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    Credit Card Companies Diversify Payment Methods

    Issuers and banks seek new business through innovative shapes, sizes and applications.

    NEW YORK -- A new card that will pay for an appliance and a cup of coffee. A watch that will pay for gasoline. A cell phone that will pay for tacos.

    The world of credit cards and debit cards is changing as card issuers, banks and retailers battle for wallet space. They are offering innovations in shape, size, technology and use to attract consumers. With more than 6,000 financial institutions issuing credit cards in the United States, the Dallas Morning News reports, companies have to work hard to stand out in a crowd.

    "There was a time when you had just a Visa or a MasterCard,'' said David Robertson, publisher of The Nilson Report, a consumer payments newsletter. "At best you had gold cards and platinum cards. "Now you have mini cards, see-through cards and cards that are attached to the key chain. In the next five years, there will be millions of cards with little microchips on them."

    Even though cards appear ubiquitous -- and there are an estimated 785 million cards in use in the United States -- checks and cash are still the dominant forms of payment. Paper-based payments were used to pay for 63 percent of Americans' personal consumption expenditures in 2001 totaling $3.4 trillion, according to The Nilson Report. Card-based systems, on the other hand, accounted for only half as many transactions.

    The trend favors plastic: Cards are projected to capture a 47 percent share in payment systems by 2010. And even as card issuers vie with each other, they are collectively chipping away at the paper-based system.

    At Chicago-based Bank One Corp., the third largest bank-card issuer, cards accounted for more than 30 percent of the company's first-quarter net income. Bank One issues more than 1,200 different types of cards. For the issuers, the easiest innovations come in the form of partnerships among big brands. Take Bank One, Visa USA and Starbucks Coffee Co.

    They plan a fourth-quarter launch for a card that will combine a Bank One credit card and a prepaid Starbucks card. Thus, a consumer could use it to buy a high-definition television, then pick up a frothy latte by drawing down on the cash value loaded on the same card.

    The lure for consumers: a reward program that would transfer 1 percent of the total value of the credit card purchases to the Starbucks end of the card.

    "Customers who are frequent Starbucks visitors and frequent credit card users are going to have a substantial number of visits covered," said Brad Stevens, director of marketing at Starbucks Interactive, a division of Starbucks Coffee.

    Meanwhile, card providers are exploring new applications for plastic as well. MasterCard International is offering a number of products for specialized purposes, such as cards to handle relocation expenses or travel per diem costs. Another MasterCard offering allows companies to issue a card specifically for certain corporate projects, allowing employers and employees to track expenses without laboring over receipts.

    Rival Visa USA is providing a reloadable card for child-support payments and, for teens, a prepaid card on which parents can set spending limits.

    Issuers are building chips onto cards so that consumers do not even have to swipe their cards to make a purchase. Even the oil companies are using or experimenting with mobile and wireless payments for use outside their own businesses. In December, ExxonMobil Corp. partnered with Timex Corp. to sell nearly 4,000 watches equipped with radio frequency transponders, much like the oil giant's Speedpass key-fob system. The watches can be used at company gas stations and select McDonald's restaurants.

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