, p. 40),
far fewer than the uptake of 25,000 that was originally predicted for the end of 1995 (Lewis,
1998) [4]. Mondex has stated that it will not be doing any more pilots in the UK (Mondex
International, 1998), but seems no nearer a national roll-out. As for the trial of the competing
Visa Cash card in Leeds, no findings have been made public but "it is understood that usage
levels remain low" (Böhle et al., 1999, p. 40). The trial has now been extended until
September 2000. Significantly, while UK financial institutions are currently in the process of
replacing their 72 million credit and debit cards by EMV-compliant chip cards [5], the cards
are not EP-ready since the banks have opted for the lowest technical specification (Price,
1999). Since the EMV migration is expected to take some three years (Böhle, 1999, p. 39), it
is clear that the UK is unlikely to see a national roll-out of EPs anytime soon - at least not on
bank-owned cards [6]. In neighbouring Ireland, the outlook does not appear to be very
promising either. Consumer uptake in the Visa Cash trial in Ennis is reportedly anything but
lasting. One commentator remarked that "the novelty wore off and the initial card balances
ran down to zero" (Rapaport, 1999). As for merchants, while up to 250 retailers once accepted
the card, only about 25 were still participating in March 2000 (Card Technology, 2000b).
Attempts to convert North Americans to a cashless culture are being similarly frustrated. On
December 31st 1998 the high-profile test of Mondex and Visa Cash EPs in Manhattan's Upper
West Side - the most important U.S. pilot to date - drew to a close after a 15-month run. From
a technical point of view the test was a success in that it demonstrated that the two schemes
could co-exist on the same equipment. But commercially, the test was a failure. Even though
they received free countertop terminals for the pilot and did not have to pay handling fees,
merchants dropped out one by one, so that near the end of the trial a mere one-quarter of the
original 675 still remained in the program. Consumer response was equally lukewarm.
According to Chase Manhattan figures, barely 8 to 10% of the cards issued in New York were
used regularly (Washington Post, 1998). And according to our own calculations, on average
cardholders did not even spend one dollar per card per month (Van Hove, 1999b), a fact
which indicates that a significant percentage of the cards in circulation simply remained
unused. Thus, it is not surprising that U.S. banks appear to have shelved their EP plans. In
Canada, the 1997 trial of the Proton-based Exact card by the Bank of Montreal and the
Toronto Dominion Bank in Kingston (Ontario) reportedly also saw "extremely low usage of
the card" (Mester, 2000, p. 13). Also in Canada, the trial of the competing Mondex
technology in Guelph (Ontario) also drew to a close without subsequently being expanded
into full deployment. After announcing "early signs of success", Mondex Canada fairly
quickly acknowledged "that there is a significant adaptation period required before consumers
will incorporate [Mondex] into everyday use" (Mondex Canada, 1997). The national roll-out,
which was scheduled initially for the first quarter of 1998, has been delayed ever since. Some
of the Mondex licensees for Canada did launch a new pilot in August 1999, this time in
Sherbrooke (Quebec). On the other hand, the Visa Cash pilot in Barrie (Ontario) entered its
third year in October 1999 and appears to be fairly successful (see below).
Turning to Asia, it is worthy of note that Mondex has failed to fulfill its original expectations
in Hong Kong, too. One year after its commercial roll-out, Jan McGrath, manager of
Hongkong Bank's Project Mondex, acknowledged that the bank was just "75 percent"
satisfied with the results of its Mondex offering (Lemon, 1998). Observers believe transaction
volumes are low (Davis, 2000) [7]. In Australia, ERG launched its Proton-based ECARD formerly known as Quicklink - into large-scale public use in Western Australia in July 1998.
However, this was not done in collaboration with a bank, but in association with HBF, the
local leading health insurance group, who decided to incorporate ERG's smart card
technology into its new membership cards (ERG, 1998b) [8]. It was only in March 1999 that a
bank, namely Bankwest - reportedly the largest bank in Western Australia - joined the scheme
(PWI, 1999a). Although the results of a consumer survey of the Newcastle pilot were
encouraging [9], ERG has so far not revealed any results for the commercial roll-out.
According to a recent BIS survey, usage of the purse has been modest (CPSS, 2000, p. 1).
The limited information that is available on EP pilots in Latin America is not too encouraging,
either. Five months into the Futura 3000 pilot in Pérez Zeledón in Costa Rica, for example,
17,000 cards had been issued, of which 10,000 (59%) had been activated (Yanancy Noguera,
1998) [10]. This gives a penetration rate of 29% (17% if only the activated cards are
considered). The initial goal was 40,000 cards (Jiminez and Chavez, 1997) - and a penetration
rate of 69%. During these first five months, a total of CRC 20 million was spend using the
cards, which amounts to CRC 235 (USD 0.87) per card per month - and CRC 400 (USD 1.47)
per activated card. In Brazil, the 'Moeda Eletrônica Bradesco' (Electronic Cash Bradesco)
card - which is based on the Portuguese Multibanco EP - is being tested in the town of Itu
(São Paulo) since September 1996. Three years after the start, there were 41,100 cards in
circulation which were used on average for 0.5 transactions per month (CPSS, 2000, p. 10).
Finally, even in continental Europe - which is clearly leading the world in that full-scale
implementation is well under way in many countries - the picture is not always that rosy
either. For example, the use of the Portuguese Multibanco EP, which was in its fourth year of
operation, actually fell in 1998 (Welch, 2000, p. 22). Also, although originally announced by
the Groupement des Cartes Bancaires for 1998, the national roll-out of a French EP has now
been postponed until 2001 (Alberganti, 1999). Even so, there are still other EP schemes - such
as Belgium's Proton - which boast impressive growth rates in the number of transactions and
terminals.
However, the trouble with the available data is that while EP operators are usually quick to
release either cumulative figures (e.g., the total number of transactions since the launch),
absolute figures (such as the volume of transactions in a given month), or growth rates, they
rarely present relative figures (such as the number of transactions per card). Also, nobody has
as yet taken the trouble to compile comparable data for a representative number of EP
schemes. The present paper aims to fill this gap. Using a unique data set covering 12 national
systems, it tries to document the current state of EP projects in Europe. Specifically, the paper
presents and compares rates of penetration and use both over time and across countries. While
the paper is thus essentially descriptive, whenever possible it also tries to point to
explanations for some of the findings. The final Section tries to assess the outlook for EPs. In
particular, it reflects on the argument increasingly put forward that having as yet failed in the
real world, the future of EPs now depends on electronic commerce.
The Data
The bulk of the data used in the following Sections was obtained directly from the payment
organisations backing the respective EPs (see Acknowledgments). Wherever possible, the
data were subsequently supplemented with figures taken from the ECB 'Blue Book', the BIS
'Red Book', the recent 'Survey of Electronic Money Developments' published by the BIS
(CPSS, 2000) and a number of other publications [11]. Since not all EP operators were
equally forthcoming, the depth of the data can differ markedly across schemes. A number of
schemes are not covered at all. The major blind spot is undoubtedly the Netherlands, the
country with the highest levels of purse penetration in Europe. We were unable to obtain
pertinent statistics concerning Chipper. As for Chipknip, we found some data on the number
of cards and terminals (Interpay, 2000; PWI, 2000), but we have no data on actual usage [12].
