Smart cards may become the preferred payment vehicle in the future. The cards, embedded with a microprocessor chip, can hold enormous amounts of data, as well as stored cash values for purchasing products and services.Smart cards are already being used in several states as part of electronic benefits transfer programs for distributing government entitlements. They have also been tested in controlled

Smart cards may become the preferred payment vehicle in the future. The cards, embedded with a microprocessor chip, can hold enormous amounts of data, as well as stored cash values for purchasing products and services.

Smart cards are already being used in several states as part of electronic benefits transfer programs for distributing government entitlements. They have also been tested in controlled venues, such as the 1996 Summer Olympics in Atlanta.

But gauging how soon the cards will have a substantial impact on supermarket retailers is difficult. Questions such as who pays for system upgrades to allow acceptance of the cards, as well as whether customers will embrace the technology, need to be answered. While some advocates of smart cards predict the emergence of several supermarket applications within the next few years, others said widespread use may be five or even 10 years away.

"It's a big step for them," said Bette Wasserman, vice president at Bank of America, San Francisco, and co-chair of the Smart Card Forum's retail work group. "They have too much invested in present infrastructure."

The Smart Card Forum is a multi-industry group formed to explore the use of smart cards for various applications. Members of the group point out that smart cards currently can store about 80 times more data than a magnetic-strip card.

Being "off-line," the cards could also help reduce retailers' telecommunication costs. But the Forum's retail work group has received few inquiries from supermarket retailers about the cards, Wasserman noted.

Supermarket retailers are concerned also about being pressured into a technology for which adequate standards have yet to be established. Other concerns include the prospects of having too many systems at the front end, such as readers, printers and PIN pads -- and the question of consumer acceptance.

"The customer will have to want the card," said an executive at a large chain in the East, who asked not to be named. "They are going to ask, 'What will the card do for me costwise?' The answer for now may be 'nothing.' "

Indeed , if consumers are required to pay for their own smart cards, it could cost anywhere from 80 cents to $15 -- depending on the amount of capabilities on the card, according to industry observers.

A portion of such costs might also have to be picked up by retailers, said Waldo Yeager, treasurer and chief financial officer of Seaway Food Town, Maumee, Ohio.

The need for equipment conversions could dampen enthusiasm for smart cards in other than EBT applications, Yeager said. "I don't think our company would be too interested -- recognizing that readers would cost $400 to $500 each."

Yeager is a member of the Ohio EBT task force, one of two states rolling out smart cards for food-stamp applications. For the EBT program, however, the state has provided free hardware to participating merchants.

Eventually, smart-card technology will prevail, said Yeager and other retailers. The question is how soon and under what conditions.

Barbara Ramsour, information systems director at Balls Food Stores, Kansas City, Kan., puts the time frame for broader acceptance of smart cards at five to 10 years from now. "We already have magnetic-strip cards issued for debit and credit. It would take all new equipment."

"It's coming -- and we will have to do something about it," said Don Friddle, manager of corporate cash resources at Marsh Supermarkets, Indianapolis. "We're not interested in equipment conversions at this point."

While frequent-shopper programs have been touted as ideally suited for smart cards, both Friddle and Ramsour said current loyalty programs are adequately served through bar code and scanner systems -- and that there is no reason to incur extra costs of smart-card terminals.

But smart-card EBT tests and forthcoming rollouts in Ohio and Wyoming may drive non-EBT applications, observers point out.

In Ohio, where a smart-card EBT program for distributing food stamps will involve the entire state within three years, the Ohio Grocers Association already is looking at other ways to use the cards.

The group has formed a task force to explore other opportunities, said Tom Jackson, president of the group.

In addition, Mac McDowell, chairman of the Rocky Mountain Food Dealers Association, said that his group currently is lobbying Wyoming government officials to provide stores with multi-use terminals containing smart-card capabilities for such things as debit/credit and loyalty programs, in addition to EBT for food stamps and Women Infants and Children program.

In the Wyoming smart-card test, the state provided stores with WIC and food-stamp terminals to be used in addition to their magnetic-strip readers for debit and credit cards.

A multi-use terminal would provide greater flexibility for retailers and make a better business case for such equipment, said McDowell, who is also a partner in Jack & Jill Food Center, Wheatland, Wyo.

The association is proposing that the state subsidize most of the costs of replacing existing readers and in-store PCs for members of the test.

As the smart-card pilot goes statewide by 1998, other stores also would be equipped. McDowell said retailers probably would share a small portion of the costs of conversion -- since many of them had magnetic-strip systems before the pilot began.

A novel application of a smart card could certainly create a good business case, said McDowell. As an example he cited replacing paper gift certificates -- calling them a "pain" for retailers if not fully redeemed -- with smart cards.

Sutton Place Gourmet, Rockville, Md., already has such a program in place, issuing smart cards in denominations of $25, $50, and $100 at its Woodbury, N.Y., unit.

A source at the store said the cards, in use for one year, have been "incredibly successful." Management likes them for their simplicity, and customers like them because -- in keeping with company philosophy -- they are new and innovative, he said.

The value stays on the card -- and is kept current as shoppers redeem their certificates, often over the course of several store visits. The current balance is displayed on card readers and instantly updated through an off-line system.

Bob Sands, director of financial services at Seaway Food Town, said that supermarket retailers in Ohio are concerned that the state is prematurely pushing equipment on grocers before standards are set. "We may find that two or three years down the road we are dealing with equipment that is not compatible with other systems."

In Ohio, grocers get their free hardware for a limited number of checklanes based on food-stamp activity. For equipping additional lines, the retailer foots the bill.

Sands said that the present equipment configuration leads to front-end clutter. In addition to the traditional credit/debit-card reader, smart-card equipment consists of a separate terminal, printer and PIN pad.

The Smart Card Forum concedes that the greatest obstacle to the proliferation of smart cards is lack of uniform standards for the cards and their use.

Even so, the group estimates that 500 million smart cards will be in use worldwide by 2000. The cards are widely used in Europe now -- especially in France -- because of high telecommunication costs associated with traditional credit/debit cards, observers pointed out.

In the United States, telephone line processing is more efficient and less expensive than it is in Europe, hence the slower move to smart cards.

Interoperability tests are surfacing, however, such as one slated to begin in October on the Upper West Side of Manhattan. Chase Manhattan Corp., Citibank, MasterCard International, and Visa USA are planning a launch of a smart-card system with 50,000 cards and 500 merchants -- some of them supermarkets.

The merchant sign-up phase is now in progress, said a spokeswoman for the Smart Card Forum. The cards will have both a stored value application that will be reloadable at specially-equipped ATMs, and a credit-card application on conventional magnetic tape.