Are Smart Credit Cards Really Smart?

American Express entered the 21st Century by putting a computer chip on its new Blue Card, looking high-tech and positioning itself as a tool for more secure online shopping. It issued over 2 million cards in the first 14 months. A number of the banks in the Visa network will issue over 7 million cards with "smart chips" in them this year. And Mastercard will enter into the competition with its own smart card.

But beyond looking really cool, what else do smart cards do? Not much, according to a commentary by Saul Hansell, published this week in the New York Times.

Mr. Hansell points out that in contrast to Europe, where smart cards have been in place for over 10 years to fight fraud and reduce telecommunication costs, there's really nothing yet that a consumer can do with a smart card here in the United States.

Can smart cards be used for electronic cash? There are experiments with other companies in other parts of the world, but the idea hasn't taken off here in the US.

What about using them for wireless phones? Great, if you're in Europe or Asia - but not in the U.S.

Then it's only for added security for Internet shopping? Well, yes, if you're among the six of every 1000 Blue card holders who have used the smart card reader technology to shop the Internet.

So are smart cards anything more than just a status symbol, as Mr. Hansell suggests?

Credit card companies are beginning to worry that customers will eventually notice that the future they have been promising has never arrived. And so they are now scrambling to find useful things to do with the chips that are already in millions of wallets.

What are the possible uses? Electronic coupons that can be downloaded from the company web site and stored onto a credit card is one option, as are discounts and rewards programs that stores could put on the cards.

"Right now, there isn't a lot of utility associated with the cards," said Carl F. Pascarella, president of Visa U.S.A. "We have to look for ways to justify the chip and create a consumer-value proposition in the marketplace."

"We can't tell if there will be enough momentum to make this a success or whether it will be another fad," says Shailesh Mehta, CEO of Providian Financial. "The downside is manageable for us, and the upside is interesting."


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