Two Years On, Citi's High-Tech Card Is Still in Pilot Mode

Citigroup's 2G card, developed with technology from Dynamics, promised to revolutionize the way consumers paid with plastic. 

But the product remains in pilot testing mode more than two years after the partnership was announced and more than a year after Citi (C) reportedly aimed to mass-market the card. The Citi website for the card offers no way to apply for it. Two industry sources, who requested anonymity, say the bank is close to shuttering the program.

The languishing of the Citi 2G card shows how even the most impressive new technologies can struggle to find a foothold in payments. The battery-powered card sports a button that consumers can press to use rewards points they'd earned, instead of their credit lines, to pay for purchases at the point of sale. While this innovation has made Dynamics a perennial favorite at trade shows – the vendor has won "Best in Show” honors at no less than four Finovate events – experts have long questioned the product's practicality.

"They're solving a theoretical problem rather than a real one," says Dave Kaminsky, an analyst at Mercator Advisory Group. "Most consumers are happy now with the way they redeem rewards."

Emily Collins, a Citi spokeswoman, would not say whether Citi plans to continue the 2G product. She repeatedly provided a statement: "We continue to listen to feedback from our clients, including those in the 2G pilot program, to deliver the best products and solutions to serve their needs.”

Jeff Mullen, founder and CEO of Dynamics, insists that Citi will keep issuing the card. "Dynamics affirms Citi's statement regarding the on-going Citi 2G program," he said in an email.

But according to a New York Times article published in October 2010, when Citi announced the program, the bank planned to "make the cards available on a broader scale in mid to late 2011.” And industry observers say two years is a long time to test a card.

Pilots "used to be months or years but these days it's a much shorter time frame. All it takes is a few weeks” to see if something is working and if it is getting enough volume, says Gil Luria, an analyst with Wedbush Securities.

That the 2G pilot has lasted two years "probably means they haven't gotten the results they want and want to continue to iterate until they do," Luria says.

Aaron McPherson, practice director for payments and security at IDC Financial Insight, says two years sounds "kind of on the long side" for a pilot. Citi might have entered a new phase of the pilot if it did not get the results it sought in its early tests, he says.

Citi has shown similar patience before. The bank took two years to test Obopay's mobile person-to-person payments technology before quietly pulling the plug.

Dynamics offers several versions of its technology, which allows the rewriting of data on a card's magnetic stripe to bolster security or to access multiple accounts. The Pittsburgh vendor recently launched a product with UMB Bank, a subsidiary of UMB Financial Corp., and Mullen says Dynamics will announce more issuers in 2013.

But if Dynamics encountered resistance from consumers in the pilot test, it may be because the company adds complexity where consumers don't want it, says Kaminsky. While Dynamics promises convenience by letting consumers spend their rewards on the same card that earns them, it's not all that inconvenient to go online to request rewards, he adds.

The cards may also be a tough sell as the market for mobile payments grows, says Kaminsky.

"A mobile payments solution is just around the corner that can do [what the 2G card] can do and much more," he says. "By the time they establish any steam from the people that are interested, these people are going to start picking up mobile payments."

McPherson says he purchased a 2G card from Citi. The card is "not really that exciting once you get over the light lighting up to tell you which rewards you're going to get," he says.