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Smart Cards Are the Tool;

But the Payment System Needs a Bit More

JVH

Smart Cards Are the Tool; But the Payment System Needs a Bit More

We’ve all been there – You pull into a parking space, go to the meter, reach in your pocket and pull out a $10 bill. No change. What are your choices?

You can run the risk of a citation – not good! Or you can go into a nearby convenience store and grovel for change – not a particularly exciting proposition. Often you buy some gum or bottled water so you don’t have to admit that you need change for parking.

Certainly the convenience store owner finds the transaction less than positive. He has to keep tons of quarters on hand and take the time to make change in the hopes of getting a future customer. If he doesn’t make the change, he may lose a customer forever. No one is happy with the arrangement.

However, with the Parcxmart Smart Card system that all changes. When you go in to the store looking for change, the merchant has an alternative. He can simply sell you a Parcxmart card. The card has value, can be used to pay for parking and it can be used in the store for purchases. You don’t have to buy something you don’t want now, but when you come back later, you can use the card to purchase something you really need. Everyone is happy.

In New Haven, CT, the experiment has been a success, it seems. After only six months of operating since the city rolled out 2,500 meters, the Parcxmart system has more than 5,000 active cards. Parcxmart Technologies President John Regan expects 10,000 active cards and 50% of all meter transactions on the card by year end.

“Twelve percent of the collections citywide are now on the card, and that number is increasing.” Regan said. “There are many aspects that will make it a complete success.”

“The first is the product. It is a multi-application smart card designed for small-dollar transactions in meters, and merchants, including a local loyalty campaign tagged “Instant Cool Rewards.” Secondly, it is easy to get a card, load value with cash, debit or credit cards at your local merchants, and then use the same card regionally in participating cities.

“Finally, since it is a third party payment system just as credit and debit systems function today, the firm has the ability to scale and run ongoing marketing campaigns in support of the future growth in many different cities, thousands of merchants, and the consumers who use the cards daily.”

Regan puts his sales staff on the streets to sell the system to parkers. “They greet people as they park and offer cards with some dollars already on it. People use the system on our nickel, and will then even go into a local coffee shop and buy a cup.”

The program also is promoted on each meter, in each merchant window, and at the countertop where the merchant accepts payment for goods and services.

There are two concerns with credit card usage. First, people don’t like to use credit and debit cards for small-dollar amounts (most pay-and-display markets still see up to 50% of their transactions in coin and cash).

Second, the cost to clear and settle these transaction is expensive for the merchant or the city (in terms of credit/debit card charges). With credit cards, the merchant/city is hit with a transaction fee and a percentage. That can be a lot with a small-dollar transaction. In some cases, the city will receive as little as 72 cents on the dollar, whereas with the smart card, the city retains 90 cents on the dollar, and there are no charge-backs as all sales are final.

The second issue in the success of the Parcxmart program is merchant acceptance. The company has a partnership with Heartland Payment System, one of the largest merchant processing acquirers in the country. Heartland also puts its sales staff on the street and actively promotes the program to merchants. “This is a huge advantage for us,” Regan said. “In Yonkers, NY, Heartland sales reps [recently] wrote 25 merchant petitions in support of the launch of the program in one day.”

Interoperability is the third attribute of the program, Regan said. The goal would be for the cards to work regionally and nationally, just like the toll tags on the toll roads. The system has been installed in nearby Bridgeport, CT, and the company plans to announce at the IPI show the names of four more cities that have signed up, Regan said.

The economics of this system work in a small-dollar world. It gives merchants that typically have small-dollar transactions (such as convenience stores, newsstands, coffee shops, delis, pizzerias, and typical local retailers) flexibility they don’t have with credit cards.

The system works to turn a parker who is gambling that the amount of change in his or her pocket or purse is enough into an insurance buyer who purchases more time to ensure that they don’t get a citation. This can be a major benefit not only to the parkers, but to the municipality.

“It’s to everyone’s benefit to turn that gambler into an insurance buyer,” Regan said. “The parker doesn’t have to worry about a citation, the city receives the proper amount of revenue, and the merchant has a card that brings them more business. There is no down side.”

The problem with most smart card systems is that if they are administered by the city, the city may or may not promote the program or have the budgets to do so, Regan said. If they are run by a third party such as Parcxmart, that company will invest in the success of the program in each city partner. Parcxmart gets paid only when its cards are used. Its consumer marketing and electronic payments expertise are significant and fully capable of turning coin-and-cash markets into more of a digital payment environment. Most cities aren’t geared up to provide complex marketing programs and often they have other priorities.

“For these systems to work, they have to be promoted on a regular basis,” Regan said. “Many cities have a debit card system and the majority of parkers in the city don’t know it exists. Plus, if they want a card, they must go to the parking department or other city offices to purchase them. A system that involves the local merchants just works better. It’s seamless,” Regan said, “and the cards are easy to get and reload.”

Article Abstract from May, 2007




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