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Smart cards: Technological wallflowers

Smart cards just aren't popular in the United States. But experts say it's not because they don't work.

It's not the technology's fault that there's no place to use smart cards.

That's the conclusion of smart card vendors and analysts. They say smart cards are critical for the development of a pervasive electronic economy and that the technology itself works fine. The challenge is to give users somewhere to use the cards, such as desktop PCs, telephones, or "cashless ATMs."

"From a technology point of view, we are very close. From an infrastructure point of view, there's work," explained Tom Lebsack, director of marketing and business development at Schlumberger (SLB), a leading smart card vendor. "The calendar is still difficult to determine."

Manufacturers are poised to take up the challenge.

Hewlett-Packard (HPW) has announced it will release Vectras with smart card readers in the fall. Its new Verifone subsidiary is also promoting battery-powered, portable smart card readers for the home.

"Our dream is to take the hardware and license it so it is integrated into PC keyboards or into TV set-top boxes or cellular phones," said Verifone CEO Hatim Tyajbi. He predicts that smart cards will be used everywhere within seven years. "In many cases, we have agreements today."

Smart cards come in two varieties, explained Lebsack. Memory cards hold a small amount of data, such as a dollar amount or number of minutes of phone time. Most telephone cards or debit cards are types of memory cards.

True smart cards, on the other hand, contain information about the user such as personal identification, credit card numbers, bank account numbers, or health and allergy information.

These more complex cards cost the issuers $1 or more, as compared to 25 or 50 cents for simple magnetic stripe cards.

Smart card readers cost anywhere from $55 on the high end to less than $10, said Lebsack. "Readers are going to get loaded in a number of devices. Devices that attach to PCs, phones," said Sam May, an analyst at Pacific Growth Equities.

Intellect Electronics, the U.S. subsidiary of Intellect Holdings Ltd. of Australia, makes "cashless ATMs" for loading cash from bank accounts onto smart cards, said Intellect president Thomas Ream.

No matter what they develop, however, hardware makers will still have to overcom simple inertia and cultural resistance to the new technology. Smart cards are big in France, for example, but that doesn't make them popular in the United States.

"ATMs were out 20 years before they were prevalent," said Scott Wu, a vice president at San Francisco's Montgomery Securities. At a recent trade show, Wu said that there were close to 500 hardware vendors touting wares for the smart card market. The main question in his mind, however: "Where's the market? Right now, it's virtually non-existent."

Wu and others said one of the first major pilots to determine whether customers will go for smart cards will come this October when Visa and Mondex International--which is partially owned by Mastercard--conduct a trial with Chase Manhattan (CMB). Chase will issue 50,000 cards.

The government may also start testing smart cards. Certain agencies, for example, are conducting trials for their food stamp programs, according to Lebsack.

Tim Clark contributed to this report