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Smart cards headed home

Aiming to make smart cards ubiquitous technology, VeriFone unveils a strategy to place smart card readers into consumers' homes.

In a move aimed at making smart cards ubiquitous technology, VeriFone (VFI) today unveiled an ambitious strategy to encourage consumers to use the cards for everyday purchases.

VeriFone, which dominates the world market for credit card terminals on retail countertops, will make a smart card reader for the home and is promoting its software-based VeriSmart system to enable widespread use of smart cards. The move will be implemented by Verifone's consumer division and is part of its broader Internet strategy, launched last year, which is designed to move its point-of-purchase payment hegemony of the physical world onto the Net.

"As the market moves to the consumer, we move with it," said C. Lloyd Mahaffey, VeriFone's vice president of global marketing.

VeriSmart software is designed to link consumers to their banks, phone and power utilities, retail merchants, and other vendors via smart cards. Smart cards, which resemble a standard credit card in size and appearance, have an embedded microprocessor that can be used to store money, carry personal medical data, track usage of a vendor, or perform calculations.

VeriFone outlined its strategy today in Orlando, Florida, at the American Bankers Association, an industry gathering that will be attended by VeriFone customers.

VeriFone's smart card reader, called a "Personal ATM," will be marketed by banks to their customers. The Personal ATM, a countertop device about the size of a hand, lets consumers use a phone line to download money into a smart card in their homes.

VeriFone partners, including GTE, Hewlett-Packard, and TV set-top box maker Scientific Atlanta, will produce smart card readers in computer keyboards, cellular phones, smart telephones, and cable TV boxes.

The company has also announced a deal with the world's largest keyboard maker, Key Tronic, to build smart card reader-enabled keyboards. Key Tronic said that in the next few months it will begin developing standard Windows 95-compatible keyboards with smart card readers integrated into the side or the back of the keyboard. Users will plug the cards into the reader while performing online bank transactions and other services.

Despite its Personal ATM hardware, VeriFone's overall strategy is based on its VeriSmart software that can handle a variety of smart card readers and card schemes. VeriFone executives say its software can work with any of the 35 different smart card schemes available today.

"This is the first technology that is card-scheme and hardware-device independent," VeriFone Chairman and CEO Hatim Tyabji said in a statement. In addition to the consumer smart card device, VeriSmart includes Java-based client-server software and a menu of support services from VeriSign to help banks and other customers market and deploy the devices.

VeriFone is betting on smart cards despite consumer ambivalence in the United States. Smart cards are more widely used in Europe.

But the company sees opportunity in a Federal Reserve Board finding that 87 percent of U.S. consumer purchases are for under $20 and made with cash. VeriFone strategists hope to snare a piece of that market for smart cards. Consumers are expected to pay about $4 a month to lease the Personal ATMs.

In addition to consumers willing to use smart cards, VeriFone's success hinges on merchants' willingness to accept them as payment. The company hopes its minimum order of 100,000 Personal ATMs for a bank will create a critical mass in targeted communities among both consumers and retailers.

Another potential stumbling block of technology's acceptance of smart cards is an announcement last week from researchers both at Bellcore, the research lab of the seven Baby Bells, and elsewhere, of discoveries that high-tech counterfeiters might be able to load money onto smart cards fraudulently, a fear certain to spook skittish bankers.

VeriFone's initial customers represent both traditional banking allies like Wells Fargo Bank, payment processors, including Sears Payment Systems, and credit card firms such as American Express. Health insurer Blue Cross Blue Shield of Massachusetts has signed on, as has phone company GTE. VeriFone says future customers will use smart cards for loyalty programs, such as airline frequent flyer plans.