The Cashless Society, One Coffee Cup at a Time

Reuters | October 21 2004

TORONTO (Reuters) - The cashless society has become a reality in the warren of underground concourses beneath Toronto's downtown office towers, at least when it comes to paying for a cup of coffee, a parking space or lunch.

The basis of this experiment is a matchbox-sized, microchip-embedded plastic tag called Dexit.

Most often used to make purchases of less than C$25 ($20), it can be attached to a key chain or a wireless phone.

Tap the tag against an Internet-based Dexit terminal in a coffee shop and your large decaf latte is paid for. Tap it at the pay booth in the parking garage instead of fishing for coins. Use it to pay the dry cleaner as you pick up your clothes on the way home.

A similar concept, the Mondex smart card, was tested on the Upper West Side of Manhattan in the late 1990s and allowed to fade away, due to a combination of consumer resistance and technical flaws. The same fate befell a Mondex test in Guelph, Ontario.

But interest has been revived by the success of single-use cash cards such as Starbucks' coffee card, and Speedpass tags that can be used to buy gas at Exxon stations across the United States and Esso stations in Canada.

Most merchants who use Dexit -- there are more than 300 food and service outlets with terminals in Toronto's maze of underground malls -- are places such as Bento Nouveau sushi, Burger King, Krispy Kreme doughnuts and Second Cup coffee.

They serve tens of thousands of office workers who want to grab a bite or run a quick errand near their workplaces.

The company that issues the tag, a start-up called Dexit Inc., says about 32,000 people are using it, with most transactions under C$25. Dexit is leaving the big-money part of the cashless society to the credit- and debit-card issuers.

Company president and chief executive, Renah Persofsky, said she got the idea for Dexit while sitting in a Starbucks watching a woman spend C$100 on a pre-paid coffee card.

"I asked the woman why she would give a hundred dollars over to a coffee establishment to get a prepaid card when they accept credit and debit, and she just said 'I don't want to fool around with coins and change to buy a cup of coffee'," Persofsky said.

"So I was lying in bed that night and thought, if it's possible to do something like this that consumers can use everywhere, do I have a business here?"
Here's how it works: The user gets a free tag and pays Dexit C$1.50 for each refill of C$100 of spending space on it. The first refill is free and there's a C$100 daily limit on spending. To refill, you can have Dexit automatically transfer funds from your bank account or you can use your bank's bill payment service.

Dexit's value is its speed at the cash register, the company says.

"No cash changes hands," says the blurb. "There is no need to swipe a card and key in a PIN number as with a debit card, or sign or authorize a credit card payment."

Reaction has been mixed.

"There were lots of people using it when they did a promotion, but now we get three or four a day," said a server at a subterranean coffee shop. "Some people like it, and some say they don't like paying to fill it up. And I guess some people, like me, just like to have money in their pocket."

The company raised C$22.7 million in an initial public offering in June and has signed a deal with Canada's biggest phone company, Bell Canada, a unit of BCE Inc., that gives Bell exclusive rights to Dexit across the country. Persofsky said Bell is putting its marketing muscle behind the product and takes over full deployment in mid-November.

Dexit reported a loss of C$2.9 million on revenue of C$541,000 in the second quarter and Persofsky said she expects it to break even within two years when it has 300,000 to 400,000 clients signed up. The stock has remained around C$3 on the Toronto Stock Exchange recently with 52-week range of C$5.95 to C$2.80.

The company envisions turning its small-change operation into a worldwide business with licensing agreements in Britain, Latin America, the United States, India and China.

Dave Pupo at Dundee Securities in Toronto, one of two analysts who follow Dexit, says it's possible, though nothing you'd want to bet the store on.

"This stock is only for very speculative investors, but if (the company) can maintain capitalization, they can move forward and penetrate the market," he said.

"The near cashless society is approaching and the timing is right for the Dexit technology," Pupo said. "But there are impediments restraining immediate mass global acceptance of micro-payments. You know, 80 percent of Americans still use cash for everyday purchases, but I think the time is right to begin saturating the market with this kind of product."

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