Hypercom Inc., the No. 2 terminal manufacturer, will market a smart card that it says will successfully and economically combat credit card fraud.

The ChipStripe card, with a magnetic stripe as well as a computer chip, would be an enhancement of the standard credit card at a cost of under $1 per card, said George Wallner, Hypercom chairman and chief of technology.

Hypercom will also offer a smart card reader for under $50 that attaches to any Hypercom terminal manufactured before 1989.

Smart cards' cost, as much as $3 to $5 each, has discouraged widespread adoption in the United States. Magnetic stripe cards cost about 35 cents. In other countries, where fraud is a bigger problem, the technology has sold more readily.

"Out of frustration," said Mr. Wallner, he partnered with chip makers Philips Semiconductor of Germany and Microchip Technology Inc. in Phoenix to create a card that would pay for itself in fraud reduction alone.

Rather than a powerful microprocessor capable of multiple functions, the ChipStripe would contain only the information in the magnetic stripe, plus encryption data for security and possible loyalty programs for merchants.

Like magnetic stripe cards, the ChipStripe card would require on-line authorization.

A $100,000 investment in software to be added to an acquiring bank's server would be necessary to process the new technology, Hypercom said.

Mr. Wallner said such an entry-level approach to chip technology could ease the transition to more advanced programs like the Mondex and Visa Cash stored value cards.

"We're taking a more practical approach to smart cards," said Frederick Bruwer, vice president, secure data products division, MicroChip, which makes chips for Mercedes-Benz. "We'd like to do something that will fit in very smoothly to present credit card infrastructure. Looking at the volumes and fraud figures, one can develop a pretty good business case for this."

MasterCard International said that in 1995, on $468 billion in gross credit card volume, $450 million was lost to fraud.

Bankers would welcome a solution for fraud, said Richard Nelson, senior vice president, decision technology, at First of America Bank Corp. "But it would only help the issuer if my merchants have this Hypercom terminal and my cardholders shop at my merchants."

Mr. Nelson said a limited pilot, similar to those run by Mondex, would be the most sensible way to start deploying the Hypercom concept.

"You could do it for all the high-fraud areas and expand from there." All the banks and merchants in a given area would need to be on board, he said. Otherwise it's "wasted money."

Mr. Wallner agreed, noting that a pilot of ChipStripe is expected by May. "We're working with a few banks that are big enough issuers and acquirers in a specific region to reduce their fraud." He said it would "drive fraud into their competitors' camp."

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