Experimental Card Replaces the Coins In Canadians' Wallets

LOOSE change may be on its way out.

Well, not right away. But experiments in Canada with "smart cards" are aimed at replacing coins with plastic storehouses of money that can be used to buy a newspaper or pay a taxi fare.

There's no solid evidence of whether the public likes the idea. But commercial banks do, because they can make money from it. Phone companies can stop emptying pay phones and municipalities will make more money from parking meters.

But so far it's just a test.

There are two types of cards involved. Both are different from "debit cards," which withdraw money from a bank account at each transaction. The new cash-storing cards each have a microchip embedded in the plastic card. That's what makes the card "smart," since it has the computing power of an early personal computer.

The first type of card you might pick up at a bank or a convenience store. It is loaded with $10 or $20. It can be used in telephones, or at cash registers with a special reader.

This type of card was introduced by Visa in December last year, and is issued by two banks - the Toronto Dominion and the Bank of Nova Scotia - and two credit unions - Vancity in British Columbia and Caisse Desjardins in Quebec.

The trial is still in the early stages. For instance, the Bank of Nova Scotia card can only be used in the bank's own cafeteria. But market research shows 82 percent of Canadians would use electronic change instead of cash, according to Rick Pyves, senior vice president of marketing for Visa Canada.

Currently, when the money is used up on the Visa cash card, the card is thrown away. But that will change. "Visa Cash is initially being offered as a pre-paid disposable card," Mr. Pyves says. "In the future Visa Cash will be reloadable" at automatic teller machines.

The second type of cash card is Mondex, a British-designed card being introduced late this summer by Canada's two biggest banks, the Royal Bank of Canada and the Canadian Imperial Bank of Commerce, and by Bell Canada, the country's biggest phone company.

The Mondex card will be tested in Guelph, Ontario. It is "reloadable" from the start and allows a user to go to a bank machine and recharge the card with electronic cash debited from a bank account. Mondex says its only other test market for the card so far is Swindon, England.

In Guelph, the phone company is on board. "We will be adapting hundreds of pay phones throughout the city," says Frederick Rucker, group vice president of long distance for Bell Canada.

But the central bank, the Bank of Canada, isn't that happy. All of a sudden someone else is printing money. And the federal government worries it could lose millions in revenue. The central bank has been the only one issuing currency. It makes money by making money. For example, the new $2 coin costs 16 cents to produce but is "sold" to financial institutions for $2. Profit: $1.84.

"Widespread use of the electronic purse would mean a reduction of the number of coins in use," says Gerald Stuber of the Bank of Canada in an interview. Mr. Stuber just published a report on smart cards, or what he calls the "electronic purse."

Banks and other financial institutions would be big winners, the report notes, since they now spend a lot of money handling coins. Writes Stuber: "They [the banks] would also benefit from a new source of revenue generated from the outstanding balances in electronic purses." Banks can earn interest on these balances.