Since we wanted to be able to make a detailed analysis of developments in penetration and
usage rates, we applied for, and subsequently used, only monthly figures - at the cost of losing
some of the more readily available observations. For example, transaction data in the ECB
and BIS statistics are annual figures, which could not be fitted in into our database [13] Note
also that the time series for the respective EP schemes cover varying periods. Some start as
early as April 1995 and the most up-to-date stop in December 1999. In order to make the
figures comparable, only those EP schemes are considered that have entered the commercial
roll-out phase [14]. This explains why, for example, the UK is not covered and why no
mention is made of Mondex. For the same reason the paper concentrates on reloadable EPs. In
the case of the Danish Danmønt EP - which is only available as a disposable card (ECR,
2000b) - this explains why no figures for the number of cards or the number and value of
transactions are given. On the other hand, figures for the float and the number of terminals are
included since these are fully comparable with other schemes. Note also that the figures on
Finland relate only to the new multi-function card introduced in March 1997 - sometimes
termed Avant II - which replaced the original Avant card.
A final caveat is that the graphs presented in the next Sections should be interpreted with
caution in view of the many country-specific differences. The most important difference
obviously is that the EP schemes surveyed may be at very different points in the product
lifecycle. In order to make the results of the schemes more comparable two versions of each
graph are presented: one with a 'normal' time axis and a second one with the number of
months since roll-out on the horizontal axis [15]. There are, however, other differences which
are not corrected for in the graphs. Differences in consumer and merchant fees are but one
example. The pace of the geographical expansion of the network may also differ significantly
from scheme to scheme. The Proton card, for example, was introduced across Belgium in
phases - city by city - and it took Banksys more than two years to cover the whole of the
country [16]. The Italian MINIpay scheme, which was expanded to four cities besides the
pilot city of Turin during spring 1997, is still not operating nationwide (Böhle et al., 1999, p.
45). It should also be borne in mind that the Spanish Visa Cash and the Dutch Chipknip
scheme face domestic competition from other schemes (Euro 6000 and Monedero 4B, and
Chipper respectively). This also implies that, unlike for the other countries, the Visa Cash and
Chipknip figures are not representative of the overall penetration of EPs in their respective
countries [17]. Finally, it has to be stressed that the Portuguese MEP cards are (still mainly)
stand-alone cards (CPSS, 2000, p. 70). The same is obviously true for the (disposable)
Danmønt cards.
Cards
Figure 2a provides a picture of the total number of cards issued in the countries studied, even
though this number is not a very meaningful indicator - not of success, that is. This is because
in several of these countries - Belgium and Germany, for example - EPs were simply
incorporated into debit cards and sent out to cardholders when their debit cards were due for
renewal. Under these circumstances, the number of EPs in circulation obviously increased
steadily. However, as will be shown, many of these 'unsolicited' EPs typically remain unused.
Figure 2a therefore provides little more than a picture of the pace of card renewal.
Figure 2a: Total Number of Cards in Circulation (% of Population).
The Figure shows - and this becomes even more apparent in Figure 2b - that the Luxemburg
miniCASH scheme, which was only launched in February-March 1999, reached an extremely
high level of card penetration very quickly. As it happened, every Bancomat card (the local
debit card) in the Grand Duchy was due for renewal at the end of 1998 (James, 1999).
Figure 2b: Total Number of Cards in Circulation (% of Population).
The Dutch and German banks were also quick in putting EPs into the hands of cardholders. In
Austria, too, high penetration levels were reached quite early. In December 1996, eight
months after the preliminary start in five cities and only two months after the full-scale
national launch, the penetration rate already amounted to 41% [18]. Note also the 1999
acceleration in card penetration in Sweden - after a fairly slow start. Concerning Belgium, it
has to be stressed that the Proton card was initially available as a stand-alone card only. It was
only at the turn of 1996-1997 that the Belgian banks started mounting the Proton EP on their
debit cards. Afterwards the Belgian banks caught up fairly quickly with their German
counterparts [19]. Nevertheless, the pace of introduction was still somewhat slower than
Banksys' expectations. The target for end 1997 (4.5 million) was only reached in May 1998,
and the target for end 1998 (7.7 million) had still not been reached in November 1999, the
final month taken into consideration by our database [20]. The Finnish banks also missed their
target: the number of Avant cards in circulation at end-1999 was 1/3 lower than expected
[21].
As mentioned in the previous Section, the Chipknip and Visa Cash figures are not
representative of the overall penetration of EPs in their respective countries. In November
1999 the two local EPs had some 20 million cards in circulation between the two of them (13
million Chipknips and 7 million Chippers) for a population of 15.7 million (CPSS, 2000, p.
100). To the best of our knowledge, this makes the Netherlands the only country with more
EPs than inhabitants. Note in this respect that 60% of the Dutch population has more than one
giro account (Böhle et al., 1999, p. 46). According to data taken from the ECB 'Blue Book',
the combined penetration rate of the Spanish EP schemes amounted to 14.5% at the end of
1998 - which is only slightly higher than the 10.7% reached by Visa Cash alone.
As has already been pointed out, in several countries a large percentage of the cards issued
remains unused. Figures 3a and 3b therefore present a more reliable indicator of card
penetration: the number of activated cards (defined as cards loaded at least once) [22]. In both
Figures Proton towers way above the other schemes [23].
Figure 3a: Activated Cards (% of Population).
Figure 3b: Activated Cards (% of Population).
When comparing Figures 3a and 3b with Figures 2a and 2b, it is also striking that the EP
density of a number of the schemes is significantly lower when gauged in terms of the number
of activated cards. This is true for the Swiss Cash card, the Austrian Quick EP, the
Luxemburg miniCASH card, and, especially, for the German Geldkarte. This obviously also
shows up in Figures 4a and 4b.
Figure 4a: Activated Cards (% of Total).
However, the Geldkarte is a special case because the German figures do not relate to activated
cards but rather to 'active' cards (defined as cards that are used - either loaded or used for
payment - at least once during the month in question). Due to this significantly more rigorous
definition, the Geldkarte data are in fact not comparable with the data on the other schemes
[24].
Figure 4b: Activated Cards (% of Total).
Turning to Figures 4a and 4b, which depict the ratio of activated cards to total cards issued
[25], there are clearly other interesting observations to make besides the already mentioned
high and low values. One is the seemingly erratic development in the proportion of activated
Proton cards. This is due to the phased roll-out of Proton and the gradual addition of the
Proton application to existing debit cards. This implies that the overall statistics - as in Figures
4a and 4b - include at once people who have long been familiar with Proton, and people (and
regions) who have become acquainted with it only recently [26]. It will also be noticed that
the proportion of activated MEP cards declined slowly between May 1997 and April 1998
[27].
Terminals
Turning to terminals, the first thing that stands out in Figure 5a is the high number of
Chipknip terminals. The other Dutch scheme, Chipper, reportedly also has a relatively high
number of terminals in the market. According to a newspaper report (Kruijt, 1999), there were
some 80,000 Chipper acceptance points in October 1999. This corresponds to 5,100 terminals
per one million inhabitants, a level which is second only to Chipknip and Proton. It should be
stressed, however, that the combined penetration rate of Chipknip and Chipper cannot be
calculated by adding up their individual acceptance points. This is because the two schemes
signed an interoperability agreement in April 1999 (CPSS, 2000, p. 63). For example, both
cards can be used to pay for calls in all 22,000 public payphones in the Netherlands (PWI,
2000, p. 2). According to De Nederlandsche Bank, in November 1999 the total number of EP
acceptance points in the Netherlands amounted to some 150,000 (CPSS, 2000, p. 100).
