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A Closer Look at Smartcards

NEW YORK -- The next piece of plastic the banks think you ought to keep in your wallet is a smartcard.

These cards come in several varieties and most aren't yet ready for mass distribution. But pilot projects are forging ahead -- in Atlanta, in New York City early next year, in Canada and in several countries abroad.

There's no obvious consumer need for smartcards today. But the bankers believe that you're going to love them anyway. You may even be mailed one and urged to try it.

Smartcard promoters make the assumption that you hate to carry cash. You hate fishing for bills and coins to buy a newspaper or a soda. You'd put down plastic, instead.

This plastic card has money on it, embedded in a computer chip. A $20 card, for example, will give you $20 in spending power.

If you buy a 75-cent newspaper, the seller will put your card in a special terminal and drain off 75 cents. No identification or signature is required.

You now have a card with $19.25 left on it. After spending $1 on a soda, the value of your card goes down to $18.25. If you forget the amount, you can check it with a little portable card reader. Some readers might also list the last five things you've bought.

Don't confuse a smartcard with a debit card. When you pay by debit card, money is moved automatically from your bank account into the merchant's bank account. With a smartcard, however, you first move money from your bank account onto the card's computer chip. When you buy something, the money moves from your card to the merchant's terminal and then, electronically, to the merchant's bank.

If every merchant, street vendor, taxi driver and bus accepted smartcards, you wouldn't have to carry cash. To some, that would be a huge convenience; to others, it's a shrug. As long as some merchants took smartcards and others didn't, however, you'd have to carry both.

Smartcards come in three varieties, some of them more flexible than others:

· A prepaid, disposable single-purpose card. Telephone cards are a good example. You pay $10 or $20 for a card, dial an 800-number, give the number of your card and then make your telephone call. Minute by minute, the cost of the call is deducted from the value of the card. When you've drained all the money out of the card, you throw it out.

· A prepaid, disposable bank card. You buy the card at a bank and can use it at any store that has a terminal.

· A reloadable card. When your money runs out, you can take it to the bank, an ATM or a special kiosk and load it up again. Visa, MasterCard, Citibank and the Chase Manhattan bank will jointly test a reloadable card in a section of New York City next year. A reloadable card could also serve as your credit card, debit card or ATM card.

What's in it for the bank? Eventually (although not at first), the bank would probably charge you for the card. There might be a fee when you accessed the ATM to load it up. The merchant would also pay a fee, in return for getting what is presumably a more secure transaction.

What's in it for consumers? A very little bit of convenience. Putting down a card is a tad quicker than fishing out cash. You always have the equivalent of exact change. You wouldn't have to count your change (but you'd have to use the card reader to be sure the merchant's terminal deducted the right amount). You may or may not pay more for the card than it costs to get cash from an ATM.

For a while, the smartcards probably won't have any more than $100 on them and the limit might be lower than that. So they're strictly for walking-around money. You'd still need your credit card, debit card or checkbook for more serious shopping.

If the card malfunctions -- say, it registers $14 when you're sure you were carrying $36 -- the bank can check the balance on the computer chip, says Ron Braco, a senior vice president at Chase Manhattan. But if you lose the card, it's just like losing cash. You're out the money.

Promoters of smartcards blue-sky a lot of national and international uses that aren't yet anywhere in sight. I'll probably wait for them. Banks have a sales job to do on people like me who don't find it a nuisance to carry cash.

Jane Bryant Quinn welcomes letters on money issues and problems but cannot offer individual financial advice.