From the August 1998 issue of Entrepreneur

In the next decade, "smart" cards equipped with microprocessor chips will likely replace the magnetic-strip cards currently used as debit, credit and ID cards.

Smart cards have been available in Europe since the early 1980s; the cards' versatility and resistance to illegal use have finally caught the eye of U.S. credit card companies.

What features do smart cards have that magnetic-strip cards don't? For one thing, you can download and store large amounts of information on smart cards, making them perfect for programs like frequent flier clubs. Also, the information on the chip is encrypted, and the chip itself is embedded into the plastic card, making fraud difficult.

A program to test consumer acceptance of smart cards, sponsored by Visa USA, MasterCard, Citibank and Chase Manhattan Bank, is underway in New York City. Customers can download "cybercash" into their smart cards from ATMs and spend it at stores equipped with smart card readers.

So far, even with more than 500 stores in Manhattan equipped with smart-card technology, consumer response has been lackluster. Greg Jones, director of corporate relations at Visa, believes getting people used to the idea of smart cards may be a gradual process. "Smart cards are not a mainstay in people's wallets right now," says Jones, "but we expect that in five to 10 years' time, the cards will become far more prevalent [in the United States]."

Merchants who currently use magnetic-strip card readers will eventually have to replace them with those that can handle smart cards. On the upside, the new readers don't require a dedicated phone line--smart card readers can verify available funds, subtract the sales total, and inform the customer of the remaining balance from data stored on the card's microchip.

According to Schlumberger Electronic Transactions, a division of Schlumberger Ltd., a manufacturer of credit and smart cards, there were 13 million smart cards in use in North America in 1996. The firm projects that by 2005, more than 500 million smart cards will be circulating in North America.

Fast Track

Name and age: Jens Molbak, 35

Company name and description: Coinstar Inc. manufactures, markets and operates 3,900 automated coin-counting machines located in grocery stores nationwide. The distinctive green machines, which are connected to a central computer network that monitors operation, automatically counts coins deposited in the hoppers and then prints out vouchers redeemable for goods or cash (less a 7.5 percent "convenience charge") at the stores' checkout counters.

Based: Bellevue, Washington

Founded: 1991

Start-up costs: $30 million (venture capital)

1997 sales: $25 million

A penny for your thoughts: "I moved around the country a lot, and every time I moved, the last thing to go into the U-Haul was my growing jar of coins," says Molbak. "A couple of times, I actually sat down and wrapped some of the coins. It took an hour or so, so I was looking for another way to convert them. A friend and I interviewed about 1,500 people outside supermarkets, and we found that there is about $7 billion in coins out of circulation in this country, which comes out to about $30 per person."

Count on it: Using a patented mechanism, the Coinstar machine can count as many as 600 coins per minute and processes more than 180,000 coins before automatically calling for service via the central computer network. The Coinstar's screen shows consumers a running total of the coin count; it also displays advertisements and messages on behalf of the host store.

Coins of the realm: Coinstar has been contacted by 20 foreign countries about exporting modified versions of the machines overseas, says Molbak. A plan is now in development to use Coinstar machines to convert a variety of European countries' coins (which would otherwise be worthless after the changeover) into new Eurodollars.

Contact Source

Coinstar Inc., (800) 928-CASH, http://www.coinstar.com