Only smartcards have the answer

Smartcards have unlimited potential and the ability to change our lives. This is not something that has escaped the attention of the world's biggest firms, and so with extensive worldwide testing underway, they look set to conquer.

'Smartcards effectively combine better customer knowledge with moreives. This is not something that has escaped the attention of the world's biggest firms, and so with extensive worldwide testing underway, they look set to conquer. efficient business processes,' said Stephen Taylor, a director of Loyalty Management International, as he kicked off the recent Smart Card 98 conference in London.

'Smartcards allow you to identify yourself, electronically and securely,' added Steve Turner, technical strategy manager at Retail Logic, at the beginning of the keynote speech.

It is this combination of features that has the potential to change our lives. Smartcards were invented in 1974 by French journalist Roland Moreno, to try and eliminate the number of low-value cheques and reduce fraud.

It was French computer company GroupeBull that developed his concept.

A smartcard is a credit card-sized piece of plastic that contains a tiny computer processor. It is also referred to as an integrated circuit card or chip card. The processor provides intelligence, security and data storage, and the card must be inserted into a slot in a terminal device to provide power, data entry and display through a metal terminal on the surface.

It currently costs between two and six pounds to manufacture.

There are also contactless smartcards that rely on radio beams to provide energy for processing and connection to an external device. These are used in transportation applications, where fares can be paid rapidly by passing a card close to the terminal or by walking past a reader.

It is the firewall, encryption and other security features of the processor that makes the smartcard suitable for carrying data. The stored information can range from security identification and medical records to loyalty points.

Smartcards are often confused with magnetic stripe and memory cards.

Magnetic stripe cards carry limited data without security and are read by swiping them through a reader. Memory cards contain only a memory chip to store information, but have no processing capability and therefore no security. They are used as telephone cards and to store balances in customer loyalty schemes.

The uses to which smartcards can be put are almost unlimited. They are already being used in the transportation industry for payment and ticketing, in retail for customer loyalty and in other areas for access control, including buildings and computer networks.

Europe dominates the smartcard industry and, according to Dataquest, accounts for 90 per cent of cards issued in 1995. It predicts growth from 84 million cards in 1995 to 1.2 billion by 2001. The Smart Card 1998 report lists 52 major national and 31 local government schemes worldwide, covering areas such as driving licences, road tolls, health records and parking schemes.

Germany has a Geld Karte health insurance card, issued to a population of 18 to 20 million users. It stores identity, health insurance and medical emergency data, authenticates entry into medical benefits system and authorises the computer to release only relevant data. It is used in public and private hospitals and has payment facilities built in to debit the holder's bank account.

The important uses in the finance industry are for debit and credit card payments, electronic cash, e-commerce and home banking. Smartcards are an extrapolation of an existing trend.

'We started with embossed cards, then magnetic stripe cards, added more security and personalisation,' says Jon Prideaux, senior vice president of emerging markets at Visa International. 'Magnetic stripes have effectively reached a dead end, unable to add more services to keep the customer interested. Smartcards will provide local computing power to give greater security and more functional opportunities.' It is the ability of the smartcard to store information that makes it so functional.

'Financial institutions see the potential of the smartcard to get closer to their customers,' says Peter Sany, worldwide general manager of Smart Card Solutions at IBM. 'They have pushed people out from their "Temples of Banking" to the ATM and telephones. The smartcard can help them build a relationship with the customer.'

The problem is that banks have never been able to justify the additional cost of smartcards and their terminals. Other payment services are needed to increase functionality and profitability, such as electronic cash and secure e-commerce.

Over 50 million smartcards are already in use, mainly in France and Spain, although they still have embossing and magnetic stripes. Committing fraud with smartcards is difficult because of the in-built security and because they are too capital intensive to manufacture and manipulate. For this reason, the Association for Payment Clearing Services (APACS) is managing pilot projects in Northampton and Dunfermline for debit and credit cards.

By February, 114,000 cards had been issued and 450 terminals had accepted 250,000 transactions. This is lower than expected because major retailers are about to join the scheme. Nevertheless, it is on track for success and a decision will be taken on a national roll-out in July. This will require the issue of 95 million cards to 36 million cardholders and the conversion of over 500,000 point-of-sale terminals and 23,000 ATMs.

According to APACS, plastic cards account for less than 10 per cent of all transactions, cash is used for 75 per cent. The Boston Consulting Group has estimated that the overall cost of handling cash for banks, retailers and customers in the UK is z4.5 billion per year. Clearly there is a major saving to be made by replacing notes and coins with electronic cash.

