Cards are flush with potential

Steve G. Steinberg ([email protected]) is a contributing editor for Wired magazine and a technology consultant for a New York investment firm Most innovations happen with a whimper, not a

bang. They creep up on us when we have finally gotten bored waiting. Think of personal digital assistants, for example. The idea of powerful hand-held computers that help us organize our

lives was a hot concept about four years ago. But after the first, badly designed products came out, the whole PDA category was retired amid widespread ridicule. Strange, then, that those

same PDA naysayers are now using a similar product, Pilots, to keep track of contacts and schedules. PDAs happened after all. We’re about to see the same thing happen with smart cards. After

many years of awaiting the arrival of the smart card--a device the size of a credit card that contains a microprocessor--most of us had given up on the idea. But a few small companies, such

as Irvine-based Litronic Inc. and Minneapolis’ Ubiq Inc., have kept the faith. And what they are now seeing is encouraging. Smart cards are finally being used in the United States--but not

in the ways everyone first expected. “The promise of smart cards has always been that they can do whatever a computer can,” says Eric Greenberg, head of Litronic. “But that’s also been the

problem--the wide range of possible uses brings any group of developers into gridlock.” In Europe, where smart cards are already a huge success, the application was straightforward: money.

Hundreds of thousands of smart cards are used everyday in Europe for making purchases and placing phone calls. The computer on the smart card keeps track of how much money you have left

after each purchase and has encryption to ensure that the card can’t be tampered with. Attempts to introduce smart cards in the United States have failed miserably. But don’t blame it on

cultural differences or the idiosyncrasies of the French. There are sound technical reasons why magnetic swipe cards still reign supreme in the U.S. “In the U.S.,” Greenberg says, “it

doesn’t cost much--if anything--to make hundreds of local phone calls. That has made the point-of-sale use of magnetic strip credit cards and debit cards practical.” You’ve probably watched

the clerk at a store slide your credit card through a small box with a keypad, and then heard the box dial up the credit card company’s computer to make sure you’re good for the purchase.

This is the process Greenberg is talking about. But in Europe, where government-owned phone services have kept local call prices high, it makes more sense to distribute the intelligence via

smart cards. European merchants don’t have to call up a central database to see if your credit is OK for every purchase--they just check the counter on your smart card. “Ironically,”

continues Greenberg, “it’s this same factor that has hindered smart card use so far in the U.S. that is going to end up making them a success. But for a very different application.” That’s

because the same deregulation that has given us such cheap phone service in the U.S. has also fostered the wild growth of the Internet. And Greenberg is betting that smart cards will play a

key role in keeping the burgeoning Internet secure. “I left Netscape to join Litronic because I had seen the huge leap in connectivity that was occurring with the Internet,” Greenberg says.

“I knew that there would have to be an accompanying increase in network security--it’s almost a law of physics. And smart cards are exactly the right way to do it.” Litronic and other

computer security companies have developed systems that enable users to identify themselves by inserting their smart card into a PC. The card contains information about the user and the

user’s encryption key. This allows users to set up a secure, encrypted connection between the computers they happen to be using and their file servers at work, for example. And the same

smart card can also be used as a company ID that allows users to have access to certain parts of the building. It’s this last point that hints at the second reason smart cards are starting

to take off in the U.S. People are resistant to having another card to carry around. But smart cards offer something very practical: the ability to consolidate multiple cards. “Most of the

new cards that are being developed in the U.S. are multi-function cards,” says David Tushie, president of Ubiq. For example, Ubiq is developing a combined American Express card and Hilton

Hotel “frequent stayer” card. The scenario goes something like this: You insert your American Express-Hilton smart card in hotel lobby kiosk. Stored on the smart card are your preferences

(nonsmoking room), your hotel history (this is your 10th visit) and your account status. The kiosk updates your card, deducts the discounted price from your account and issues the key to a

nonsmoking room. Not only does this have a benefit for the traveler who now has one less card to keep track of, it’s also attractive to companies that believe affinity programs are good for

business. Because a smart card can store the complete history of your purchases, it’s possible for even small merchants to reward frequent customers. It’s like having hundreds of those

little “punch six times and get a free bagel” cards rolled into one. Of course there are caveats. The history of smart cards is too checkered to predict their imminent arrival without a few

warnings. For one thing, the infrastructure simply isn’t here yet. Most computers don’t come with smart card readers, and that’s going to hinder deployment of smart cards as a security

solution. Still, that’s about to change with Hewlett-Packard’s recent announcement that its high-end PCs will soon come with smart card readers in the keyboard. And as with all new

technologies, the problem of standards looms large. What is exciting is that smart cards have finally gotten their foot in the door. And we will probably have to wait until they are fully

deployed before we can explore all their applications. MORE TO READ