Despite being a growth industry, smart cards are producing more than their share of discontent.
It dampened the mood at the Cardtech/Securtech conference in Washington last week.
Given advances in the technology, the quickening outputs of chip and card factories around the world, and the enthusiasm of salespeople, one would expect jubilation to prevail at an event that its chief organizer boasted is bigger than all others in this sector, worldwide, combined.
With 10,000 people along for at least some part of the ride, the Washington Convention Center was the focal point of the smart card universe. The exhibit floor was spacious and brimming with card and biometric security innovations. Seminars were well attended, even lively, as were some off-site corporate parties.
But there was a nagging feeling-subjective, but widely remarked upon-of deja vu, and hence of progress not made.
For people who had been predicting repeatedly that a chip card explosion is two, three, or five years off, the clock has run out. If they are looking for tangible growth and the anticipated big numbers, the United States may not be the best place to seek it out.
Ben Miller, the conference chairman and head of the Cardtech/Securtech organization in Bethesda, Md., hired an orchestra conductor to open the conference on an upbeat.
In keeping with the theme "Symphony of Solutions," Boris Brott interwove anecdotes and musical examples to inspire the crowd with the results of creative teamwork. He led audience members, each tapping a tone bar on cue, through the "Ode to Joy" from Beethoven's Ninth.
Working together was certainly evident in the area of standards. It could be laying the groundwork for chip card progress-if enough people can make sense of it all.
For example, the conference was a forum for the jousting between Java, the basis for the Visa Open Platform strategy, and the Multos operating system supported by MasterCard, its Mondex subsidiary, and, as of last week, American Express Co.
The Global Chipcard Alliance, which started in 1996 with only telecommunications members, announced a major expansion that included Citicorp, Mondex USA, Verifone, and Banksys, the Belgian company responsible for the Proton smart card system. The alliance also agreed to open formal lines of communication with the Smart Card Forum, a multi- industry body with strong banking representation.
Twelve companies-including Java stalwarts Sun Microsystems Inc., International Business Machines Corp., and Visa-released the OpenCard Framework 1.0 specification, designed to promote interoperability across different brands of equipment.
Certco, Gemplus, Schlumberger, and several others announced a Digital Certificates/Smart Cards task force to promote that convergence for electronic commerce.
On the biometrics front, Compaq Computer Corp., IBM, Microsoft, and Novell Inc. led the formation of the BioAPI Consortium, seeking standard application programming interfaces for fingerprints, voice patterns, and the like.
Philippe Goetschel, a newcomer to Cardtech as Microsoft Corp.'s smart card group director, offered some choice words about standardization processes, criticizing companies that do not participate wholeheartedly.
When Microsoft gets involved at all, as in the BioAPI group or PC/SC Work group (to standaridize smart card readers with personal computers), "it bets the company," Mr. Goetschel said. "It is important to take these risks. We don't see this pursued as aggressively in the smart card market."
He added, "This industry has not done a great job articulating the consumer benefit of smart cards. The consumer gets lost very easily in this industry, and I'd challenge it to get better in coming years."
Neil Hudd, president of NBS Transaction Systems' point of sale division, Montreal, enlivened a panel discussion among smart card vendors with some heresy.
"Why does it have to be a card?" Mr. Hudd said. "It could just be a little piece of paper with a chip on it. Think about new innovation. We have to move forward and do things ahead of where the current technology is."
He was met by silence.
Geoffrey A. Moore, whose books "Crossing the Chasm" and "Inside the Tornado" are Silicon Valley must-reads, put Cardtech/Securtech through his unique twist on the classic technology adoption cycle.
"You don't solve this just by making the product better," said the head of the Chasm Group consulting firm. "You need to create an end-to-end value chain. Otherwise you are not viable as an industry.
"You have to put your own companies' interests first, but you have to get smart cards adopted somewhere soon" to start the momentum, which argues for open standards.
Mr. Moore described the current magnetic stripe standard and the chip as "competing value chains." Typically, vested interests dig in their heels to defend the status quo even as a new-technology challenge looks more and more compelling.
Soul-searching was the order of the day in Cardtech's banking and payment seminars.
"Very few people are making real money," said Michael J. Shade, general manager of Centum Consultancy, the smart card consulting arm of Verifone Inc., Santa Clara, Calif.
Like so many others, he admitted the "value propositions" and "business cases" remain elusive, especially when viewed from a pure banking or stored-value-payment angle.
Several speakers played down the idea of a "killer app," saying smart cards will succeed by combining multiple applications, no one of them the killer.
"Will smart cards be an Edsel or an Explorer?" asked Daniel R. Eitingon, president of global support services, Visa International. Referring to those two Ford vehicles of widely differing fates, he allowed that some of the younger members of his audience may not have heard of the Edsel. So he told its depressing story.
