Carry cash united

The end of cash and carry

Imagine that the next time you take a business trip you are equipped with a multipurpose smart card. You arrive at the airport and purchase a paperless ticket by inserting the card into a special reading device at the gate. Besides paying the fare, the card registers the distance of the upcoming flight and notifies you that you have enough miles under your frequent-flier program to ask for an upgrade to business class. When you arrive at your destination, a similar smart-card reader awaits you at the hotel to help you check in. The card also remembers how often you've stayed at the hotel and what kind of accommodations you like. It then serves as the secure key to your room.

Under a multimillion-dollar pilot program, jointly sponsored by American Express, Hilton Hotels, American Airlines, and IBM, travelers are beginning to do all that--and more. The program is one of numerous smart-card experiments currently underway in the United States. Over time, smart cards may replace cash as the means by which Americans make many of their payments and purchases. Using either digital cellular telephones or a new generation of computers equipped with card readers, individuals may soon be able to download money from their bank accounts directly onto the cards. With greater security features than normal credit cards, smart cards may help spur commerce on the World Wide Web. "The Internet is the reason smart cards will succeed," said Taher Elgamal, research scientist at Netscape.

Unlike traditional credit and debit cards, smart cards come with a thumbnail-size computer chip embedded in the plastic. These microprocessors can store thousands of times more information than conventional credit cards backed with magnetic strips. In theory, a single smart card could replace a fistful of credit and debit cards, serve as a driver's license, store a person's medical history, feed a parking meter, and function as a tamperproof personal ID encoded with an individual's fingerprint.

A high-profile test of consumer acceptance of smart cards as a substitute for cash has been taking place on Manhattan's Upper West Side since the beginning of October. Citibank and Chase Manhattan, in conjunction with Visa and MasterCard, have provided some 50,000 customers with cards that can download cybercash from automatic teller machines. The cards can be used to buy goods at over 500 local stores--from bagels at Zabar's deli to Whoppers at Burger King--that have been equipped with smart-card readers.

So far, New Yorkers have been slow to embrace the cards, though reloadable fare cards as a replacement for tokens on the city's subways and buses have proved to be a big hit over the past year. West Side residents, however, appear to be waiting until more merchants accept them. Store owners, for their part, are wary about shelling out several hundred dollars for card readers until more people start using the cards. This chicken-and-egg problem is likely to hamper the spread of smart cards at the retail level in the short run. "It may take a decade or longer before smart cards become a viable substitute for cash," says David Weir, an analyst who follows smart-card issues for Forrester Research, a Cambridge, Mass., consulting firm. Still, U.S. sales of smart cards are expected to approach 600 million in 2000, up from only 15 million last year.

The most likely way many Americans will soon encounter smart cards is in the workplace. This year, for example, sailors at a handful of U.S. naval bases, from Pensacola to Pearl Harbor, began using smart cards as dog tags that store an individual's name, rank, and serial number, and will eventually include his or her full military career history. They're also being used to gain access to barracks and other facilities and to sign in for meals.

When it comes to smart cards, however, Americans are technological laggards. A Frenchman, Marc Lassus, invented chip-enabled cards 20 years ago. Today, the cards are commonplace in Europe and are nearly ubiquitous in France, where they've replaced coins in everything from telephones to washing machines. Starting next year, the French government will require that all families be issued medical smart cards to navigate the country's national health care system.

Get smart. In 1995, only 2 percent of the smart cards shipped went to the United States, while 90 percent went to Europe, and the rest to Asia and Latin America. With a little help from the government, America may soon pick up the slack. The Clinton administration has a policy to promote electronic transactions, including smart cards, as a way to reduce government paperwork and to deliver services more efficiently. Within two years, all federal employees are supposed to have smart cards to keep track of travel expenses and gain access to federal facilities.

Some states are already utilizing chip-enabled cards. Under a program recently launched in Ohio, for example, state-aid recipients are using smart cards instead of food stamps to buy groceries. The program is intended to curtail fraud and reduce paperwork and record keeping. Ohio plans to extend the program next year to include welfare recipients.

In the private sector, what's really fueling increased interest in smart cards is their potential as a secure and easy payments system on the Internet. Because they can be encrypted to become virtually tamperproof, chip-enhanced plastic cards may indeed prove to be the catalyst that kicks online purchases on the Internet into high gear.

Already, Hewlett-Packard has begun manufacturing personal computers that come with smart-card readers. Within two years, most new computers are expected to be sold with such readers as standard equipment, just as they now come with CD-ROMs. The latest Internet browsers introduced by both Microsoft and Netscape also come programmed for smart-card applications. "What's really needed to kick smart cards off in the United States is for some killer application like Internet banking," says Irwin Pfister, who heads the new tests and transactions division at Schlumberger. Known for its pre-eminence in oil-drilling services, the New York- and Paris-based Schlumberger is making a multibillion-dollar investment in the hope of becoming the world's top player in smart-card technology and manufacturing. Other corporations--from Visa and MasterCard to Motorola, General Electric, and AT&T--are also placing bets on the future success of smart cards. It's hard to know which firms will succeed in the long run. More certain is that within a few years, more Americans will be carrying around a computer chip on their plastic.