Figure 5a: Number of Terminals (Per One Million Inhabitants).
A second interesting observation is the steady increase in the number of Proton terminals.
Still, as was the case with the number of cards (see previous Section), the expansion was
slower than expected by Banksys. The target for end 1997 (39,000 terminals) was only
reached in August 1998, and the target for end 1998 (60,000) was only reached in October
1999. Officials at Banksys are convinced that there remains significant room for growth. They
believe that only about 35% of the more than 100,000 newsstands, tobacconists and other
retailers that they target accept Proton (Davis, 2000). In addition, Banksys has just begun to
penetrate vending machines, with fewer than 10,000 of the 150,000 machines in Belgium
taking the Proton card (ibid.).
Turning to Figure 5b, it will be seen that two schemes - miniCASH in Luxemburg and the
Swedish Cash scheme - consistently outperform Proton (although to varying degrees). The
most interesting case of the two is miniCASH. miniCASH was the latest EP to be launched on
a nation-wide scale in Europe, and seems to be doing rather well (see Float Section). Initially
the Swiss Cash scheme, the Portuguese MEP scheme, and the Spanish Visa Cash schemes
also had higher growth rates than Proton, but these rates proved to be unsustainable [28].
Concerning the Spanish scheme, it will be noted that the bulk of the growth during 1997 was
due to the increase in the number of public payphones accepting Visa Cash. Beyond that
point, the expansion was related exclusively to 'merchant acceptance points' since all 84,721
Spanish payphones had been converted by the beginning of 1998.
Figure 5b: Number of Terminals (Per One Million Inhabitants).
Figures 5a and 5b also show that the number of Geldkarte terminals is clearly too low. An
analysis of the ratio of the number of cards issued to the number of terminals (not depicted),
shows clearly that while the German banks put chip cards into the hands of cardholders with
all speed, the number of Geldkarte terminals did not keep pace [29, 30]. This was also the
case for the Austrian Quick EP. Where Danmønt is concerned, it will be noted that there was
very slow growth in the number of terminals until end-1997 - which becomes especially
apparent in Figure 5b - and that between end-1997 and end-1998 the number of terminals
even dropped [31]. The lack of acceptance points obviously results in disappointing usage
levels. It is particularly symptomatic that of the 209 million DEM loaded onto Geldkarte cards
in 1997, no less than 12% was unloaded in the same year [32]. It is also interesting to observe
that in January 1997, 10 months after the start of the pilot in Ravensburg, no fewer than 25%
of the cards issued by the local Kreisssparkasse were 'active' (Gentz, 1997, p. 82) as compared
to only 2.5% on a national level in December 1999 (Heise, 2000). But then the ratio of cards
to terminals was 133 in Ravensburg (Gentz, o.c., p. 54) as compared to an overall national
figure of no fewer than 22,000 at end-1996, 694 at end-1997, and 750 at end-1998. Note that
the Ravensburg figure of 133 is comparable to the current ratio for the Proton scheme (which
stood at 115 at end-October 1999).
Frequency of Use
Now that we have documented developments in the 'infrastructure' of the respective EP
schemes, the key question obviously is: what about actual use? A problem here is that it is not
easy to find a good indicator of card use. Figures 6a and 6b give the average frequencies of
use per card and per month. The most important observation is obviously the low overall level
of the results: none of the schemes even reaches the level of one transaction per month. The
Proton scheme clearly has the 'best' results throughout [33]. It will be noticed that the abrupt
drop in the frequency of use which occurred in December 1996 was caused by an end-of-year
jump in the number of debit cards being renewed. The Proton figures are also influenced to a
large extent - one might even argue biased - by the gradual geographical expansion of the
scheme: tapping new regions lowers the overall result. The figures for May-November 1996,
for example, are still strongly influenced by the cards that had been in use for more than a
year in the pilot cities of Louvain and Wavre [34]. Note that the frequency of use for April
1996 - the final month of the Louvain/Wavre pilot - amounted to 2.1. As new cardholders
were added after the May 1996 roll-out, the overall frequency of use gradually dropped and
subsequently plummeted in December 1996, when card renewal reached cruising speed. Note
also that - as in the case of physical cash - Proton use appears to be subject to seasonal
fluctuations and is lower during July and August.
Figure 6a: Frequency of Use, All Cards.
With the exception of miniCASH and the Swiss Cash scheme (see below [35]), the other
schemes for which we have data are not doing very well - to say the least. Given the low
number of terminals (see the previous Section), the low rates of use for the Geldkarte should
come as no surprise. Moreover, as Godschalk and Schulz (1999, p. 4) emphasize, merchants
are primarily acquired amongst those who already accept credit and/or debit cards. As a
result, the majority of the Geldkarte acceptance points are currently not part of the real target
population of the card - namely, low-value, cash-intensive businesses (ibid.). Where Quick is
concerned, Robert Komatz, the Electronic Purse Product Manager at Europay Austria, also
pointed out - in a May 1998 e-mail - that the low rate of use of Quick cards up to that point
was due to the fact that there were not enough (Quick-only) terminals [36]. At the end of 1996
52% of the total number of terminals were in fact converted "Bankomat-Kasse POS"
terminals (that is, terminals belonging to the debit card network). This number had even
increased to 90% by the end of 1997 and to 92% by the end of 1998 [37]. Herr Komatz also
pointed out that the 300 vending machines that had been installed by the spring of 1998 were
for their part frequently used, and that this number should be increased. Interestingly, by May
1999 the number of vending machines had indeed increased significantly (to 1,000) [38], and
- while accounting for a mere 5% of the total number of terminals - these machines accounted
for no less than half of the total number of payments during that month. Note that in Portugal,
too, the share of EP-only terminals appears to be too low: "By the end of 1998 [the MEP]
network had more than 53 thousand units, most of them associated to EFT-POS Terminals,
and about 16 thousand off-line PMB [that is, Multibanco Electronic Purse] Terminals" [39].
Figure 6b: Frequency of Use, All Cards.
Where Spain is concerned, it is not very comforting to see that both the number and amount
of purchases conducted with Visa Cash hardly changed at all between Q1 1998 and Q2 1999,
even though the number of both cards and terminals increased. Specifically, whereas the
number of Visa Cash cards in circulation increased by 51%, the number of purchase
transactions increased by only 1.2%. This obviously results in a falling frequency of use, as
can be seen in Figures 6a and 6b. Finally, it will be seen that the rate of use of the Swiss Cash
card more than doubled between end-1998 and end-1999, and more than quadrupled
compared to January 1998. Even so, the level is still low. This is due to the large number of
cards that are not activated (see Figures 4a and 4b).
