`Smart' Cards Give Another Way to Pay

Published Monday, May 26, 1997, in the San Jose Mercury News

BY ELIZABETH WASSERMAN
Mercury News Staff Writer

Now that you're accustomed to withdrawing cash with ATM cards, paying for groceries with credit cards and filling up at the gas pump with debit cards, get ready to do it all with the same piece of plastic.

``Smart'' cards -- the marriage of silicon to plastic, computer to wallet -- are poised to enter the mass consumer conscience.

The concept of a wafer-thin silicon chip embedded in a credit card-sized piece of plastic has been around since the 1970s. And while the cards have been popular in Europe, particularly in France, where pay phones have accepted them for 20 years, most Americans have never used one. But today, the technology has been adapted to a host of new uses that may finally attract a willing market in the United States.

In their simplest form, smart cards can be used for a single purpose, such as a stored value card, which users would ``fill up'' at their ATMs and use in lieu of cash at vending machines, pay phones and merchants.

But even the most basic chip these days can store eight kilobytes of information -- the equivalent of 1,000 words of text or six or seven typed pages of information. With that much capacity, one smart card can replace several existing cards in your wallet: airline frequent flier mileage, telephone calling cards, credit cards, debit cards and even medical insurance or prescription cards.

The selling point: convenience. ``I don't have to fumble for change anymore,'' said Regina del Barco, who has been involved in a Mondex International smart card pilot project for Wells Fargo Bank employees.

But despite the promise, consumer advocates warn it's unclear whether privacy and liability protection are adequate for the cards to be something consumers should flock to. Industry officials, though, maintain the cards use encryption and authentication technologies that make them more secure than the magnetic-stripe varieties consumers carry today.

Smart card technology took a leap forward last week when an industry consortium agreed on technical standards to make the cards accepted more widely. In addition, Visa International and Bank of America announced a pilot program in San Francisco that will allow several hundred employees to make purchases over the Internet using money stored on smart cards. And this fall, a larger pilot involving Mondex (51 percent owned by MasterCard International), Visa Cash and several large banks will be conducted in New York City, involving 50,000 consumers.

Growth potential

Last week, a record crowd of 7,000 attended the industry's largest trade show, the CardTech/SecurTech conference, in Orlando, Fla. The show featured dizzying growth estimates: Siemens estimated the smart card market will grow 50 percent in the next four years, including 72 percent growth in the United States.

``Every culture and every country is going to have a different reason for using smart cards,'' said Jean McKenna, president of the Smart Card Forum and a Visa senior vice president. ``The beauty in North America is that organizations and industries are looking at chip-card technology and, because of the capacity of the chip to carry more information and protect that better, they're thinking perhaps they can add other services to the card that the consumer will need.''

Among those eyeing smart card technology are organizations, airlines, entertainment conglomerates, telephone companies, computer firms and more, who see it as a way to complement changes already under way in Internet and electronic commerce, McKenna said. The day may come, she said, when consumers can use the same card in a personal computer, cellular phone, ATM, vending machine and department store.

A key element in rolling out the cards will be what companies issue them. ``That's a valuable piece of real estate,'' said Gary Craft, electronic commerce analyst at Robertson Stephens & Co. ``We think the banks, which are very knowledgeable about issuing cards that provide access to networks, will be the issuers.''

Craft said he believes it will be the multifunction smart cards that prove attractive to U.S. consumers. He's more pessimistic about the single-function, stored-value card, such as the one Visa piloted at the Summer Olympics in Atlanta last year, because today's system for paying with cash and coins already works.

Just like coins

Others believe small purchases, of greeting cards, newspapers, bus tickets and the like, are well-suited for smart cards, particularly when the cards are used over the Internet. ``We will be the coins in the virtual world,'' said Janet Crane, president and chief executive officer of Mondex USA.

Smart cards were invented by a Frenchman, Roland Moreno, in 1974, and have since become the standard calling card and bank card in his native land. The technology has spread throughout Europe -- the Danes store value on their cards, the Germans carry cards with medical information -- and is starting to make inroads in Japan and Singapore.

But they've been slower to catch on here. About 90 percent of worldwide integrated chip-card shipments in 1995 went to Europe, while only 2 percent headed to the Americas, according to a study last year by Dataquest, the San Jose market research firm.

The main reason for wider European acceptance is higher costs of telecommunications there. In the United States, consumers and merchants have come to rely upon credit card transactions, which involve information encoded on a magnetic stripe that requires phoned-in authorization calls. Those calls are inexpensive in the United States but far more expensive for merchants in Europe.

Before the cards are widely adopted here, consumer and privacy advocates say, there need to be better protections. ``With all the problems that could arise with them being lost or stolen, there really need to be some types of limits on consumer liability,'' such as with the current $50 loss limit on credit cards, said Pam Pressley, consumer advocate for the California Public Interest Research Group.

Not quite like cash

``Companies are promoting these as being just like cash,'' she said. ``In reality, they're not. If a company goes out of business and the cards are no longer honored, how does a consumer get reimbursed?''

Privacy concerns center on the information stored, not necessarily the chip-card technology. ``What's important is what kind of information is stored on the cards, who has access to that information and under what conditions,'' said Stanton McCandlish of the Electronic Frontier Foundation.

But privacy fears don't stop there: Some fear the cards could threaten the anonymity buyers enjoy when using cash.

``Let's say you go on BART and put your smart card in the BART slot and get on,'' said Beth Givens, executive director of the Privacy Rights Clearinghouse in San Diego. ``Then let's say you want a newspaper, and you slip it into the newspaper slot. Then you go and make a telephone call. Are you leaving an electronic trail of cookie crumbs behind you when using this card for cash?''

Still, the allure of smart cards is ease. Take the experience of CardMart Greetings, which sells greeting cards via the Net and is accepting Visa smart card payments. Most of the company's cards start at $1.49 but end up costing about $3 or $4 after customers add assorted bells and whistles. ``The beauty of smart card technology is micropayments,'' Vice President Rick Weaver said. ``Instant gratification is what this is all about.''