Suddenly, smart cards -- credit cards embedded with tiny computer chips -- are everywhere. American Express put a chip on its sparkly new Blue card, and issued 2.2 million of them in just 14 months. Rushing to mimic Blue's success, Visa says at least four of its banks will issue 7 million credit cards with chips on them this year. And MasterCard says it is getting into the smart card business, too.
The cards may be smart, but so far they have been mute. In contrast to Europe, where smart cards have been used for a decade, there are hardly any ways to actually use a smart card in the US. Few stores have readers for them. Nor do most wireless phones here take the cards. The companies using them say the cards add security for shopping on the Internet, but a survey showed that only six of every 1,000 Blue card holders have actually used the chip on the Web.
So far, smart cards in the US are little more than a silicon and plastic fashion statement. Credit cards have long been marketed with insubstantial distinctions, like the rise a few years ago in "platinum" cards that differed from gold cards in little more than color. Now some bankers see smart cards as this year's platinum fad, said Michael Auriemma, president of Auriemma Consulting in Westbury, New York, only more expensive for the issuers.
"One of my clients said, at least half seriously, that he wanted to put a picture of a chip on the card," Auriemma said. "It has the same functionality and it costs US$3 less."
The credit card companies do worry that customers will eventually notice that the future they have been promising has not arrived. And so they are scrambling to find useful things to do with the chips that are already in millions of wallets.
"We have to look for ways to justify the chip and create a consumer-value proposition in the marketplace," said Carl F. Pascarella, president of Visa USA.
Thus the card companies are all experimenting with different uses for the card, like electronically storing supermarket coupons and frequent-flier rewards.
If smart cards proliferate in the US and eventually find significant uses, it will be another reminder that technology is often adopted in unpredictable ways. None of the companies that first introduced videocassette recorders, for example, predicted that their main use would be to play movies rented from corner stores.
Up to now, nearly every attempt to find sound business reasons forsmart cards here has failed.
In Europe, chips were added to cards starting in 1990 to combat fraud and to compensate for high costs of sending data. The chips are harder to forge than are traditional cards with magnetic stripes, and they can store data like how much money the cardholder has available to spend. That means they can be used in card readers that do not have to connect to a central computer for authorization.
In the US, computer networks are so fast and inexpensive that even the smallest purchase is now electronically verified by the bank that issued the card.
"In the United States, our telecommunications costs are low and our fraud rate, knock on wood, has been so low that the rationale for the chip card has never existed," Pascarella of Visa said.
In the 1990s, the card companies experimented with various electronic cash systems, notably in a trial of smart cards in 1997 in New York City. The systems allowed actual electronic cash to be loaded on to the card for use in even small-change transactions at newsstands and vending machines. Response was tepid as transactions took longer than before, and electronic cash turned out to be a novelty hardly worth the expense of such an elaborate system.
RSS