To complete the picture, it will be noted that according to the ECB 'Blue Book', the number of
EP transactions in Italy increased by a mere 5.1% between 1997 and 1998 (the total value
even decreased by 18%) [40]. It is also noteworthy that recent anecdotal evidence on the
Netherlands - for which, it must be repeated, we have unfortunately no transaction statistics also points towards a low rate of use. The October 1999 survey mentioned earlier revealed
that only one out of every four Dutch cardholders had used their Chipknip or Chipper to pay
for purchases in the four weeks prior to the survey. And according to an article in European
Card Review (ECR, 1999a), Chipknip, with 13 million cards and Chipper, with 7 million,
were "both believed to be recording around 2 million transactions per month" in the spring of
1999. This works out to a rate of use of 0.15 and 0.29 transactions per card per month. This is
significantly better than the Geldkarte, MINIpay, Quick and Visa Cash schemes, which were
all in the 0.02-0.04 range. Even so, it is respectively four and two times lower than Proton at
that point in time, while Chipknip clearly has a better 'infrastructure' (cards and terminals) in
place (see previous Sections). Given the German, Austrian, and Portuguese experience
documented above, it would clearly be interesting to find out exactly how many of the
Chipknip acceptance points are in fact Chipknip-only. The available information indicates
that by the end of 1999 there were some 2,600 car park ticket machines that accept Chipknip,
together with some 450 vending machines and 20,000 public payphones (PWI, 2000). Taken
together, these unattended POS (U-POS) applications account for some 16% of the total
number of Chipknip acceptance points. Where vending machines are concerned, there clearly
remains significant room for growth.
To put things into perspective, it has to be stressed that the frequencies of use presented in
Figures 6a and 6b relate to the total number of cards. Figures 7a and 7b give frequencies of
use per activated card. The overall level of these frequencies is obviously higher compared to
those in Figures 6a and 6b. Even so, it falls well short of expectations for a mature EP which according to Rolfe (1998, p. 17) - would be three or four transactions per day. Concerning
Proton, it has again to be stressed that the phased geographical expansion of the scheme has
been a major factor behind the evolution of the results: the frequency of use per activated
Proton card dropped gradually from 2.37 in December 1996 to 0.77 in August 1998, and
subsequently increased to reach 1.65 in September 1999. The frequency of use of the Austrian
Quick EP and, especially, the Swiss Cash card is increasing too. Note that, with a frequency
of use of 2.75 in December 1999, the Swiss scheme had the highest usage rate of all those
studied. Part of the explanation may lie in the fact that at the end of 1999 20% of Cash
acceptance points were U-POS, up from 12% at end-1998. As a matter of fact, over the period
mentioned, U-POS terminals accounted for more than half of the growth in the total number
of Cash terminals.
Figure 7a: Frequency of Use, Activated Cards.
It is also interesting to observe that the miniCASH scheme - which outperforms Proton in
terms of terminals (see previous Section) - also records higher frequencies of use. Another
interesting observation - which confirms the pattern observed in the foregoing graphs - is that
the use of the Portuguese MEP card gradually dropped. A final remark is that the Geldkarte
figures cannot be compared to the rest of the data. Since the German data relate not to
activated but rather to active cards - cards that are used at least once during the month in
question - it is only natural that the Geldkarte card should perform fairly well.
Figure 7b: Frequency of Use, Activated Cards.
As an aside, it is interesting to point out that the (self-declared) rate of use of Visa Cash cards
in the Canadian pilot region is significantly higher than European levels of use. By June 1999
Scotiabank had issued 40,000 Visa Cash cards in and around the city of Barrie [41]. All told,
consumers had activated 60% of the cards issued [42] and had made an average of 6.2
purchases per month, at $3.50 per purchase (Card Technology, 1999a) [43]. In interpreting
this figure, it should be borne in mind firstly that the Barrie pilot entered its third year in
October 1999, meaning that it has been operational for quite some time in a restricted area and
secondly, that consumers can use the cards with more than 300 merchants as well as on Barrie
city buses and in vending machines and other terminals at three college campuses (ibid.). The
300 retail acceptance points alone work out to a card/terminal rate of 133 - which is identical
to the level reached in the Ravensburg Geldkarte pilot (cf. supra) and comparable to the
current ratio for the Proton scheme (which stood at 115 at end-October 1999). Also,
experience in other countries shows that closed user groups such as college campuses can be
strong drivers of EP usage. Thirdly, about a quarter of the cards carry loyalty programs (ibid.)
[44].
Float
The two final figures in the paper offer comparative data on the average amount outstanding
per capita. This can be interpreted as a 'summary measure' of the state of the respective
schemes since the indicator is influenced not only by the degree of penetration, but also by
actual use. Figure 8a shows clearly that Proton was the most advanced scheme as at
December 1999. Figure 8b adjusts this picture by pointing out that the Luxemburg miniCASH
scheme - which was only launched in February 1999 - actually has the best result if the
number of months elapsed since roll-out is taken into account [45]. It is tempting to conclude
that the comparatively good result achieved in Luxemburg is due in no small measure to the
facts that firstly, the miniCASH cards could be used in a comparatively large number of
terminals right from the start (see Figure 5b), and secondly, that a significant number of these
terminals were parking meters and public payphones (see Conclusions) [46]. In other
schemes, such applications were typically only addressed several months, if not years, into the
scheme. Moreover, one commentator points out that "from day one there was virtually 100
percent penetration amongst customers, a potent argument in persuading merchants ... "
(James, 1999) [47].
However, to put the figures into context it has to be stressed that, compared to currency, the
total float is still negligible for all the schemes. In December 1998, the total amount
outstanding on Proton cards was equivalent to no more than 0.24% of the amount of currency
in the hands of the Belgian public. Also, according to an estimate by the Belgian Bankers'
Association (BVB, 1999, p. 5), the number of cash transactions conducted in Belgium amount
to some four billion per year. In 1998 the number of Proton transactions totaled up to 28
million - which implies that, at that point in time, Proton had displaced a mere 0.7% of cash
transactions. The corresponding figure for 1999 is 1.1% [48]. Whether Proton will be able to
reach its target of displacing 5% of cash transactions within 5 years - that is, by May 2001 thus remains to be seen [49]. For its part, the Portuguese MEP scheme no longer seems to be
on course to attain its target: in December 1998, the total float was lower than in December
1996. The Danish Danmønt scheme also seems to be adrift: although the float at end-1998
was 22.5% higher as compared to 1997, it was still 12.0% lower than the level reached in
December 1996. And in all probability the situation did not improve much in 1999 since the
growth in the number of Danmønt transactions was leveling off: in 1999 the growth rate was
only 8.4%, compared to 33.8% in 1998 and 49% in 1997 [50].
Figure 8a: Float per capita, in euro.
Moreover, in 1999, third quarter transactions fell below the second quarter for the first time
ever (ECR, 2000b). With TeleDanmark no longer accepting Danmønt in its payphones as of
January 1 (see Terminals Section), Danmønt looks set to record an overall fall in transaction
volume during 2000 (ibid.). The MINIpay scheme also seems not be making much headway:
between 1997 and 1998 the float fell by some 9%.
Figure 8b: Float per capita, in euro.
Finally, it will be noted that according to the ECB 'Blue Book', the total amount outstanding
on all Spanish EP cards (not only Visa Cash) as at December 1998 was 1.71 billion ESP (up
from 0.15 billion ESP in December 1997). This works out to 0.26 euro per capita, which
places Spain between Finland and Portugal (0.10 euro per capita) and Sweden (0.38 euro).
According to De Nederlandsche Bank, the total float for the Chipknip and Chipper schemes
together amounted to 56 million NLG as at end-1998. This works out to 1.78 euro per capita,
a level second only to Belgium and Luxemburg. However, unlike in Belgium, in the
Netherlands the float did not increase during 1999; it even fell somewhat - to 53 million NLG
at end-1999 [51].
