Why Has Stored Value Not Caught on?

Abstract

Why have general-purpose stored-value cards been unsuccessful in penetrating the U.S. market? Three necessary conditions for a payment instrument to be successful are discussed: consumers and merchants need to be convinced of its advantages over existing payment alternatives for at least some types of transactions; payment providers must convince consumers and merchants simultaneously of its benefits to achieve critical mass; and assure them that adequate safety and security measures have been implemented. This article discusses the credit card industry's success in meeting these necessary conditions and stored-value issuers' failure to meet these conditions to date.

Keywords: Stored value, smart cards, payment systems, e-money, technology

JEL Classification: G2, L1