Smart cards gain 2 key converts; MasterCard, Visa chiefs become big backers.

As of six to 12 months ago, the presidents of MasterCard International and Visa International had given little thought to smart cards.

Today, both sound like boosters of the technology.

Their turnabouts, perhaps better described as epiphanies, were the subject of two recent speeches to card industry groups. They lifted the spirits of smart card manufacturers and other promoters, and reinforced the notion that computer chips inside bank cards will be commonplace within a few years.

Visa chief executive officer Edmund P. Jensen, in a keynote speech last week to the Smart Card Forum, called it "a statement of the obvious to say we support chip.

"That admission is not particularly profound," he went on. "How could an association not support it?"

A week earlier, MasterCard CEO H. Eugene Lockhart stood before a MasterCard-sponsored meeting of card-system vendors and said, "You're looking at one of the strongest converts that you could possibly find. [The smart card] is going to redefine our industry, and I don't choose those words lightly."

Such strong endorsements from both associations are rare on any emerging strategic issue, and their top executives have never been so much in concert about the technology that was at the heart of some of the most heated card industry debates in the 1980s.

To be sure, Visa and MasterCard are only at an "agreement in principle." The organizations still have philosophical and tactical differences, in smart cards as in most everything else, and a close reading of Mr. Jensen's and Mr. Lockhart's remarks indicates at least subtle variances in certitude and commitment.

But their virtually simultaneous "conversions" seemed to energize the community of smart card suppliers and others who have staked their businesses and reputations on upgrading the conventional magnetic-stripe card to the more robust and durable, if somewhat more expensive, chip technology.

While both organizations had been sending favorable signals -- they had devoted more and more staff attention over the past couple of years to smart card projects, and they are jointly working on technical specifications - no communication of intent can be so clear as words from the top.

"It's an important step," said Dan Cunningham, president of Gemplus Card International, the U.S. subsidiary of France's leading smart card producer and a 10year survivor of the industry's growing pains.

"It's about time," said Jerome Svigals, a Redwood City, Calif.-based consultant who has been pleading smart cards' case for 15 years. Yet Mr. Svigals said he still has a wait-and-see attitude toward what the bank card associations' cooperation and competition ultimately produce.

Mr. Cunningham said the technical specifications project, which MasterCard, Visa, and Europay International expect to complete by November, was especially important to jump-start the smart card market. Mr. Jensen's and Mr. Lockhart's speeches "added to the momentum, which we think is becoming very significant," Mr. Cunningham said.

"Of course, Visa and MasterCard will always find ways to differentiate," which Mr. Cunningham viewed as healthy.

At this stage of their jockeying, MasterCard is sprinting ahead; Visa is reluctant to get caught up in the speed game and hints at having some other weapons in its strategic arsenal.

Mr. Lockhart, speaking Sept. 19 in New York, was the highest-ranking of a team of MasterCard luminaries who laid out what smart-card watchers refer to as "the business case."

Also speaking to invited guests from the vendor community were MasterCard's top systems officer Philip Verdi, and the senior vice presidents who head what Mr. Lockhart sees as his smart card all-star team, Robin Townend and Diane Wetherington.

They explained why the MasterCard International board in July formally committed to having a global, chip-based system in place by 2000. They "conservatively" estimated net benefits, from reduced fraud and processing costs, of more than $3 billion worldwide over a seven-year implementation period, including $600 million in the United States.

Depending on the part of the world, MasterCard said, the breakeven point would come three to five years into the conversion cycle, and that doesn't count what Mr. Verdi said is "the greatest benefit-- new revenue opportunities." These may be in prepaid, or stored-value, services as well as in health care, electronic benefits transfer, and shopper-loyalty programs.

Given the board endorsement in July, Mr. Lockhart's support of chip cards came as no surprise. But his talk was more emphatic than outsiders had anticipated.

In wanting to underscore the "singularity of purpose and seriousness" with which MasterCard is pursuing smart cards, he told of a personal odyssey that began with his taking the CEO job in March. One of his first decisions was to postpone the board's scheduled vote on smart cards, which he feared might be premature.

By midyear, Mr. Lockhart was convinced that chip technology fit both MasterCard's business plan and the evolution of banking delivery systems.

He endorsed intersystem cooperation on standards, and said MasterCard will "partner with whomever we need to partner with" to create opportunities that benefit member institutions.

He sees the cost of the technology falling at a "logarithmic" pace, in common with other computer industry components. "The growth rate, once the infrastructure is created, will be, simply, significant," Mr. Lockhart said.

Mr. Jensen titled his Sept. 26 speech to a multi-industry audience of more than 400 at the Smart Card Forum in Tysons Comer, Va., "The Perfect Relation-chip," a play on Visa's desire to bolster banks' customer relationships.

He joined Visa in January from U.S. Bancorp, where he was exposed to chip discussions peripherally as a Visa director. In an interview last week, Mr. Jensen said that by February, Visa'S entire senior management team had coalesced around smart cards, giving new life to what had been mainly a middle-level staff concern.

"From there, you can see how easy it became to announce the electronic purse project," a global working group of about 20 payment system organizations, Mr. Jensen said. "This is positioning the industry - not just Visa - for the future. It has to be done now, otherwise we'll never get there."

To the Smart Card Forum, he said the chip can be "the basis for a complete and private relationship with its owner."

If banks delay and fall to lock in such relationships, he warned, the chip "can become the electronic relationship manager of several banks, and it can manage relationships with nonbank institutions."

He welcomed MasterCard's "business case" research, yet he warned against too much emphasis on aggregate data that may mean little to individual banks or markets.

He also warned against a narrow focus on credit cards, or cards themselves.

Tempering the excitement, Mr. Jensen noted that Visa's top priorities remain existing products and existing markets, and brand support: Then come new products like the chip.

Similarly, in a statement of chip card principles, Mr. Lockhart said the first is to "enhance chip technology while continuing to support the magnetic stripe."

Mr. Jensen said he did not find the two organizations' convergence surprising. They have similar constituencies and objectives, "though we may take slightly different paths," Mr. Jensen said.

"To get into who said what first is silly. I don't want to be involved in that."

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