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Shopping’s Next Wave

Or the current infrastructure could be bypassed altogether. In the future, portable computing devices and smart cards will become one and the same, perhaps lessening the importance of stationary card readers. Diana Knox of Visa says the credit card networks are already experimenting with smart card capabilities in cell phones and handheld computers. Long-advertised scenarios in which a cell phone user zaps money through the air to a vending machine or to a friend’s cell phone will become commonplace, she predicts. “At the end of the day,” she says, “it’s not about the devices as much as it is the payment network. Visa can be inside the phone or inside a personal digital assistant.”

That might be wishful thinking. As PayPal, the online payments pioneer, has shown in the fast-growing market for person-to-person payments over the Internet, cost and complexity must be much lower before consumers will accept the technology (see “Digital Cash Payoff,” TR December 2001). In eBay auctions, PayPal introduced the ability to transfer cash to anyone with an e-mail address. Thus online sellers could accept money from far-flung strangers without opening expensive Visa and MasterCard merchant accounts. Once PayPal struck the right formula, millions of users flocked to the system, providing the critical mass of success that led to eBay’s $1.5 billion acquisition of PayPal in October.

Such rapid market acceptance helps explain why so much energy is now being channeled into finding plausible applications for new payment technologies and why the SmarTrip system in Washington’s Metro is considered such an important market test. Another key trial is under way at Target Stores, the third largest U.S. retailer. Target is issuing microprocessor-equipped Visa smart cards to its customers. Checkout lanes with smart-card readers will be programmed to monitor purchasing patterns and load coupons, promotional offers, and loyalty incentives into each card’s 16 kilobytes of memory. To better integrate Internet commerce with what happens in its stores, Target is giving free smart-card readers to shoppers, who plug the devices into their home PCs to access a special Web site. Eventually, customers will be able to download electronic coupons and receive new offers. “This is the first test of its kind in the world,” says Visa’s Knox. “Many merchants are cautiously watching what is happening at Target.”

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