‘Smart Cards’ Chip In to Streamline Banking

Just as we’re all struggling to grasp the idea of debit cards and home banking, they tell us that “smart cards” are coming, moving us further toward tellerless, paperless, bankless financial transactions. A cross between personal computers and charge cards, their otherwise familiar plastic rectangle boasts a penny-sized module containing computer chips: These may have both memory and processing capabilities, allowing the consumer to carry all his financial records in his wallet, drawing on them wherever he stops.

The smart card is the direct descendant of the original number-embossed card, and of the current magnetic stripe cards that offer issuers a 39-digit “track” on which to encode information about the account-holder. Now even “the mag stripe content seems very small compared to the amount of demand on it,” says Jerome Svigals, IBM electronic banking expert. The primary account number alone uses 19 digits, and, given the multibank networks now forming so consumers can use their automated teller machine or debit cards all over the country, cards will have to carry a lot more information, identifying home region, business, issuer, customer, and account.

The new smart cards are also embossed and magnetic-striped to be compatible with older systems, but that penny-sized circle presents a number of contact points “to allow the computer chips to talk to a terminal,” says Svigals. When the card--powerless by itself--is put into a terminal, whatever information it carries can be “read” and new information can be recorded in it.

Harder to Intercept

Verification of the card-holder’s identity is the first topic of conversation, and the smart card’s biggest selling point because credit card fraud is said to cost business $500 million a year. Magnetic stripes are apparently easy to counterfeit, but few can create or copy a distinctive electronic record. As with debit and ATM cards, the customer verifies his identity by keying in a personal identification number (PIN), but the comparison takes place right in the card, or “off-line,” as bankers now say; thus, a merchant will never have to do without verification if the main computer is down.,

The off-line conversation between card and terminal is also harder to intercept, says Robert Kitchener, president of Casio Microcard, which makes one of the first smart cards to be introduced in this country. “With debit cards,” he says, “it’s difficult to keep the PIN secure. When you enter your PIN at a machine, it has to be transmitted to a central computer and the wire can be tapped.”

Given the amount of microstorage available, and the programming possibilities, the smart card could have a variety of uses, from serving as card key for access to buildings or computer systems to carrying accounts at any number of cooperating retail organizations all on the same card. It could also “access” different accounts at the same institution so the consumer could choose on the spot among checking, savings, and credit accounts, perhaps even brokerage.

Thanks to their memory function, smart cards can not only process and exchange data, but store it, “recording every transaction like an electronic check book registry,” says Kitchener. It could then be called up for view on any display terminal, including a modified home television. Moreover, “the next time the smart card is connected to the bank’s system,” says Svigals, “the bank can change or update the card, correlating the various account activity or altering credit limits.” Smart card dreamers also talk of cards tallying stock values for personal portfolios or keeping medical records.

Some smart cards have only a memory, without processing capability. Cards now in use in France and Japan, for example, are bought with an assigned value of telephone time. When the consumer makes a call, says Kitchener, he “inserts the card, and as he talks the value is stripped from the card till it’s all used up.” The advantage: no coins, no vandalism, no collection chores.

Many Aren’t Sure

The fancier transactions using smart cards still take place mostly in experimental programs, including two that MasterCard is about to conduct in this country. In Florida, Kitchener’s Casio MicroCard will be supplying 50,000 cards and 200 point-of-sale readers to First National Bank in Palm Beach, which will give the cards to MasterCard gold card-holders and the terminals to selected merchants. This is still just a test, however: If any new bank product takes five or six years for exploration and testing, and another 10 years to build up to significant usage, Svigals says, “the smart card is at about Year 1.”

Few people are even sure they want the research to go forward. Retailers might well appreciate the enhanced security, but would probably object --as they do with debit cards--to paying banks very much for a service involving relatively little bank handling or service. As with debit cards, the consumer is also an unknown quantity: No one knows if they’d show the same reluctance they initially showed with ATMs, or if ATMs have softened that resistance.

Even bank enthusiasm is not guaranteed. At current production volumes, smart cards cost between $5 and $10 apiece (though they could go below a dollar in a decade), and new terminal equipment and programming would be a huge investment. Most banks already have a large investment in their on- line systems, and even the added security, says Sanford Dreskin, B of A vice president of advanced research and development, “may not make it cost-effective to replace it all.”

They are interested, however, in what Dreskin calls the smart card’s “interactive potential, its way of providing financial information for your customer through a mobile extension, a personal private extension of the bank. The advantage is that you can bind the customer ever more closely to the fold.”