Conclusions, Part 1: A Long Way To Go
Our calculations show clearly that the initial expectations concerning EP adoption were
unrealistic. The target for the Austrian Quick EP, mentioned in the Introduction, is a salient
example. As a result, the initial euphoria has faded away and, at best, has turned into cautious
optimism.
On the other hand, slow initial adoption makes economic sense (Van Hove, 1999c). EPs are
subject to so-called network externalities; that is, the utility of an EP increases with the size of
its network (i.e., the number of acceptance points). And network goods typically display an Sshaped adoption path: adoption is slow at first, but once it takes off a 'bandwagon effect'
comes into being. This is due to the self-reinforcing nature of the demand for network goods:
the more people use an EP, the more merchants will accept it, the more interesting it becomes
for as yet unconvinced consumers to start using it, and so on.
It is also encouraging to see that newcomers such as miniCASH in Luxemburg and Moneo in
France seem to be doing fairly well because they appear to have learned from just about
everyone else's mistakes. In particular, both CETREL and SEME seem to have recognized
that simply flooding the market with cards - like the German banks did - does not work
because it is vital that cardholders perceive a critical mass of acceptance points right from the
start. The NYC experience (Van Hove, 1999b) has shown that, in view of the existence of
network effects, launching an EP in too much of a hurry should be avoided because
inadequate coverage can jeopardize the positive feedback effect. In extreme cases it can even
trigger a negative feedback, reinforced by negative word-of-mouth and bad press.
Figure 5b shows that, in relative terms, the Luxemburg miniCASH scheme had the highest
number of terminals in operation in the first couple of months after the launch. Figure 8b
points out that miniCASH also had the highest float, again in relative terms and taking into
account the number of months since roll-out. As has already been mentioned, it is tempting to
link these two observations. As for the Moneo pilot in Tours [52], at the end of the first month
more than 900 terminals had been installed (Dupont, 1999a). By the end of January 2000 four months after the start - this figure had increased to some 1,200 (Geffroy, 2000) - which
works out to a card-to-terminal ratio of 33. By that time, 80% of the 40,000 Moneo cards then
in circulation [53] had been activated (ibid.) - a very high ratio, even for a pilot. During
January, Moneo cards were used on average 1.1 times. Excluding non-activated cards, the
figure is 1.38 - which appears promising.
Conclusions, Part 2: Which Way To Go?
Experts who still believe in EPs basically see two major ways in which EP operators can
eventually bring EPs to the top of consumers' wallets. The two magic formulae are 'multiapplication' and 'electronic commerce'.
Many specialists argue that the failure of EP schemes is due to a large extent to the fact that
they were viewed mainly as a cash replacement mechanism for consumers to use at retail
point-of-sale. Birch (1998), for example, argues that "retail POS is the least useful place for
consumers to tender an e-purse because it does nothing that they can't already do with notes
and coins (and it's less convenient)". Instead, the use of EPs is "more attractive to consumers
in places where notes and coins are inconvenient: vending machines, parking meters, subway
tickets and so on" (o.c.). Empirical evidence appears to underpin this. It is interesting to
observe that the newcomers appear to have learned a second lesson from the experience of the
older schemes: they bring unattended POS (U-POS) applications into the scheme much faster.
One year after start-up 300 public telephones (out of a total of 450) accepted miniCASH and
150 parking meters and vending machines had been installed (Lux-Post Weekend, 2000). By
the end of 1999, unattended POS (U-POS) applications accounted for more than half of the
total volume of transactions (di Bartolomeo, 2000) [54]. In Tours, 70 park & display terminals
(out of a total of 210) had been converted by the end of November 1999, the second month of
the pilot. The target for end-December was 170 (Dupont, 1999b) [55]. By mid-December
Moneo had already accounted for 7% of the total number of payments at parking meters
(Geffroy, 2000). Note that Moneo is also accepted on all the Tours buses.
Concerning Belgium, it should be noted that public payphones are proving to be the most
popular use for Proton cards. In October 1999, one out of every four calls was paid for by
using a Proton card. Moreover, vending machines equipped with Proton interfaces are the
second most popular use. As has already been mentioned, in Austria vending machines even
account for half of the total number of Quick transactions. Concerning the Visa Cash trial in
Ennis, in October 1999 an Allied Irish Banks spokesman was quoted stating that even though
the number of transactions had been insignificant overall, a more positive response had been
recorded in the unattended terminals located in the town's car parks (Deegan, 1999) [56].
Steeley (1999, p. 9) reports that the Visa Cash pilot in Leeds also found city centre car parks
to be the areas of greatest cash displacement [57]. Also, although the failed Mondex/Visa
Cash pilot in NYC largely ignored U-POS applications, the cards were good for laundry
machines in some apartment buildings and - interestingly enough - scored one of the
program's 'best successes' (Van Hove, 1999b) [58].
Public transport is another promising application for EPs because of the critical mass of users
that it provides, and because of the great potential advantage to consumers. Rolfe (1997, p.
13) argues that "transportation is the most effective way of kick-starting an electronic purse
project into viability - far more so than cash replacement in outlets like bakers' shops or
newspaper vendors' stands". Adams (2000, p. 28) points out that in 1999 the Octopus system
in Hong Kong recorded 30 million transactions a week (compared to 45 million Proton
transactions for the entire year).
Summing up, there is plenty of evidence that U-POS should not be underestimated. EP
operators could also try to foster the use of EPs by tying them to loyalty or affinity programs
such as frequent-flier schemes. Other candidates for inclusion on smart cards are ticketing
applications and preferences (e.g., hotel accommodation and seats and meals on airlines),
physical access (to buildings and parking lots), and authorizations (e.g., to spend company
money or to utilize a restricted computer program). However, a sobering note is appropriate
here: building a multi-application card is a complicated project that requires coordination and
cooperation between different organisations and across industry borders. And the Belgian
experience teaches that this takes time: Banksys reached an agreement with Belgacom as
early as December 1996 and yet the first payphones were converted only in the spring of
1998. Also, the commercial launch of the jointly developed smart phone (which allows
customers to recharge their Proton cards at home, to send e-mails, and to make purchases over
the phone) was postponed several times. Even though it had been tested in the pilot cities of
Louvain and Wavre since June 1997, the Maestro Smart eventually came onto the market in
March 1999.
What about the second magic formula? Some experts argue that "the consumer demand for
stored value will come from the desire to make payments over the Internet, not the more
traditional channels where there are an abundance of payment methods that work well today"
(Good, 1998, p. 15). In line with this, Poynder (1998, p. 21) states: "Having as yet failed to
gain critical mass of usage in their e-purse projects, the banks appear now to be placing great
emphasis on the use of their purses for e-commerce. It may therefore be considered that the
success of e-purse may now rest with e-commerce, as well as the other way around". More
and more EP operators are indeed bringing their cards to the Internet. Mondex have even
repositioned themselves and now consider Internet as one of their strategic priorities (and in
so doing admitted that the first stage of their strategy has failed). In July 1999, Chris Potts,
deputy chief executive of Mondex International, was quoted saying: "The first wave of
electronic money had a mismatch in terms of technology as well as targets. The lack of
success was due to being driven by technology-push, not by market-pull" (Takezaki, 1999).
