Cash Management Made Easy

CONSIDER the challenge at British Gas: some of its customers just don't pay up.

Over the years, the British utility has installed coin- and token-fed gas meters to force these riskier clients to pay for gas as they go. But coins and tokens come with problems of their own: vandalism, security, and the costs of collection.

The answer? A smart card. After a year of trying out the system, British Gas is committed to installing 100,000 of the smart-card gas meters throughout the United Kingdom. Henry Stroud, general manager of commercial licensing, will not reveal how much the company is saving, but it is significant, he says.

British Gas illustrates an important but little-appreciated fact: It costs money to handle money.

Retailers have to hire people to count money, recount it, take it to the bank via armored car, and so on. For every $10 cash purchase in an American supermarket, the grocer pays an estimated 18 to 20 cents for cash handling, says Ashok Narasimhan, vice president for business development at VeriFone, the world's leading provider of transaction-automation systems.

And the size of these cash purchases - typically $8 to $10 - are too small to make credit cards cost-effective. Even automated-teller-machine cards are on-line transactions, which require telephone calls. The smart card, by contrast, can be used off-line, eliminating the phone call and thus reducing transaction costs.

NOTHER smart-card advantage: security. Before France Telecom switched to smart cards, its coin-operated public phones were tempting targets for thieves. According to Gemplus, the world's leading maker of smart cards, vandalism of French public phones dropped from 44,000 incidents in 1984 to 900 in 1989.

Less-talked about is what companies refer to as "shrinkage," the disappearance of money while it is in the hands of employees.

Marc Lassus, president and chief executive officer of Gemplus, estimates the average cash transaction really costs the merchant an extra 2.3 percent of the value of that transaction. In the US alone last year, consumer cash transactions totaled some $1.6 trillion.

VeriFone and Gemplus earlier this year announced a joint-venture to develop this electronic currency worldwide. If their estimates are right, they have a $32 billion business opportunity in the US alone.