Just how smart are smart cards?

By the Year 2001, 3.5 billion smart cards will be in use worldwide, including 1.6 billion in Europe alone - at least according to recent estimates by Datamonitor, an independent strategic management consulting firm based in New York. The firm predicts that smart cards for financial services applications will become one of the most important vertical markets in higher-powered smart cards in the United States, second only to phone cards.

Like credit and debit cards in size only, smart cards use powerful microchips that allow them to check debit information, track expenses and purchases, and pay bills via electronic funds transfer. Eventually, more-advanced and costlier cards will be able to hold health and personal-identification information, such as data on an insurance carrier, social security number and driver's license. And the next generation of cards, already being developed by Motorola, will be credit card-sized "microcomputers" that offer complete compatibility with other electronic devices. For example, a user will be able to send an e-mail or book a travel ticket from terminals located in airports and train stations.

Not surprisingly, Datamonitor reports the growth in the use of smart cards for financial services has been restricted by concerns over data privacy, reluctance to stop using cash standards and the cost of converting existing terminals for magnetic-stripe cards. However, banks and international card issuers - like Visa Europay and Mastercard International, which have committed to adopting smart-card technology - will drive usage and remove most of the existing problems, the study projects.

"Widespread conversion of consumers to using smart cards for applications such as electronic purse - or electronic cash transactions - will be steady," says Geoffrey Doggart, a Datamonitor business analyst. "Banks and transaction processors are in a good position, because they possess the necessary data processing and statistical analysis tools to market the new application successfully, while using smart cards to strengthen the bank/customer relationship."

At the forefront of the technology, Hamilton Standard recognizes the value of smart cards for corporations. The Connecticut-based aerospace manufacturer is in the throes of a smart-cards trial with Chase...