Potts also stressed that a second wave of electronic money schemes was being planned: "With
the growth of the Internet, e-commerce business requires a secure payment method. This
change of business environment is very important for our growth" (ibid.). At Cartes '99, in
November 1999, Mondex CEO Michael Keegan even said that Mondex International would
be concentrating on gaining widespread use for its cards on the Internet (Card Technology,
1999b). Keegan went on to explain that Mondex were not abandoning their efforts to market
their technology to real-world merchants, but that there was more opportunity for stored value
now on the Internet, and "that building a premiere brand there will help Mondex capture
market share in the physical world because many smart cards will be used both on the Internet
and in traditional stores" (ibid.). He stressed that "Mondex could provide a secure way for Net
users to pay for low-cost good and services, such as games, information, music, even fees to
the Internet service provider itself" (ibid.). In a recent paper, Furche and Wrightson (2000)
argue that "on the Internet, the market of interactive pay-per-use services is underdeveloped
because of the lack of an efficient payment mechanism for these applications. Stored value
systems would provide the payment mechanism required to facilitate payment for such
services".
However, while it is true that the virtual world presents real opportunities for stored-value, in
our view a number of sobering remarks are necessary in order to prevent a repetition of the
real-world disillusionment. Compared to the real world, in the case of EPs the Internet has the
advantage that they will not have to engage in competition with hard cash. As Birch (1998)
puts it: "the competitive advantage of e-purses is in areas where notes and coins cannot
compete at all: in the area of remote payments". Furche and Wrightson (o.c.) make a similar
point: "The Internet is probably the environment where stored value is the most obviously
useful. Here, stored value actually solves a number of problems. For one, cash does not exist
here as an alternative for instant payment, and instant verification of payment". And
compared to the first wave of Internet micropayment systems (none of which has gained a
secure foothold), the use of EPs on the Internet does not require the loading of a user account
- which proved to be an important hurdle in the case of CyberCash's CyberCoin and
competing systems (Crocker, 1999).
On the other hand, whereas in the real world most people carry a debit card and (thus) an EP
(even though it may not yet be activated), not everybody is online. An even fewer people have
a chip card reader. In short, the base of potential EP users is smaller online [59] - and people
actually have to invest in a chip card reader. In Belgium, Banksys showed themselves quite
early to be aware of the chip card's potential as a secure means of payment for the Internet.
After a small-scale test with students in Louvain and using the local university network (in
1996) and a closed community Internet pilot (in 1997), Banksys made the first version of its
C-ZAM/PC terminal available to the general public in December 1997 in cooperation with
access providers EUnet Belgium and Ping, and the online marketing company AdValvas. The
C-ZAM/PC is a card reader (with its own screen) which can be linked to a PC. It was
available for 1,999 BEF (some 50 euro) from the AdValvas Web site. Initially, consumers
could only use their C-ZAM/PC for making Proton payments. In October 1998 it also became
possible for Proton card holders to reload their cards over the Net. In November 1999,
Banksys presented a new generation of C-ZAM/PC terminals (which now sell for 2,999 BEF some 74 euro). At the same time, paying online with the Bancontact/Mister Cash debit card
became possible. But so far, Proton has met with limited success online. Almost one year
after start-up there were still only six online shops, all of which were obviously Belgian,
which accepted Proton. By December 1999 [60] some 30 sites (selling books, computers and
software, pizzas, etc.) were accepting the Proton and/or the Bancontact/Mister Cash card, and
Banksys had sold some 8,000 C-ZAM/PCs - considerably fewer than the 20,000 which were
targeted. Banksys refuses to release data on the number of online Proton transactions, but one
source admitted that "it was not a success". Part of the explanation for the hitherto limited
response undoubtedly lies in the fact that the market is still national and that the ability of
merchants to sell on a global market is restricted due to the incompatibility of EPs (Van Hove,
1999a). Merchants may be willing to offer multiple settlement choices and to accept different
types of EPs, but not if they need different software for each card. Obviously, few retailers
also means few 'Internet-ready' cardholders because the number of online shops will be too
low to warrant the purchase of a card reader. In short, the chicken-and-egg problem which
troubled EPs in the real world is also present, and perhaps even more strongly, on the Internet.
As argued in Van Hove (1999a), the introduction of CEPS will remove an important obstacle
to the use of EPS on the Internet. Initiatives such as SmartAxis - which enables Internet
merchants to accept different types of EPs by means of a single piece of software - should
also make life easier for merchants. However, it will still take a couple of years before CEPS
is actually implemented on an international scale. According to Rolfe (1999), larger scale
implementation will not happen until 2003-2005. And CEPS obviously does not solve the
card reader problem. Perhaps the online use of EPs will only really take off once PCs come
standard with built-in card readers [61].
To conclude with the wisdom of hindsight, the following quotation taken from a 1996 study
conducted by the U.S. Congressional Budget Office - which at that time may have been
dismissed by some as overly pessimistic - was almost prophetic.
"Stored-value cards are not likely to become a mass phenomenon overnight; rather, even if
they are successful, stored-value cards are likely to penetrate the economy only gradually as
the right combination of features is assembled" (CBO, 1996, p. 17).
These remarks are valid as a warning for the future.
About the Author
Leo Van Hove is Associate Professor of Economics at the Vrije Universiteit Brussel (Free
University of Brussels).
Web: http://econ.vub.ac.be/cfec/leo.htm
E-mail: leo [dot] van [dot] hove [at] vub [dot] ac [dot] be
Acknowledgments
I am indebted to Jyri Marviala (Automatia Rahakortit Oy), Joël Peczenik and Youri
Tolmatchov (Banksys), Pierre Margue (CETREL), Simon Lelieveldt (De Nederlandsche
Bank), Holger Krausse (Deutscher Sparkassen- und Giroverband), Robert Komatz and
Katharina Selzer (Europay Austria), Jacques Bischoff and Leta Filli Bloch (Europay
Switzerland), Jan-Olof Brunila and Gun-Liz Olander (FöreningsSparbanken), Christine
Ostermann (Österreichisches Nationalbank), Enrique Rodríguez Bonachera (SERMEPA),
Filipe Ledesma Dos Santos, Fernando Lourenço, Rui Meneses (SIBS), Gabriela Guibourg
(Sveriges Riksbank), and Antonella Cefali and Giorgio Porazzi (TSP) for providing me with
data and background information. Knud Böhle, Michael Lamb and Simon Lelieveldt provided
helpful comments.
Notes
1. Towards the end of 1997 this target was lowered to 15% in 2001 - the fifth (full) year of
operation (Stockinger, 1997).
2. The pilot was launched in July 1995.
3. This amounts to a penetration rate of 7.4%.
4. According to the Congressional Budget Office (1996, p. 13), Mondex's final target was
40,000 cardholders.
5. The roll-out commenced in spring 1999.
6. Interestingly, Prepayment Cards Limited (PCL) - the Proton licensee for the UK - is setting
up a multi-application smart card system for the Greater Manchester Passenger Transport
Executive. All the Manchester cards will be issued with a Proton mask, although it will not
necessarily be implemented. PCL is in discussion with APACS with a view to implementing
the Proton purse (ECR, 1999b).
7. According to data reported in a recent BIS survey (CPSS, 2000, p. 100), the average float
per card was about USD 20 at end-August 1999.
8. According to a Proton World International press release (PWI, 1999a), by spring 1999 over
450,000 cards had been issued, which were accepted at the time at almost 1,500 merchant
locations.
9. The research showed 88% of cardholders used ECARD and 40% used the card three to four
times a week (ERG, 1998a).