Mondex electronic cash has been on trial for two and a half years in Swindon. Of the 40,000 NatWest and Midland customers, 35 per cent are using it at 650 shops, buses, taxis and car parks and Mondex is expected to announce plans for national roll-out imminently. It is also being used by 66,000 students and staff at Aston, Exeter, Nottingham, Sheffield Hallam and York universities for electronic cash, physical access control, student union membership and library cards. Mondex is being extended throughout Hong Kong after a year's trial and there is also a major pilot in Guelph in Canada.

Visa Cash is already in use in Spain, with 58,000 terminals, 6,100 ATMs available to 2.2 million cards and trials are proceeding in Argentina, Australia, Canada and Columbia. A trial launched in Leeds last autumn with 70,000 cards, some of which include debit and credit facilities, was accepted by 2,000 retailers. The upper West Side area of New York is piloting Mondex and Visa Cash together.

Microsoft is building support for smartcards and smartcard external device readers into its Windows family of operating systems and software development tools. The Personal Computer/Smart Card Workgroup consists of GroupeBull, Hewlett Packard, IBM, Microsoft, Siemens Nixdorf, Sun Microsystems and Toshiba with smartcard manufacturers Gemplus and Schlumberger.

Java Card now allows Java to run on smartcards, bringing a completely new range of existing applications to the smartcard industry. The adoption of open standards will allow the loading of applications on to an existing card and the security will keep the data in one application safe from another.

If cheap network computers are installed in hotel rooms and business centres, many travelling business people will be able to dispense with their notebook computers. Instead, they will insert a smartcard into any network computer and get access across the internet to all the information and services of their own office. The smartcard will also allow a card holder to use the secure electronic transaction (SET) standard for secure e-commerce from any computer, not just their own. It will also bring electronic cash to the internet for making small value payments. They also provide identification through digital certificates for electronic banking from any convenient device.

TravelSmart cards have already been used in Hong Kong and Seoul to replace tickets for public transport, with pre-payment schemes. London Transport is about to award a contract for its Prestige project when smartcards will replace ticketing systems on London Underground and bus services from 2001.

'The future of transport involves road pricing, more extensive and expensive parking controls and more attractive transport,' explains Nick Lester, CEO of London's Transport Committee. 'Smartcards will make all of those possible.'

American Express, Hilton Hotels, American Airlines and IBM are currently running a multi-function trial for airline, hotel and car rental reservations.

American Airlines uses enhanced gate readers for ticketless travel in 97 US airports. Passengers can also check in and out of Hilton hotels.

The card stores personal information and preferences, such as a non-smoking room and also carry conventional magnetic stripe information to make American Express payments.

Contact smartcards have long been covered by ISO 7816. ISO 10536 will cover proximity cards and ISO 14443 will cover vacinity cards. Europay, MasterCard and Visa have agreed the EMV standard for bank cards and terminals for debit, credit and electronic cash. However, there are no standards for terminals themselves.

One of the problems is that due to the flexibility of the card, standards have to cover a complex situation. For instance, in the New York cash trail, Visa Cash or Mondex work with the same terminal but they require different procedures for the same task, and the same key on the till performs different functions for each card.

This is an area that requires urgent international attention, especially with people travelling so frequently. In Europe, the arrival of the Euro as a single currency will provide impetus, and the need to change terminals to accept new coins will be an opportunity to incorporate smartcard terminals.

The European Community also has an initiative to develop a Eurocard smartcard for passports and electronic Euro currency.

Clearly, users don't want a pocket full of smartcards so the goal is to allow users to load whatever applications they want on to one card. The biggest problem is that this will limit the marketing opportunity of putting branding on the card of corporate livery and logos.

The security on the card allows it to carry identification information that can be verified by the external device, such as electronic digital certificates, digital photographs, fingerprints, iris patterns, hand geometry. It allows the cardholder to be immediately authenticated locally, eliminating the need to wait for a connection to a computer database, as is the case with magnetic stripe cards.

This makes smartcards suitable for providing security access to buildings and computer networks as well as for e-commerce. They appeal to governments who want to use them for passports and driving licences.

Smartcards will be issued when you require a particular service and schemes are being designed to make them attractive to us. Let's hope they succeed, as it look as though we will get smartcards whether we want them or not.

Further information

The Smart Card Club has over 100 members. Membership starts from z1,750 (z600 overseas), telephone 01223 329900, fax 01223 358222 or [email protected].

The Smart Card 98 costs z797 from SJBServices, telephone 01458 253344, fax 01458 253 253366, email [email protected] or http://www.sjb.co.uk.

The Smart Card Forum at http://www.smartcrd.com promotes multifunction smartcards.