LEAVE YOUR CASH AT HOME

By George Church

You want to buy a screwdriver, or a newspaper, or a cup of coffee. But all you have in your wallet are $20 bills and a bunch of credit and/or debit cards. Try using one of these for such a small purchase. Just try.

If you happen to live on Manhattan's Upper West Side, though, you might get a chance this week to test a way around this minor annoyance--and in the process, become a trailblazer on the march to the totally cashless society. Just insert a special card into a special terminal or reader on the store counter and press a button. Then walk out with your purchase. That's it.

Some 50,000 of the cash cards, also known as "smart cards," are being mailed to consumers this week by Chase Manhattan and Citibank. They look like conventional credit, debit or ATM cards, but there is a vital difference: a tiny chip that can electronically store money. A consumer first takes the card to an ATM and downloads, say, $100 onto the chip. When the card is inserted into a terminal, the chip deducts the price of a newspaper or chewing gum from the total stored on the card and adds it to the virtual cash stored in the terminal. At the end of the day, the merchant electronically transfers all the money stored in the terminal into his establishment's bank account.

So cash cards are portable and convenient transaction devices--a description that also applies to currency. As John Frank, editor of the monthly magazine Card Technology, says, "People don't think of cash as being difficult." The world's leading cash-card company, Mondex International, controlled by MasterCard, has had so-so success in experiments in Canada. In the U.S., Visa tried launching a cash card in Atlanta during the 1996 Olympics. It flopped, partly because users had to run all over town to find stores that could accept the cards. That's why more than 94% of all transactions are still done in cash or check.

In densely populated Manhattan, the cards stand a better chance. Simpler versions of the "stored value" cards are already in use on city subways and buses, where they're called MetroCards. Chase and Citibank are installing readers in 500 stores on the Upper West Side so that customers can use the cards at, say, Zabar's, Gartners Hardware and an Athlete's Foot store within a few blocks of one another. The merchants so far are enthusiastic. Says Martin Vatage, assistant manager of an Athlete's Foot: "You don't have to sign anything; you don't have to wait to call the credit-card company." Smart cards are like cash in another way: lose them, and you're out the money, although Chase's Mondex cards are encoded with the user's personal identification number, making a stolen card useless. Mondex's cards also allow consumers to transfer value among their own cards by means of an electronic "wallet," good for settling restaurant tabs and poker games.

The critical business question: Will consumers be willing to pay the regular downloading fees--45 [cents] to $1--for the convenience of cash on a chip? Merchants pay nothing, unlike with credit cards, where they fork over 2% to 6% of the transaction as a handling fee. In fact, a cashless society may be more beneficial to banks and merchants. Handling cash is time consuming, prone to error and poses security risks.

Speed may be the ultimate attraction of smart cards. Tests have shown that the cash cards can quicken the average transaction by three seconds. For Manhattanites, who expect their three-minute eggs in 90 seconds, that's a lifetime.

--By George Church. Reported by William Dowell/New York

With reporting by WILLIAM DOWELL/NEW YORK