10. The experience with pilots elsewhere shows that the majority of the cards are usually
applied for during the first months (or even weeks) of a trial.
11. These additional references included: Clarke (1998) and Welch (1999) - for the Swiss
Cash scheme; Böhle et al. (1999), Deutsche Bundesbank (1999) and the S-Card Web site concerning the Geldkarte; Groupement Cartes Bancaires (1999) and Welch (2000) concerning MEP; di Bartolomeo (2000) - concerning miniCASH; Böhle et al. (1999) and
Steeley (1999) - concerning MINIpay; and Visa España press releases - concerning Visa
Cash.
12. Note that the February 2000 issue of the ECB 'Blue Book' contains almost no figures on
the Netherlands either.
13. The Visa Cash transaction data provided by SERMEPA were quarterly data, which we
converted into monthly data. However, since both the number and value of transactions
remained virtually constant throughout the period covered, the conversion should entail only
minor distortions.
14. The problem with pilots is that EP operators typically subsidize terminals and/or cards for
the duration of the trial.
15. Note that it is not always straightforward to determine this. In our calculations, we took as
the date of roll-out the date at which the EP scheme was expanded beyond the pilot city. As
our remarks on the MINIpay scheme in the main text illustrate, this does not necessarily mean
that the EP became available on a nation-wide scale at that point in time.
16. According to the recent BIS survey (CPSS, 2000, p. 6), nation-wide coverage was
achieved at the beginning of 1998.
17. This said, the Visa Cash scheme is by far the largest EP scheme in Spain: in 1998, it
accounted for 74% of the number of cards in circulation, for 84% of the number of merchant
terminals, and for 80% of the value of EP transactions (69% in terms of volume).
18. The drop in the number of Quick-enabled cards between December 1996 and December
1997 is due to an (unexplained) drop in the number of Bankomat debit cards with chip - from
880,000 at the end of 1996 to 652,000 at the end of 1997 (Source: Europay Austria annual
reports for 1996 and 1997). According to Katharina Selzer, the reason for the rapid growth in
the number of cards between December 1998 and April 1999 is in part "the extensive issuing
of anonymous Quick-only cards which are not related to an account (for example, Quick cards
which are issued by a chain-store and which can be used for their loyalty programs and for
Quick payment)" and, in part, the replacement of magnetic stripe 'Null-Limitkarten' (which
can only be used for indoor ATMs) by chip cards (Source: Katharina Selzer, personal e-mail,
10 August 1999).
19. Note that the jump in December 1997 was due to the fact that at the end of the year many
cards typically become due for renewal.
20. Linkens (1997, p. 62) mentions lower target values: 4 million cards for end 1997, and 7
million for end 1998.
21. The target for 1999 was 600,000 cards, whereas the actual figure was 400,000. The targets
for 2000 and 2001 are one million and three million respectively (Source: Avant home page at
www.avant.fi/newsine.html, last visited on 20 March 2000).
22. Unfortunately, we have no concrete data on the number of active Chipknip cards.
However, a survey - commissioned by the National Chipcard Platform and conducted by
Interview-NSS in October 1999 - revealed that only one out of every three Dutch cardholders
has ever loaded money onto his or her EP.
23. Note that the decrease in the number of activated Proton cards during 1999 is a statistical
anomaly which is due to the fact that Banksys revised its calculations.
24. The recent BIS survey reports that in September 1999 261,136 MEP cards - 7.6% of the
total number in circulation - had a positive balance (CPSS, 2000, p. 102). This gives a
penetration rate of 2.6% (which is not comparable with the MEP data in Figures 3a and 3b
due to the difference in definition).
25. In earlier versions of this paper, the Swedish Cash scheme had the highest proportion of
activated cards of all the schemes studied: in June 1999 no less than 67% of all Cash cards
issued would have been activated as compared to only 33% of Proton cards in September
1999. However, a comparison with data reported in the recent BIS survey revealed that the
figure provided to us must be overstated: the BIS survey makes mentions of a significantly
lower number of activated cards at a later point in time. If one uses the figures mentioned in
CPSS (2000, p. 80), one arrives at an 'activation ratio' of (only) 20% in the Fall of 1999. This
would put Cash in second position in Figures 4a and 4b, on a level comparable to the
Portuguese MEP card. Note in this respect that the Swedish banks have been running a
number of special incentive programs run. According to Jan-Olof Brunila of
FöreningsSparbanken (now Swedbank), one of the lures is to have people to come to the bank
in order to select a PIN for the chip. If they load money onto their EP on that occasion, they
receive a small gift - usually a balance reader. Moreover, from the second loading cardholders
obtain 1 SEK (0.1 euro) extra when they load their card.
26. Note that the ratio drops twice in December. This is because at the end of the year there is
a jump in the number of cards issued (cf. Figures 1a and 1b).
27. By November 1998, one year after the commercial rollout of Mondex in Hong Kong, 38
percent of the total number of Mondex cards issued so far by the Hongkong Bank were
"active". According to Jan McGrath, the manager of Hongkong Bank's Project Mondex, this
figure "compares favorably with European usage rates of 20 percent and below" (Lemon,
1998). Figure 4b shows that this analysis is correct.
28. Concerning Cash in Switzerland, Clarke (1998) states that at the end of May 1997 the
count was 8,500 (whereas the original plan was 11,000). At the end of November 1997 it was
about 14,000 (compared with an original commitment of 20,000, reduced in mid-1997 to 1520,000). In December 1998, the gap had become even wider: 18,500 compared with a stated
target of 70,000 (o.c.). Europay computes the total potential at 150,000 terminals (Baschek,
1999).
SIBS, for its part, expected to have 50,000 MEP terminals in place by the end of 1996
(Meneses and Lourenço, 1996), but the actual figure was only some 32,500. In the longer run,
the plan was "to have some 120.000 points of acceptance spread across the country, but this
figure will not be achieved until the end of the decade" (ibid.). Judging from the figures for
September 1999, it is unlikely that this target will be met.
29. See also "Kunden und Handel zögern bei der Geldkarte", Berliner Morgenpost, 20
October 1997, at http://www.berlinermorgenpost.de/bm/inhalt/971020/wirtschaft/story02.html.
30. Interestingly, Adams and Rolfe (2000, p. 38) note that "although (the French EP) Moneo
uses Geldkarte technology, it has avoided the same marketing mistakes. SEME recruited
approximately 1,500 retailers (in the pilot city of Tours) before any cards were distributed". In
practice, only 900 terminals were operational at the end of the first month (Dupont, 1999a) but this was still a large number compared to the number of cards then in circulation.
31. Alarmingly, from January 1, TeleDanmark stopped accepting Danmønt in its network of
4,000 payphones, which has accounted for around 20% of Danmønt's transactions in the past
(ECR, 2000b). There are even fears that the Copenhagen metro system might follow
TeleDanmark's example. According to Danish industry sources, marketing of the Danmønt
product has been reduced constantly since PBS acquired TeleDanmark's interest and began
operating Danmønt as a wholly-owned subsidiary. As a result, relations with vendors and
service providers deteriorated (ibid.).
32. The Austrian Quick scheme had a similar problem: in 1997 15% of the value was
unloaded. In 1998 this increased slightly to 16%, but in 1999 it dropped to 10%.
