Visa USA Raises The Smart Card Stakes

<B>Visa USA Raises The Smart Card Stakes</B>

By Lynn Woods

Smart cards got a boost in the consumer world with the announcement by Visa U.S.A. that it has unveiled a chip-embedded version of its consumer credit card. So far, three issuers--First USA, Providian Financial Corp. and Fleet Boston Financial Corp.--have signed up for the card. Like the American Express Blue smart card, launched about a year ago, the Visa smart card is designed to be used with a reader attached to the cardholder's desktop PC. By inserting the card into a reader through use of a password, the user is assured of watertight security when accessing online bank statements and making purchases online because of encryption of the card number in the chip.

However, the open-platform, multi-application Visa card, whose chip contains up to 32KB of memory and uses Java technology, is designed to accommodate other features as well. "Different functions can be added to the card," said Diane Knox, senior vice president of smart card application and market development at Visa U.S.A. "Future applications can be added and deleted," giving issuers flexibility with the types of services they can offer on the card.

This should enable them to surmount two traditional barriers to adaptation of smart cards--high cost and slowness in bringing the product to market. It also allows issuers to differentiate their smart card product, Knox added.

The chip comes preloaded with three features: payment, encryption allowing for secure access, and an application for up to 36 loyalty programs, including e-coupons for instant upgrades and e-ticketing. One feature that an issuer could add on is the ability to make e-reservations, which would be linked to an airline reservation and enable the cardholder to simply feed the card into a reader at the gate, bypassing the checkin and ticketing processes.

Knox said a fully loaded Visa smart card would cost the issuer about $10. That compares with 25 to 50 cents for a magnetic stripe card and $3 for the unloaded smart card. Pricing to the cardholder would be left to the issuer, of course. Issuers will develop and provide the desktop readers as well.

Visa also plans to use the new card in a "chip payer authentication" pilot, in which users would swipe the card through a reader and type in a password to purchase a product over the Web. Since the password would be embedded in the card's chip, the pilot is designed to authenticate the identity of the cardholder, thereby eliminating fraud and confusion about disputes and charge-backs for online purchases.

Meanwhile, MasterCard expects to introduce a smart card to the U.S. consumer marketplace in the first half of next year, said Christopher Rieck, vice president of marketing communications for emerging technologies at MasterCard International. "There's a growing need for more information about transactions," he said, noting that smart cards could be used for mobile expense reporting. "The chip could store the expense on the card, down to the full-line item detail, which an employee could access while on the road," he said.

Customized data that could be stored on the card include loyalty programs, with "awards targeted to your lifestyle," he said. "The same card that has your American AAdvantage miles could also carry e-tickets, a passport, seating and meal preferences on an airline and hotel and car rental information."

Usage of smart cards is further ahead in some countries than in the United States. In France, for example, all credit and debit cards contain a chip, according to Rieck. MasterCard is working with member banks in Brazil to migrate the country's entire card base from magnetic stripe to chip technology.

The conundrum for smart card developers in the United States is how to drive up enough demand to justify the investment in readers and other infrastructure needed to create widespread usage before the fact. American Express, for example, ran a smart card pilot a couple of years ago in conjunction with Hilton Hotels and Continental Airlines to speed up or bypass the checkin process at the front desk and gate, but the usage was so limited that the effort wasn't continued. "It helped reduce the number of people standing in line," said American Express spokeswoman Melissa Abernathy. But in order for smart cards to happen in a big way, "the economic world needs to be created for travel suppliers to read the chip to process transactions better."


<B>Uncle Sam Gets Smart</B>

The biggest user of smart cards in the United States today is the federal government, which has made chip-embedded plastic a requisite of its new contracts with card suppliers. Last May, the General Services Administration awarded its $1.5 billion contract for smart access personal ID cards to five companies: PRC Inc., EDS, Maximus Inc., KPMG Consulting and Logicon. Government agencies will have the option to sign on for the GSA card or pursue their own smart-card initiatives.

According to Bob Suda, assistant commissioner of IT solutions at GSA's Federal Technology Service, the U.S. Department of Defense is buying the GSA smart card and will be issuing approximately 70,000 cards in the next few months, with several million in circulation by the end of next year. The cards mainly will function as ID cards, providing secure access to buildings and personal workstations and networks.

In contrast, 400 to 500 Visa smart cards that have been issued at the GSA's Federal Technology Service have enhanced functionality. Along with providing access to secure workplaces and workstations, the combination T&E and purchasing card stores the user's calling card information and American Aadvantage-member data that allows the cardholder to bypass checkin at the gate when boarding American flights.

Suda said in a few months the card, which is issued by Citibank, will be upgraded to include storage of information pertaining to personal property, including cell phones, computers and Palms. The group also is interested in adding e-purchase capabilities to the card.

The recently awarded contract by Sun Microsystems to Citigroup for 50,000 chip cards shows that the corporate world is beginning to catch on. The cards, which will begin shipping next year will function as a "global employee badge," said Toni Merschen, vice president and director of chip card and access technologies at Citigroup.

The chip-embedded card will provide workstation access, a digital signature, encryption of e-mail and building access. "Employees can enter the building by swinging the card by a turnstile reader--they won't have to take the card out of their wallet," Merschen said.