Smart Cards
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After a decade of slumber, the U.S. smart card business began to catch up to its European and Asian industry counterparts in the 2000s with everyone from Microsoft Corp. to American Express Co. to the Washington, D.C. subway system getting in on the action. While smart cards—credit-card-like devices containing integrated circuits for memory and processing power—have been the rage in Europe and Asia, introducing them in the United States had been slow and arduous. However, American Express led the way when it put marketing muscle behind its new Blue smart card, and Visa, MasterCard, and others outside the financial industry began to follow suit in the early 2000s. By the mid-2000s, increased sophistication in technology produced an ever-expanding realm of possible uses, keeping the industry competitive and dynamic.
A smart card is a device that contains a microprocessor chip capable of storing large amounts of memory. Smart cards resemble and are usually the same size as credit cards. They are used for an increasingly diverse realm of applications, including financial transactions, security and identification purposes, retail purchasing, telephone accounts, the storing and maintenance of medical and other records, and for a variety of other purposes. Smart cards continue to replace their older magnetic stripe counterparts, which are more susceptible to hacking, counterfeiting, and fraudulent use, and hold only a fraction of the information found on smart cards.
Perhaps their ultimate power lies in the ability of one smart card to support multiple applications. Students at certain universities, for instance, can use a single card to gain access to areas of campus that are restricted to outsiders, to access library records and grade information, and to check on their financial accounts, not only at the tuition office but even at the student cafeteria. While multiple use cards offer myriad opportunities, they are difficult to implement outside contained environments such as a university or office campus. They require an infrastructure shared among all the supporting vendors and systems. The cafeteria, bookstore, and registrar all have to use compatible systems. But in coming years, many of these problems are likely to dissolve as network integration and connectivity increase.
Some analysts believe that shifting to a smart card economy would carry a cumulative price tag of $12 billion. Such costs would be borne mostly by industry unless companies find ways to make consumers willing to pay for the otherwise free plastic they tote in their wallets. Companies wishing to adopt smart cards must also contend with scant consumer awareness and, as a result, limited interest thus far.
The market is primarily dominated by two types of cards.
Less expensive memory chip cards are mainly used for the prepaid market—phone cards, copier and printing charges, mass transit fares, etc. Memory cards store and deduct value as the card is used. A simple cash card or the telephone cards popular in Europe and East Asia are specific examples of memory cards.
The global market for the more sophisticated microprocessor chip cards, generally known as SIM (subscriber identity module) cards, began to grow at an unexpectedly rapid rate starting in 2003, as new applications began to emerge. These "intelligent" cards can perform complex functions and have the capacity to both read and write. Examples of intelligent cards are medical records cards that contain patients' vital statistics, prescription and allergy information, and medical histories. Some cards also include a digital image of the holder for identification.
Smart cards initially had three discrete functions: acting as electronic purses, as replacements for magnetic stripe technology, and as value transfer cards. The electronic purse function refers to systems designed to replace cash and coin with electronic credit. As a replacement for magnetic stripe technology, smart cards were designed to replace credit and debit cards and provide superior security. And as value transfer cards, smart cards were designed to serve phone cards, copy cards, and so forth, where users transfer cash value to the computer chip cards. Newer cards also support multiple applications, but include applications well beyond these three.
There is also a variety of marketing applications for smart cards, including customer loyalty programs, in which the cardholder accrues points toward a gift from the issuer. An example is frequent flyer miles earned toward a free plane ticket. Sometimes smart cards themselves become the commodity, as with card collecting, a booming side industry. Banks and other card-issuing institutions ultimately benefit from such unused cards. A five-dollar card issued by NYNEX during the 1992 Democratic National Convention in New York City, for example, was valued at $2,500 five years later.
In 2001, two principal industry-related organizations merged to form the New York-based Smart Card Alliance (SCA). They were previously known as the Smart Card Forum (SCF) and the Smart Card Industrial Association (SCIA). The Smart Card Forum had promoted public policy initiatives in support of smart cards and worked to develop both cooperation and competition among members of the industry. The Smart Card Industrial Association (SCIA) was formed in 1989 and included manufacturers, integrators, resellers, users, issuers, consultants, and nonprofit and educational institutions involved in some aspect of the smart card industry. It sponsored CardTech/SecurTech, a conference for members of the advanced card and security technology industries; kept members and the public informed about developments within the industry; published a newsletter, Smart Link; and educated the public about the developing smart card industry. The SCIA also provided links to principal financial card-issuing associations—Europay, MasterCard, and Visa—at its online Web site. In order to kick start sales in the laggard North American market, these two industry organizations joined together in 2000 to launch a $500,000 promotional effort in the United States and Canada over the following two years, primarily pitching the cards as a means for securing Internet transactions.
The International Smart Cards Associations Network is a global alliance allowing groups throughout the world to benefit by research conducted in other countries. It plans to organize meetings in conjunction with the biggest industry conferences, namely CardTech/SecurTech in the U.S. and Cartes in Paris.
A key element in the development of the smart card was the microchip, which was invented by Texas Instruments Inc. engineer Jack Kilby and Fairchild Semiconductor Corp. engineer Robert N. Noyce in 1959. Until that time, there was a direct relationship between a computer's size and its power. When, in 1971, Intel Corp. scientist Ted Hoff created a tiny silicon chip capable of holding as much memory as ENIAC, an early computer that weighed 18 tons, it was clear that the information industry was about to undergo monumental change. Three years later, in 1974, Frenchman Roland Moreno conceived the idea of marrying chip technology with a credit-card-sized device, and the smart card was born. When in 1980 Arlen R. Lessin, an American, learned about the smart card, which was then virtually unknown in North America, he said, "I knew the moment I saw the card demonstrated that it would revolutionize the way we conduct both our business and personal lives." Lessin obtained the rights from Moreno to market the card in the United States and he founded the first U.S. company in the industry, SmartCard International, Inc.
Smart card technology spawned a demand for computer chips capable of fitting inside a card and undergoing the same wear and tear as magnetic stripe cards. In Europe, this technology was developing in the late 1970s and early 1980s as U.S. banks were just beginning to adopt the magnetic swipe card and as automated...
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