For years, promoters of smart cards have promised that their products are on the cusp of widespread acceptance in the U.S. The benefits, they've said, are too many to ignore: the cards are more secure than regular credit cards, they can store large amounts of data such as passwords and personal information, and of course, Europeans love them, so Americans will, too.
Despite the sales pitch, the promise of smart cards in America hasn't been realized.
But moves by a pair of America's biggest corporations may indicate that smart cards - credit cards with an imbedded integrated circuit - are starting to turn the corner. And demand for the cards is being helped by the need for better security and authenticated digital documents.
In late June, Compaq Computer announced that it will begin putting smart card readers on its Presario desktop computers. The move, coordinated with FleetBoston Financial, Luxembourg-based card maker Gemplus and Visa International, will allow online shoppers to have a higher level of security than with ordinary devices. Although Compaq won't say how many machines will be equipped with the card readers, spokesman David Albritton said it is in the "hundreds of thousands of units." Compaq, he said is "very bullish on smart card technology and we want to incorporate it into American consumers' lifestyle. It makes sense for the PC. It helps allay the fears of consumers regarding online shopping."
About the same time of Compaq's announcement, Target, America's fourth-largest general merchandise retailer, announced that it will begin issuing Target-branded Visa smart cards to its customers. The retailer currently has six million users of its Guest credit card, which offers participants a rebate on their purchases. Early adopters of Target's smart card will be able to obtain free card readers for their personal computers that can then be used to access account information on the Internet. By late next year, Target plans to have smart card readers installed at more than 30,000 registers in nearly 1,000 of its stores.
Invented in France two decades ago, smart cards are ubiquitous in Europe. Visa estimates that more than 40 million are in use in Britain and France alone. By comparison, Americans have about four million of the chip-based cards in their wallets. And that number appears even smaller when compared to the billion-plus old-fashioned magnetic-stripe payment cards now in use. Nevertheless, smart card makers are confident that the American market will adopt the technology. Officials at Schlumberger, the oilfield services giant and smart card provider, have estimated that the U.S. smart card market will grow 55 percent per year over the next several years, twice the rate of global smart card growth.
Consulting firm Frost & Sullivan has predicted that global smart card production will more than double, to about five billion units by 2004. Much of that demand will likely come from the Chinese government, which has announced it wants to distribute a smart card to each of the 1.26 billion Chinese citizens. The new identification cards will replace plastic coated identification cards that are easily counterfeited.
America's reluctance to embrace smart cards has little to do with the cards' capabilities. Instead, it's largely due to the high quality and low cost of the domestic phone system. In Europe, phone calls have historically been expensive. Rather than use the phone to verify the authenticity of a credit card - as most retailers in the U.S. do - European retailers rely on the imbedded security of the smart card to reduce fraud.
Changing the credit card infrastructure in the U.S. to allow them to read smart cards will be expensive. Frost & Sullivan estimates that deploying readers and other infrastructure could cost between $3 billion and $12 billion. "The infrastructure problem has to be overcome," said Gilles Lisimaque, senior vice president and co-founder of Gemplus. (Individuals who want to buy their own smart card reader for their PC will have to shell out about $20.)
In addition to the cost of new infrastructure, the U.S. has not settled on a standard format. American Express was the first to introduce smart cards in the U.S. with its Blue card. And while there are now 2.2 million Blue cards in use, they are not compatible with the Europay-MasterCard-Visa (EMV) standard. That standard is being backed by the three U.S. banks (First USA, a division of Bank One, FleetBoston and Providian Financial) now promoting Visa's smart cards, and is expected to be the predominant standard in the U.S. The reader to be installed in the Compaq Presarios will read EMV cards, but not American Express' Blue cards.
Smart cards are also getting a boost from the increased interest in public key infrastructure and digital signatures. The European Union is currently developing rules on digital signatures and financial standards that support - but don't require - the use of smart cards. Those digital signatures can be made more secure, and more portable, by smart cards, said Keri DeWitt a senior product manager of VeriSign.
Lisimaque of Gemplus said that smart cards are a good addition to public key infrastructure, the much-talked about security initiative that will allow individuals to send and receive sensitive documents over the Internet. Smart cards allow consumers to have a portable, secure credential that can be used with PKI, said Lisimaque. They "make the PKI infrastructure more workable and secure," he said.
While the attributes of smart cards can't be argued, widespread adoption of the cards is still years away. Robert McKinley, CEO of CardWeb.com, a firm that tracks the payment card industry, said the announcements by Target and Compaq, coupled with lower prices for smart cards will speed the adoption, but more retailers, and lots more card readers will have to be installed. "There's a lot of momentum that's building," said McKinley. "But we are still probably three to five years away from them being in common usage."