RT--Smart Cards Catching On Slowly
BY DONNA HOWELL
INVESTOR'S BUSINESS DAILY
What's a smart card? In Europe, it may be a prepaid phone or debit card loaded with cash value. Or one that plugs into a mobile phone to store personal data, such as phone numbers.
Smart cards are routine in daily life across the pond. But not on this side of the Atlantic.
Though smart card technology is two decades old, the U.S. is only slowly adopting it.
Credit card issuers see smart cards as an ideal form of souped-up charge cards that can be personalized. They'd like to see more use of smart cards, because that could help them hang onto customers.
"Because of their multiple application capabilities, smart cards have the ability to change the relationship with card members," said Elizabeth Tse. She's a senior vice president at San Francisco-based Providian Financial Corp. (PVN), which has issued 3 million Smart Visa cards.
Where will smart cards fit in stateside? They're starting to be used as a convenient form of payment — for monthly subway passes, for instance. And banks think smart cards will help lure credit card clients. They provide extra services, such as boosting boost security in face-to-face and online transactions.
A single credit card with a smart card chip inside — that is, a smart card — could serve many purposes. It would do more than act just as a credit card; it might double as a grocer's frequent-shopper card, eliminating the need for a second card.
Or it could be directly loaded with a 20%-off coupon from a store.
The American Express Co. (AXP) Blue credit card is among the highest-profile smart card efforts in the U.S. "It was absolutely a phenomenal success," said Paul Beverly, a vice president at smart-card maker SchlumbergerSema, in New York.
AmEx shipped well over 5 million cards in its first year, Beverly notes. "For card issuers, that's big time." The industry sent consumers 5 billion credit card solicitations last year, he says.
Services And Safety
Card issuers compete fiercely for customers. So it's in their interest to have cards that stand out. And smart cards may be just the ticket.
"Some of the leading banks are thinking about differentiation," said Toni Merschen, a senior vice president at Purchase, N.Y.-based MasterCard International Inc. "You can pick cards that support multiple applications, such as a loyalty program or an electronic purse."
About 100 million MasterCard smart cards were in circulation as of Jan. 1.
Customers like the extra services of smart cards. Merchants and card issuers like the safety.
"For debit or credit cards based on a chip, the major driver is fighting fraud and reducing communications costs," Merschen said. "You can do a secure offline transaction in areas where communications are expensive or nonexistent."
Because financial data are stored securely on smart cards, merchants don't have to dial in for card approval as with traditional credit cards.
Smart cards have caught on in some parts of the world for those reasons. In the U.S., existing anti-fraud programs and cheap phone rates reduced the need for smart cards. But they are emerging.
The Defense Department uses advanced smart cards to verify identity of workers. They use the cards as ID badges and as computer and building access passes. Maker SchlumbergerSema had supplied 1 million by June.
These Defense Department cards use the Java programming language and have cryptographic applications. High-end smart cards also are used in some mobile phones that adhere to the GSM transmission standard used in most of the world.
GSM phones have been made to work easily with smart cards. But the U.S. uses a hodgepodge of wireless standards. Besides GSM, they include CDMA and TDMA.
Mobile phones that can use smart cards can do more things. For example, roaming — seamlessly switching from one network to another — is much easier, says Beverly. "And there are many other applications, like doing a horoscope check or mobile commerce payment," he said.
The credit industry is experimenting to find smart card applications with the most appeal.
"One of the problems in the U.S. market has been that most of the cards issued over the last couple years are geared toward usage on the Internet," said Merschen. In that case, she says, users need a smart card reader, an appliance that attaches to their PC.
Portable Card Reader
MasterCard is working on a project with Burlington, Mass.-based Caradas Inc. that gets around that problem.
Instead of a reader that plugs into a PC to verify identity in transactions, Caradas uses a portable card reader. So people can use their smart card securely while out shopping.
Caradas President Charlie Walton predicts smart cards will make an impression on consumers within a couple of years.
"The deployed base of smart cards in the U.S. — between MasterCard, Visa, the Defense Department and American Express — you're going to have just north of 20 million cards by the end of this year," he said. "When you compare where analysts thought we'd be at this point, it's far north of where they estimated." |
