A dash for 'e-cash' in Europe

Virtual money could help during big wait for common currency. But barriers remain.

Marianne Lebeau opens her purse to pay for a pain au raisin at the Au Pain Quotidien bakery in Brussels' chic Place du Sablons. But she doesn't take out any coins.

Instead she hands over a Proton card. Unlike traditional magnetic-strip credit cards, Proton stores Belgian francs on a silicon chip, making it perfect for small purchases such as newspapers, chocolates, and even croissants and baguettes. There is no minimum purchase.

"This card's much easier than coins," says Ms. Lebeau. Like digital mobile phones, electronic money represents another technology of the future in which Europe has a chance to trump Silicon Valley.

Early failures in the US

A Frenchman developed the first smart cards, European governments have pushed the technology, and high telephone costs provide an incentive to supplement regular credit cards. The transition to the euro increases the chance for e-purses to replace bulky notes and coins.

To succeed, however, Europe's card issuers and those businesses who accept them must first agree on a common standard that will work across borders.

In the US, electronic cash has flunked its initial tests. Citibank and Chase Manhattan Bank last month shut down their initial trial of the technology on Manhattan's Upper West Side. The problem: Not enough customers used the cards for merchants to invest in it and not enough merchants accepted the card for customers to be interested.

"We think smart cards will work best in the US in specific controlled situations" such as hospital security cards, highway toll passes, and college-campus payment schemes, says Glenn Weiner, American Express's vice president for new technologies in New York.

In contrast, little Belgium was able to get 60 of the country's banks to work together and push the cards to clients. Customers now can "recharge" their e-purses at any bank branch and use them at most stores.

"We were not created by ... technical companies, but by actors in the market," says Armand Linkens, Proton World's managing director in Brussels. The government in Brussels accelerated the early momentum by converting parking meters to accept the e-money.

Since the launch two years ago, more than 30 million Proton purchases have been made in this country of only 10 million inhabitants - the highest percentage in the world.

Now Proton is going global. It has aggressively marketed its technology and sold licenses to 15 countries. Over the summer, both Visa and American Express took shareholdings in Proton World International.

"Proton is the world's leading e-purse and we want to take it to the next level," explains American Express's Mr. Weiner. "Our customers should be able to use their card anytime, anywhere, for any type of purchase."

The euro opens a large window of opportunity to replace cash. While the Continent moves to the single currency on Jan. 1, euro coins and notes won't be introduced until 2002. In the meantime, e-purses full of euros would allow a convenient solution.

"If we are ready," the euro could be a gigantic "kick for electronic purses," suggests Mr. Linkens.

Debate over European standard

But several hurdles still must be overcome. So far, Belgian Proton cards cannot even be used in neighboring Dutch Proton machines. Germany, Spain, and France all have independent e-purse schemes, and France even has three different competing systems, including one developed by the French national railroad.

Perhaps most dangerous of all, the third main global credit-card company, MasterCard, owns a rival British-developed Mondex system.

"For this technology to be widely accepted, we can't afford a quasi-religious debate over standards," worries John Prideaux, Visa's executive vice president of new products for the EU, based in London. Visa, American Express, and Proton are promoting a "common electronic purse."

They expect to publish specifications by the end of the year and begin operation by 2000.

German, French, and Spanish operators already have agreed to make their systems compatible.

"This common standard will embrace 90 percent of the world's chip-based card schemes," predicts David Gannon, technical manager of Motorola's Mobile Commerce business.

Companies clash, too

The big holdout is MasterCard and Mondex, with about 1 million cards issued worldwide. Mondex claims switching to the new common purse specification will require replacing all present e-cash infrastructure.

"Anybody issuing Proton today has to think what will happen in four or five years' time when they have to throw everything out and start again," says Michael Keegan, chief executive officer of Mondex International in London.

Mondex touts its technology as cheaper and more convenient than that of its rivals. It already is usable across borders, albeit only in the relatively few Mondex machines in operation.

And unlike Proton transactions, which are eventually downloaded into bank accounts and settled in a single national processing center, Mondex has no central accounting.

"No card issuer will be able to sustain the enormous costs of centrally accounted systems such as Proton," insists Mondex's Mr. Keegan.

Proton retorts that its centralized system increases security, a big advantage over cash. If a card is lost, the balance can be reimbursed.

Unlike with many other kinds of credit cards, the money is stored on the smart cards themselves, rather than being drawn from a bank account.

"A nonaudited system is dangerous," says Linkens. "Mondex is 180 degrees away from everybody else on earth."

At the Au Pain Quotidien, customers don't seem concerned with the security of their Proton cards. But most still seem to use cash.

"People still don't have the reflex to pay with their cards," complains store manager Nelly Jeanpierre. So whichever e-purse technology wins out, the key still will be to persuade the public to trade their coins and notes for electronic money.