Sell Something Smarter Than the Average Card

As this high-tech product gains popularity, distributors may be able to find a new profit stream.

Did you know that smart cards are experiencing a significant surge in popularity within the United States? In past issues, BFL&S has discussed how these cards have gained so much notoriety in Europe, but not so much in the U.S.

Because of differences in existing technology, these smarter-than-average products experienced a fairly slow start here in the states. But it seems the tables are turning in favor of smart cards as more companies are willing to invest in the intelligence, security and convenience they provide.

In fact, according to Card Technology Magazine, Chicago, 400,000 transit smart cards were ordered for the San Francisco Bay Area TransLink Project last month. The contract included a purchase of $8 million in card-reading equipment and $1.6 million in chip cards, which can be used by riders on buses, trains and ferries.

In addition, the magazine reported that the University of Pittsburgh Medical Center plans to store personal and insurance data on smart cards for patient and doctor use. A recent test found that the cards will cut patient registration time from 10 minutes to six. They are also being touted as a cost-effective way to improve access to patient data while complying with the Health Insurance Portability and Accounting Act.

Donald Davis, editor and associate publisher, explained that smart card use is becoming very popular, especially in the mass transit and government markets.

"The department of defense is issuing upwards of four million smart cards to civilian and military personnel," said Davis. "And the Treasury and State Departments are using smart cards embedded with chips carrying secret codes for computer and building log-ins."

While larger corporations like Microsoft and Boeing—companies very concerned with security—are using this advanced technology, Davis pointed out that mass transit companies are a hot spot for smart cards these days. "Huge growth in mass transit use is occurring in Washington, D.C., Chicago and San Francisco," he said.

Because theses types of cards operate on radio frequency, commuters simply wave the pre-paid card past a turnstyle and whisk right through.

"It all happens very fast and an added cost benefit to transit authorities is that maintenance is minimal since there are no moving parts for the card to slide through."

What other markets are prime for this product? According to Randy Vanderhoof, executive director of the Smart Card Alliance, Princeton Junction, N.J., the retail royalty, campus, financial and mobile phone markets prefer cards with a little smarts.

And, in what capacity are they used? As secure I.D. credentials, embedded technology in cell phones, frequent shopper/loyalty point cards and as ID cards for cafeteria use on college or corporate campuses.

"Smart cards are programmable and can contain a memory of about 64 kilobytes," said Vanderhoof. "This is an exponentially larger amount of data than the magnetic stripe card, which holds about 200 bytes, and smart cards can actually execute programs."

The Cost Disadvantage

Probably the only element holding back sales of smart cards is cost, according to Davis. For instance, a mass transit company may pay 5 to 10 cents for a magnetic stripe card, but will have to pay $3 to $5 for a smart card. "This is quite a big difference," said Davis. "But, at least for those in mass transit, it pays off in the long run."

Despite the higher prices, Vanderhoof said that smart card shipments have been growing 20 percent to 30 percent since 1999, with a total of about 150 million being shipped to the Canadian and U.S. marketplace.

So, how can distributors get in on this thriving business? According to Neville Pattinson, director of business development & technology, IT & public Sector for Schlumberger Smart Cards & Terminals, Austin, Texas, there are a few areas of opportunity to consider.

"I would say that the market to print smart cards is emerging [rapidly] and people will want and need services that print and electronically program them," he said.

He continued by explaining that all the systems relating to banking, mobile telephony and communications, rely on an issuer of the card, whereby that issuer is the body responsible for getting the card to consumers. "You have a situation where issuers need to take the cards they get from manufacturers and distribute them to the end-user who may need to outsource that work," Pattinson said.

He added that there are companies today that take volumes of cards from manufacturers and gather batch information from the issuer in order to generate personalized cards in mailers.

Smart Advantages

In terms of comparing smart cards to magnetic stripe cards, Pattinson reported that security is by far one of the biggest benefits smart cards have to offer. "Magnetics are easily affordable and can duplicate and reprogram with great ease, but a system relying on them is susceptible to fraud," he said.

In some cases theft and fraud might not be significant issues, but in those situations where they are, then it is worthwhile to invest in smart cards.

In addition to adding a great deal of security, Pattinson noted that, more importantly, smart cards can be used in more than one situation. "Smart card technology can take on multiple applications," said Pattinson. "For instance, they can be used for cafeteria purchases and physical access at a large corporation," he ex-plained.

"That becomes a better business case, since two problems can be solved with one card."

By Sharon R. Cole