Industry Corner: Smart Cards for an Information-Hungry World

By Hester, Edward D.; Joseph, W. Benoy | Business Economics, January 1998 | Go to article overview

Industry Corner: Smart Cards for an Information-Hungry World


Hester, Edward D., Joseph, W. Benoy, Business Economics


Smart cards combine microprocessor technology and credit-card portability to provide a wide range of information storage and processing capabilities in a bewildering range of applications -- from prepaid cards for telephone and mass-transit charges to data-intensive security ID cards. Although the United States has been a cautious adopter, it is beginning to switch to this innovative technology. Europe is ahead in converting to smart cards. The industry, which encompasses the manufacture of computer and data-handling equipment, microprocessors, I/O devices, and software as well as support services, is global. World markets are projected to exceed $2 billion by 2001.

A skier approaches a ski-lift line wearing a special wristwatch and the turnstile magically opens; lift fees are electronically deducted. A commuter in Seoul, South Korea, passes a transit card in front of a scanner before and after riding the subway to pay for the ride electronically. Emergency paramedics in Frankfurt, Germany, scan a cardiac patient's ID card to get a full medical history before administering critical life-saving medicines. A Japanese salesman uses a prepaid telephone card to call the home office from Paris; the cost of the call is deducted electronically.

The barriers traditionally present in completing a simple transaction (carrying sufficient cash or change, writing checks that will be accepted by the vendor, carrying financial or medical information) not only irritate and frustrate customers but also hurt institutional and commercial sellers or partners in that transaction. When barriers are removed, consumers can consume and sellers can sell, and the transaction can be completed painlessly. Today, "smart cards" promise a new frontier of cash-less, check-less, paperless transactions that can revolutionize daily life in a multitude of settings from the most critical (e.g., medical care; security access) to the most mundane (e.g., riding a bus).

Smart cards are defined as credit card-shaped devices incorporating an integrated circuit chip (memory, microprocessor, application-specific, etc.), although they can also take the form of tokens, keys, and non-credit card-shaped card-type devices. Smart cards allow very detailed storage of personal ID, account status and other information and can be reprogrammed as the information changes. Along with higher storage and inherently superior information processing capability, a principal advantage of smart cards vs. magnetic stripe-based alternatives is a much greater resistance to altering or counterfeiting. Not a new technology by any means, the origins of the smart card date back to the late 1960s, with the first patents issued in 1974.

Although smart cards have found extensive utilization in Western Europe and elsewhere during the past two decades or so, they have achieved only minimal penetration to date in the United States. Moreover, most of the use that has occurred in the United States has taken the form of experimental, test marketing and prototyping programs. The principal barrier to larger-scale commercialization of smart card technology in the United States has been the substantial costs that would be involved in converting -- or retrofitting -- the country's existing transaction processing infrastruc to accept them. The present system, which has on balance worked relatively well for most concerned parties, is based predominantly upon magnetic stripe identification backed up by on-line verification and security through the country's highly sophisticated telecommunications network.

A number of products are required or utilized in smart card systems and networks, the most visible of which are the card itself and the reader/acceptor device into which the card is inserted. The microchip assembly embedded into the card is also of obvious importance, as this is the defining aspect of smart-card technology. Other hardware-based products include terminal housings, separately-sold input/output equipment (keyboards, printers, etc. …

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Industry Corner: Smart Cards for an Information-Hungry World
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