Maybe there was some sort of an industry-wide New Year's resolution or maybe the time was just right, but I've noticed that since 1998 opened, folks in the financial sector have been out in force spinning a case for smart cards.
Visa invited several journalists last week for a briefing onthe state of smart cards in the United States, and if I'd been closer to New York, I could have caught a similar act from smart-card manufacturer Schlumberger and the Banking Industry Technology Secretariat (BITS), a new technology braintrust for big banks.
In the United States, the bottom line is that smart cards are oozing forward, to borrow an inelegant phrase from a column of 10 months ago. The pace may be picking up a bit, but Visa smart-card expert Diana Knox figures it'll take five to 10 more years before the chip-embedded cards are commonplace in America. Today, Americans tend to depend mostly on old-fashioned magnetic stripes to make their plastic purchases.
It's odd to hear the United States described in terms often reserved for third-world nations. But it's true that in this case, North America is an "emerging market," since we lag behind all of Europe and much of Asia in smart card usage.
Part of the reason, I always thought, was merchant reluctance. I've often wondered why merchants would want to accept e-cash on smart cards. The bank doesn't skim a percentage of real cash sales as it would under most smart card schemes.
But Knox counters that cash isn't free. Coopers & Lybrand did a study for the U.S. Postal Service that quantified the "handling costs" of different forms of payment. That study, being talked up by Visa, found it costs merchants 4.8 cents per dollar processed to handle cash, compared to 4 cents for checks and 2.7 cents for credit cards. Where do cash costs come from? Wrong change, getting robbed, employee pilfering.
Still, even e-cash on a smart card isn't completely safe as I once thought.
If you lose the card, you lose the e-cash. If someone else finds it, he may not be able to spend it without knowing your personal identification number (PIN), but e-cash doesn't come with a money-back guarantee from the issuer.
And getting that cash onto the card isn't cheap either. I always thought it would be simple and inexpensive to retool existing ATMs to load cash onto smart card processors. Visa says it costs $2,500 to retrofit just one ATM,and that's just for the hardware, it doesn't include smartening up the system software. The cards themselves run anywhere from 25 to 50 cents each (for disposables bought in bulk) up to $4 to $5 each for reusables.
Once you've cleared merchant's misgivings, cost, and retrofitting, who's going to use them? My guess was college students.
Half right. College campuses are using smart cards more and more, for security, e-cash, and ID purposes. But so are Army boot camps and VA hospitals. New recruits get $100 on a smart card to spend on the base instead of an envelope of $20 bills. And in veteran's hospitals, long-term patients, volunteers, and regular visitors can spend e-cash in the gift shop or cafeteria.