TARGET'S CANCELING OF SMART CARD SPARKS DEBATE 2004-04-19 (1)

AMANDA WEEKES

Minneapolis -- Does Target's recent cancellation of its highly publicized smart chip program, in which its Target Visa Card was equipped with a smart chip, signal a significant blow to smart cards in the United States?

According to reports, Target, based here, cited limited customer usage as the reason for the cancellation. The Target Visa card will still be available without the chip. Target did not respond to requests for comment.

Target's smart card program, which began in 2001, enabled consumers utilizing smart chip technology to access offers and promotions, and to manage their account online. It also provided rewards, such as discounts toward future purchases, to loyal customers. The coupons and rewards were available for download online and at in-store kiosks.

"Target undertook an ambitious, leading-edge approach to customer-targeted direct marketing utilizing the power of smart chip technology," said Randy Vanderhoof, executive director, Smart Card Alliance. "The technology worked very well; however, the consumer interest did not meet expectations."

The problem with the card and the reason for its failure weren't the technology, said Vanderhoof, but rather marketing decisions. "There are many factors that went into measuring the business case for this marketing program," he stated. "Target has not made public what those reasons were, so we may never [know] the real answers."

Taking the opposite position is David Weisman, an analyst with AMR Research, Boston, who argued in an online report that smart cards will never have a place in U.S. payment systems because customers simply don't need them. Other options like cash, credit cards, debit cards and checks will continue to predominate. Smart cards are far more prevalent in European markets.

Checkout technology often doesn't support smart chips, and companies don't have the resources to upgrade, especially when there is very little customer response to existing programs, said Weisman. He added that the security features of the card are no longer necessary because most transactions can be verified online.

"Retailers should not bother allocating any capital or research and development budgets to smart cards," said Weisman. "Instead, pour resources into other store system investments with immediate impact on improving the customer experience."