Let the Market Pick the Winners

Abstract

In October 1997, Citibank and Chase Manhattan Bank, New York City’s two largest banks, working with Visa and Mastercard, the world’s two largest credit card companies, launched a joint trial to test the viability of ‘smart cards’ in US retail consumer markets. The two banks issued reloadable stored value cards to approximately 100 000 people living on Manhattan’s Upper West Side. The cards functioned as electronic purses: customers could transfer up to $100 to the cards from their bank accounts using automated teller machines and could use the cards to make purchases from 600 participating local merchants. The banks hoped that customers eventually would be willing to pay $1.00–$1.50 monthly to use the cards and that merchants would be willing to pay fees to accept them, just as they already paid fees to accept traditional magnetic strip credit cards.