Fatalistic as they may have sounded, Mr. Eitingon and Mr. Shade are supporters, even optimists, when it comes to smart cards.
Mr. Eitingon, speaking to a preconference seminar on "Changing the Face of Money," mentioned the criticisms about smart cards: "no clear demand, the high cost of infrastructure, no clear business case. ... But wasn't the same said about magnetic stripe cards or automated teller machines when they first came along?"
He saw a hopeful outcome in the Ford Explorer: "Who would have imagined that a car that is essentially a truck would become one of the best-selling vehicles?"
Janet Crane, president and chief executive officer of Mondex USA, San Francisco, exhorted her audience last Wednesday "to imagine." That is what it will take, she said, to explore creative uses of the powerful, portable computing devices that smart cards are becoming.
"How much did you pay for that kind of capacity 10 years ago?" she said. "This is a computer on a card. What are you going to do with it?"
Ms. Crane and others found themselves talking back to critics of the New York smart card trial.
Since last October on Manhattan's Upper West Side, MasterCard-Mondex and Visa, Chase Manhattan Bank and Citibank, have been showing how competing systems can interoperate. That constituted "a very good start and a very nice base" for electronic cash in the United States, Ms. Crane said.
"This does take time, and it takes some real giants to step up and do it first-and to do it in New York City instead of Des Moines."
"In some ways it is a great success," said Thomas Kilcoyne, vice president of Verifone's consumer systems division. "Getting merchant acceptance is hard in any market. We have shown that smart cards work, and it is a good learning experience."
The test proved "interoperability makes sense," and "we're glad we did it," said Henry Lichstein, vice president of Citibank, the Visa Cash issuer in New York. "We had a modicum of success."
"This is a new payment business from a consumer and merchant point of view. It doesn't happen overnight," said Ronald Braco, senior vice president of Chase Manhattan, the Mondex bank.
Mr. Braco conceded: "Usage has not been at the level we'd all like to see. That doesn't mean this is not a success. It means there is more work to be done. ... We are still committed to this business. We have gained a great deal of understanding."
He said Chase and Citibank have issued 65,400 chip cards linked to bank accounts and 26,500 stand-alone cash cards. Cards have been loaded 49,200 times with an average $38.50, and merchants have put $618,400 of received cash in the bank. There are 450 merchants in the program, down from 650, as some low-volume participants have dropped out.
Unimpressed, Jerome Svigals of Jerome Svigals Inc., Redwood City, Calif., said banks face an uphill fight to sell multiapplication credit, debit, and stored-value cards because only one credit card customer in six has a deposit account with the same issuing bank.
Surveying the Cardtech scene, the consultant said, "There was no bank that said it has studied the smart card credit card, and it looks like a good deal, or that it is going to run a pilot in the next year or two."
Having passed the six-month mark, the New York banks decided to extend the trial to at least a full year.
That is a mistake, said Armand Linkens, director of marketing for Banksys. He advised that a pilot loses its usefulness after six months and should be converted to "a mass rollout ... . I'm not sure you can live with limited numbers of cards or merchants without giving them intensive care."
The good news, he said, is that New York is within striking distance of having one terminal for every 100 chip cards in circulation-which he called a rule of thumb.
A perennially popular and colorful Cardtech speaker, Mr. Linkens made sure to get across that his organization's Proton is the most widely used smart card system in the world, at 25 million cards in 15 countries.
Mr. Linkens said he showed pretty much the same slide presentation as two years ago, and added, "I hope what I say today will be (Ron Braco's) speech two years from now."
Reflecting on differences between Cardtech '98 and prior years, Nick Habgood, chief executive officer of the MasterCard-Mondex standards affiliate Maosco Ltd., said, "There is a difference between hype and implementation."
"That may be part of it," said Wayne Lewin of Centum Consultancy. "I also think a lot of the people in this business are used to big numbers- credit cards, terminals, etc. If you look around, there are a fascinating variety of things happening. You just don't see that monolithic, killer app."
Michael Weigelt, IBM's director of global smart card solutions, called one modest program, IC One of Salt Lake City, "one of the best value propositions I saw. It gets cards in people's hands."
Combining loyalty and cause-related marketing, IC One has issued 100,000 cards since February 1997 to benefit Utah schools.
Mr. Miller, who sold fast-growing Cardtech this year to Faulkner & Gray, which is owned by the same parent company as American Banker, said, "More people are providing products and services. It's not just the technology companies."
Banks have been "laggards," he said, but are coming to realize, like universities and telephone companies before them, "the power of multiapplication.
"My bank doesn't use smart cards," he said. "But my metro system does."
Said Mr. Kilcoyne of Verifone: "If you look only at the United States, you miss the point."
