Visa International is turning up the volume in support of smart cards, citing a cost-benefit analysis that it hopes will convince member banks to accelerate their moves to the more advanced technology.
"We have a window of opportunity, but it is closing," Visa president Malcolm Williamson said Monday at the Credit Card Forum in Orlando, where he spoke publicly about the internal study for the first time.
"We cannot afford to let the chip cards just fall where they may," he said, signaling the kind of smart card activism that he brought to Visa last fall from his previous chief executive post at Standard Chartered Bank of London. "The sooner banks make a prudent investment to create the next- generation system of payments, the sooner we stake our place ahead of the curve in the financial services marketplace."
Daniel R. Eitingon, Visa's president of global support services, who oversaw the cost analysis over the last several months, said bankers in different parts of the world have different timetables for a smart card migration.
But he said there is a "common theme: Start now. Whether it happens in five or 10 years is less important than the idea that now is the time to get moving."
There is some historical irony in Visa's urgency. In the mid-1980s, the California-based association resisted its New York rival MasterCard's urgings that the banking industry convert with deliberate speed to smart cards. MasterCard's favorable cost-benefit analysis was questioned at every turn, and in 1987 the two sides agreed to ask Booz-Allen & Hamilton for an independent evaluation.
The consulting firm's findings, presented in February 1988, essentially supported Visa's skepticism and may have influenced many bankers' thinking for years to come.
MasterCard's justifications of more than a decade ago, particularly fraud and telecommunication cost reductions, can be found at the heart of Visa's current assumptions.
"The difference is that now we have multi-application cards," Mr. Eitingon said, meaning that services from banks and other sources can be packaged in ways that produce income. "Back then the focus was just on electronic cash, and it is the multifunction capability that creates the business case.
"Also, today we are looking at open standards, and interoperability is critical. We didn't have anything in the 1980s like EMV (the Eurocard- MasterCard-Visa agreement on smart card acceptance in terminals) or the Visa Open Platform."
In an interview, Mr. Eitingon said Visa broke its analysis into three parts-baseline, protect, and extend.
Baseline is the "base case," he said, the upgrading of the infrastructure, of cards, and of terminals to enable them to read and write on chips. He said terminal costs would be minimized by replacing current- generation devices at the end of their six- or seven-year useful lives, which Visa built into its calculations.
The bottom line was that over 10 years, with expenditures by Visa banks of 1.3% more than what current card operations cost, their infrastructure investment would be paid back in fraud reduction and operational improvements.
Beyond that baseline, the ability to retain customers-the "protect" idea-and to "extend" into new business and revenue opportunities, would be "gravy," as Mr. Eitingon put it.
If Visa banks could improve their collective customer retention rate by 1% in a year, they would boost revenue by $2 billion, the analysis said. Should they lose as much as 10% of business to emerging competitors that are quicker to embrace new technology, $30 billion of revenue could be lost over 10 years.
With the ability to put multiple services on a card and charge either partner companies or consumers, $5 billion to $8 billion of new revenue could be realized, Visa said.
Mr. Williamson warned that by the end of next year, when a projected two billion smart cards would be in circulation, "less than one in 16 will be issued by banks. Waiting even a couple of years could be a couple of years too long."
"There is always a risk in predicting when smart cards will be universal," Mr. Eitingon said. "We are saying when you look at the trade- offs there are very good reasons to move forward."
