U.S. Wises Up to Smart Cards
Europe's information-packed plastic is crossing the pond
Business Week: August 28, 2000
International Business: Electronics
--From AOL.-- Cooters
Until recently, workers in the hillside headquarters of Gemplus in Gemenos, France, were about as relaxed as the sunbathers on the Mediterranean beach down below. Gemplus is the world's No. 1 maker of smart cards, the pocket plastic with an embedded chip that stores reams of financial and other information. But for 25 years, the smart-card industry remained pretty much a European thing. Not any more. Research firm Dataquest predicts world sales will climb from $2.4 billion this year to $8.1 billion by 2004. And much of that growth will come from the laggard U.S. market.
Chalk another one up to the Internet. The cyber-revolution is giving smart cards a new list of converts--especially across the Atlantic. Microsoft Corp. uses them to foil computer hackers. Couch potatoes can shop through their TVs. Since American Express Co. launched the first major U.S. smart card last year, an estimated 2 million consumers have signed up. Next is Web banking. Says Marc Lassus, Gemplus' 52-year-old chairman: ``The beauty of our product is it can be used almost anywhere.''
For years, smart cards were a bit ho-hum--a credit device with a past but not necessarily much of a future. Now, cardmakers are on the front lines of e-commerce. And investors are clearly impressed. Shares in France's Oberthur Card Systems are up 18% since a Paris listing on July 12. Gemplus recently landed a $500 million investment from private equity fund Texas Pacific Group; it plans to list later this year on the Nasdaq. Gemplus' profits grew 35% last year, to $35 million, on sales of $817 million. It has just named Antonio M. Perez, formerly a top executive at Hewlett-Packard Co., as its CEO.
U.S. sales last year were 2% of the industry's global total; Europe accounted for 60%. But as commerce moves into cyberspace, Americans are taking another look. Consider what happens when you buy online with your credit card. A secure server will probably encrypt your account number, but the merchant may store it on a vulnerable computer network. Last winter, a hacker stole 300,000 credit card numbers from online music retailer CDUniverse. If, however, you slid a smart card into a reader on your PC and entered your password, the merchant would never get your account number--only a code authorizing the sale. Amex's Blue Card comes with a card reader.
CLEVER MARKETS. U.S. mobile operators, meantime, are switching over to chip-based cards. An even faster-growing market for smart cards, analysts say, is computer network security. The U.S. General Services Administration recently announced a $1.5 billion security program that will use smart-card technology. Microsoft added software for smart-card readers to Windows 2000 for business and professional users.
True, Visa International and MasterCard International Inc. stand on a chicken-and-egg argument: Because few U.S. merchants have card readers, the companies have no plans to issue smart cards in the U.S. Even in Europe, the cards are seldom used in e-commerce because few consumers have card readers for their computers. All that could change quickly as smart cards catch on.
But then comes another potential threat: What if mobile operators and other big customers cut deals with chipmakers to make their own smart cards? To discourage that, cardmakers are raising the technological bar with more sophisticated devices. At Gemplus, engineers are developing chips that enable watches and even eyeglasses to receive and process data.
Gemplus got started in 1988, when Lassus and a group of engineers quit Thomson Microelectronics, then state-owned. All the major makers are European, and they've come a long way from phone cards. Gemplus now sells a scanner that matches a computer user's fingerprint against a stored image. Singapore's national library attaches Gemplus cards to its books: Tiny antennas in the cards make the books traceable.
Prepaid phone cards and cards in cell-phone sets still account for two-thirds of Gemplus revenues. ``But in five years that could completely change,'' says business development manager Frederic Laporte. So it could.
By Carol Matlack in Gemenos, France
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