The Future of Money

Behind the bright, brown eyes of Helen Li, the 43-year-old head of finance for Café de Coral, is a brain that's restlessly making connections. Li is also head of logistics and IT for Café de Coral, Hong Kong's leading Chinese fast food chain. And lest you think that the food industry is just about food, think again. It's about time and information and mobility.

The business has a high cost of sales and, with tiny margins, very little room to eke a profit. Li has puzzled over the problem of growth given these conditions through several degrees she earned since starting work at Café de Coral in 1981. These include two MBAs, and in her current doctoral studies in customer resource management (CRM). Like any true polymath, she is open to inspiration. And one day it hit her &mdash as she slapped her wallet on a scanner in an underground station of the Hong Kong Metropolitan Transit Railway (MTR). As the turnstile clicked over, she saw the future of her company &mdash all in an itty-bitty card.

Inside her wallet was an Octopus card, one of 4 million used every day in Hong Kong. Like everyone else, she shelled out HK$50 (US$6.40) for the convenience of prepaying her train journeys and thought no more about it. Who could blame her? Stored-value cards, mainly intended for single uses like transportation or telephone calls, have a bad rap.

For years, pundits have talked about the possibility of a cashless society. Major banks and credit-card companies have experimented with smart cards all over the world. Problem was, nobody wanted to use them. For every statement about the withering away of cash to electrons, there stood another failed attempt to make it happen. But just as smart cards seemed destined to become another technology also-ran, new constituencies began to find that smart cards made sense. Asia's consumers are one of those constituencies.

And Helen Li is poised to capture that advantage and take it worldwide. She sees smart cards not as a mere convenience or added liquidity, but as a method of unifying, controlling and growing a company in a low-margin, multi-market business. She also sees a Café de Coral smart card as a vehicle for better cash management and, in time, lower cost access to cash.

"Smart cards are changing the way we think about money," says Li. The statement is no idle boast. Li is leading an ambitious scheme to install a smart-card system into all of Café de Coral's eight different 'brand' restaurants, including some 192 stores in Hong Kong, Macau, and China. Next, it plans to offer the cards to customers at the largest Chinese fast-food chain in the United States, Manchu Wok, an 182-store chain it purchased last year.

Why bother customers with a new technology when the competition uses well-known plastic? Li aims for a piece of the control that electronic money can give over unruly parts of the business that squeeze an already tight margin. She can't make food less perishable, but she can make orders smarter by closely monitoring her customers' purchases. Will she need security guards in armored trucks to shunt cash to the bank, or bankers at all if her customers reach into their bank accounts to pay her up front? Will she need ad agencies if she can target her consumers directly, even personally, via electronic media? Li aims to be armed with the information that enables a profitable US$320 million-a-year Asian company to turn into a bigger, more profitable one. And, the plucky company also has its eye on the ultimate prize: to take advantage of prepaid float to lower its cost of capital and perhaps even reinvest that money, or even make a turn on its customers' cash by turning it around as loans to cash-strapped suppliers.

Real Money, Really
When the CFO of a medium-sized company is thinking like a financial institution, something funny is going on in the world. There's no magic behind banking, only a regulatory structure that favors the status quo. Several visionary companies know this and have been vying to cross this border for years, primarily Sony of Japan and Microsoft of the United States. They have long recognized that electronic cash could give commercial companies access to the mundane world where cash still lives.

Real money is already electronic, moving from computer to computer through telecommunications systems from central banks, via overnight bank loans and treasury settlement systems. But no financial institution has been able to hone in on the simplest of transactions: You pay HK$100 (about US$13) from your wallet for groceries or a meal. Electronic point-of-sale systems have grabbed some of this market, but there's no technological barrier blocking regular companies from competing with banks — only banking regulators.

From the point of view of companies that issue smart cards, it's a very sweet proposition. Smart-card customers give the supplier a prepaid float in the form of stored value. Merchants who accept them give over a small transaction fee. The Helen Lis of the world are asking, why give that added value to a bank or a credit-card company when you can do it yourself?

Attempts at making smart cards work have been knocking around in much the same way. But most have involved cards with magnetic strips, which have limited ability to store information, and make consumers wait, just like credit cards. Craig Richman of Consult Hyperion, the U.K. consulting company that advised on a pilot for the Mondex smart card with MasterCard in England, explains why it and other ventures like it failed in Europe. "You had to wait," he says, "just like in a supermarket EPS, and people couldn't be convinced that they were getting any value added [compared with] simply pulling cash out of their pockets." A similar trial between Chase and Citibank in New York City also fizzled.

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