33. In earlier versions of this paper the Swedish Cash scheme had the best result, with a figure
of 0.83 (for April 1999). However, on closer scrutiny the underlying figure for the number of
transactions that had been communicated to us turned out to be wrong. Note also that if one
uses the data mentioned in PWI (1999b), one arrives at a frequency of use of only 0.11 for
June 1999. According to Jan-Olof Brunila this discrepancy can be explained by the fact that
the PWI figure is based on FöreningsSparbanken data alone.
34. The pilot started in February 1995.
35. Figures 7a and 7b will show that the miniCASH and Cash results are depressed to a
significant extent by the high number of unused cards (see Figures 4a and 4b).
36. Source: Robert Komatz, personal e-mail, 20 May 1998. See also Frey (1999): "Wenig
beliebt ist Quick an jenen Bankomat-Kassen, an denen auch mit Code bezahlt werden kann.
Zwar kommt die Quick-Zahlung jenen Kunden, die keine Konto-Pauschalen haben, billiger,
doch überwiegt hier die Macht der Gewohnheit, sagt [Geschäftsführer von Europay Austria]
Judt. ... Quick-only-Terminals, wo der Code nicht funktioniert, hätten sich bisher kaum
durchgesetzt".
37. Source: Europay Austria annual reports.
38. According to a recent newspaper report (Frey, 2000), this number has not increased much
since. The article makes mention of 'a little more than 1,000' Quick-enabled vending
machines (which is less than 1% of the total).
39. Source: SIBS, Multibanco Electronic Purse, Web page
http://www.sibs.pt/en/porta_moedas.html, visited 7 March 2000.
40. Note also that MINIpay expected to reach a level of 500,000 transactions per month by
the end of 1997 (ECBS, 1997). However, in April 1999 there were only 18,000 MINIpay
transactions, which corresponds to some 3.6% of the 1997 target.
41. The cards are not tied to any bank account and consumers can obtain their cards from
merchants.
42. A more recent news report states that cardholders had activated about two-thirds of the
cards issued (Source: "Scotiabank branches into loyalty", Card Technology News Bulletin, 20
August 1999 http://cardtech.faulknergray.com/). This is confirmed by the BIS survey, which
mentions a "65% activation rate" (CPSS, 2000, p. 12).
43. We assume that this is a frequency of use per activated card. Note, on the other hand, that
according to the recent BIS survey the average amount outstanding in the Barrie pilot was
USD 0.68 per card (USD 1.03 per activated card) as of 31 October 1999 - which is hard to
reconcile with average monthly purchases of CAD 21.7 per card as claimed by Visa.
44. Eighteen merchants are sponsoring such programs (Source: "Scotiabank branches into
loyalty", Card Technology News Bulletin, 20 August 1999 http://cardtech.faulknergray.com/;
CPSS, 2000, p. 12).
45. There is one caveat: the amount outstanding on miniCASH cards was calculated as the
difference between the value loaded onto the cards in 1999 and the total amount spent in the
same year. It should, however, be stressed that just like in the Geldkarte scheme value can be
unloaded from the cards in the miniCASH scheme, too. Because our calculations do not take
this into account, our result may somewhat overstate the real amount outstanding.
46. One could argue that Luxemburg is a special case in that the size of the country simplifies
to some extent the task of attaining adequate coverage. It is interesting to observe that 13
months into the pilot in the cities of Louvain and Wavre, the average frequency of use of the
Proton card was 2.68, compared to only 1.99 for the miniCASH card (activated cards only) at
the same point in time.
47. As the failure of the Mondex/Visa Cash trial in New York has shown, in order to break
the chicken-and-egg deadlock it is crucial to have as many terminals and cards in operation as
possible on the day of launch (Van Hove, 1999b).
48. According to De Nederlandsche Bank (Lelieveldt, 2000), the number of cash transactions
conducted in the Netherlands would amount to some seven billion per year. If the Chipper and
Chipknip transaction data mentioned in Section 5 are anything to go by, the two schemes
together would have displaced some 0.7% of Dutch cash transactions in 1999.
49. According to Rolfe (1998, p. 17), the target for end-2001 is 300 million transactions
annually; this corresponds to 7.5% of cash transactions.
50. Source: ECB 'Blue Book' and PBS Web site at http://www.pbs.dk/forretning/kort.htm. See
also Danmønt, Nyhedsbrev (Newsletter), Nr. 35, September 1999 at
http://www.danmoent.dk/nyheder/main.htm.
51. Source: De Nederlandsche Bank.
52. Again it has to be stressed that comparing pilots with full-scale roll-outs is dangerous.
53. This is lower than the initial target for end-1999, which stood at 50,000 (ibid.).
54. One source reports that the terminals with the highest frequency of use are those installed
in the canteen of the European School (di Bartolomeo, 2000) - which shows that 'closed user
groups' can also be an important driver of EP use. The recent BIS survey states that
miniCASH is most successful in car parks (CPSS, 2000, p. 55).
55. According to Geffroy (2000), this target was attained: " ... depuis la mi-décembre,
l'automobiliste peut utiliser son PME sur la presque totalité des horodateurs de la ville de
Tours".
56. See also Card Technology (2000b).
57. Note on the other hand that "the vending sector in Portugal is not highly developed"
(Meneses and Lourenço, 1996). Also, concerning the Swiss Cash scheme, Clarke (1998) notes
that whereas "Europay's market research had suggested that consumers are most interested in
using cards for telephones, public transportation tickets, parking, and vending machines",
"Europay staff are candid that they have been to date largely unable to address [these] kinds
of payments". Cf. also Europay Switzerland (1998): "1997 lag der Schwerpunkt der CASHEinführung auf den bedienten Verkaufspunkten". Note that at the end of September 1998
there were 16,000 attended and 1,800 unattended Cash terminals (Welch, 1999, p. 8).
58. In a survey of consumers participating in the pilot, they said "they would like to use the
cards for services not currently available in the New York City pilot - for vending machines,
cabs, buses, pay phones, and self-service laundries" (Clark, 1998, p. 48).
59. On the other hand, one could argue that people with an online connection have a higher
propensity to adopt EPs.
60. Banksys expects the list of accepting merchants to grow to around 80 by end-2000 (ECR,
2000a).
61. In this respect is interesting to note that American Express offered free card readers to
holders of its new Blue credit card (Balaban, 1999; Card Technology, 2000a). When
launching its Proton scheme on the Internet, Banksys also gave away 1,000 card readers in an
attempt to break the vicious circle and jump-start the program. Reston, Va.-based Cybermark
LLC apparently has similar plans. Cybermark recently launched a Web portal to offer new
services to the more than 30 North American colleges and universities that use the company's
smart card technology. The first applications allow students to cast ballots in campus elections
and to transfer value from bank accounts to the electronic purse on their chip cards. Initially,
students will use the card readers already in place in campus libraries to pay for printing. But
later on, Cybermark "will distribute smart card readers that attach to personal computers,
either selling them for about $10 apiece or finding corporate sponsors to subsidize free
distribution of the readers" (Source: "Cybermark offers Web-based smart card services",
Card Technology News Bulletin, 14 February 2000).
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Editorial history
Paper received 11 May 2000; accepted 6 June 2000; revised version received 9 June 2000.
Copyright ©2000, First Monday
Electronic Purses: (Which) Way To Go? by Leo Van Hove
First Monday, volume 5, number 7 (July 2000)
URL: http://firstmonday.org/issues/issue5_7/hove/index.html