Electronic purses: Which way to go? (originally published in July 2000)

Abstract

This paper is included in the First Monday Special Issue #3: Internet banking, e-money, and Internet gift economies, published in December 2005. Special Issue editor Mark A. Fox asked authors to submit additional comments regarding their articles. The article below, which was written in 2000, showed that initial expectations about consumer uptake and retailer acceptance of e-purses were unrealistic. The article concluded that “the initial euphoria ha[d] faded away and, at best, ha[d] turned into cautious optimism”. Today, things look even bleaker. In Europe several schemes have simply been discontinued and only a handful are doing reasonably well, particularly in the Benelux (see Van Hove, L., “What Future for Electronic Purses?”, forthcoming in Lammer, T. (ed.), Handbuch E-Money, E-Payment and M-Payment, Springer Verlag, 2006). My original article noted that experts who still believed in e-purses saw two major ways in which the new payment instrument could eventually be brought to the top of consumers' wallets. The two magic formulae put forward were 'multi-application' and 'electronic commerce'. Today, it can safely be stated that the Internet is unlikely to save e-purses. However, the first formula might still do the trick. For example, in Hong Kong retail usage of the Octopus transit card is growing steadily. And transit operators around the word are following in Octopus’ tracks. In Europe, London’s Oyster card is the case to watch. Starting in January 2006, Transport for London will extend the use of the card to low-value purchases at retail stores in the capital. This paper uses a unique data set covering 12 national systems to document the current state of electronic purse projects in Europe. Specifically, it presents and compares rates of penetration and use, and analyses their evolution over time. While one or two EPs perform significantly better than the others, retailer acceptance and consumer uptake invariably fall short of expectations. This does not bode well for the use of EPs on the Internet, and particularly since the virtual world presents a number of additional hurdles. On the other hand, it may also present additional opportunities.