To buy a newspaper in Brussels or Amsterdam, you don't have to break a large bill or fish in your pocket for the right change. You can just use a card containing a silicon chip.
The same smart card can be used on public transit and in phone booths, to buy a cup of coffee, or to feed a parking meter.
Similar cards are being used for complex transactions. In Germany being admitted to a hospital doesn't require filling out stacks of forms - just handing over a card that stores your complete medical history.
Cards with chips are being introduced in the United Kingdom, other parts of Europe, Japan, the United States, Asia, Latin America, and elsewhere. But the smart card has been slow to gain acceptance.
Some in the bank card industry question whether it is worth the investment. When consumers are given the chance to use smart cards in pilot tests, the adoption rate is relatively low.
What is holding them back?
Part of the problem is that smart cards need to get smarter, with more functions. Most smart cards in the market are single-function, stored-value cards, which let people draw dollar value out of a bank, cash machine, or telephone and store it on a card.
The ability to use a card for small purchases is a potential benefit. After all, more than 20% of the $8 trillion of cash transactions made globally every year are for purchases under $10. That comes to $1.8 trillion-hardly small change.
But the infrastructure needed to accommodate small transactions-such as specially designed parking meters and toll booths-is not in place.
Moreover, not everyone needs or wants a card that simplifies small purchases. And not everyone wants to put cash on a card and lose the opportunity to earn interest.
That is why addressing real consumer needs requires not just a smart card but a multifunction smart card-one that can be tailored to a customer's specific and varied requirements, including the Internet.
Research done by Visa demonstrates that such a card could increase Internet purchases by 10% a year, interacting with personal computers or devices such as telephone readers to enhance the confidence of buyers and sellers in cyberspace.
When you design a card to meet people's individual needs, you build a relationship. With a chip-based card, that relationship could include simplified air travel, with the ticket embedded in the card; auto repairs, recording all specifications and previous work; health care; or any other transaction in which extensive data are needed.
It could include stored value for small transactions and enhanced merchant loyalty programs, with points downloaded immediately and stored in the card.
Ultimately, banking is a form of information management. A multifunction smart card is not only a bank in your wallet but also an information bank in your wallet.
Card issuers are already making enormous technological investments, and it would be understandable if they are concerned about the cost. But the industry's investment in technology is not static.
Equipment to support the current magnetic stripe card is regularly replaced, at a cost Visa estimates will be $985 billion during the next 10 years. In that same replacement cycle, the industry could convert hardware and software to chip card technology at an additional cost of 1% to 2%.
The investment would more than pay for itself in greater volume, new products and services for consumers and business, increased Internet buying, and enhanced customer loyalty for banks. The more services customers use, the less likely they are to take their business elsewhere.
It would also reduce losses due to fraud.
But for the bank card industry, perhaps the greatest security the multifunction smart card offers is security against potential competitors, including new contenders that could be spawned by the Internet.
The consulting firm Frost and Sullivan has forecast that in five years about four billion chip cards will have been issued worldwide, fewer than 10% of them by financial institutions.
A 1% decline in bank card volume translates into a revenue loss of $3 billion; a 10% decline equals $30 billion. The question is not whether financial institutions can afford to introduce the multifunction smart card, it is whether they can afford not to.
Four decades ago, the credit card introduced new dimensions of mobility, flexibility, and security. For consumers, a multifunction smart card can take that to a new level. For card issuers, it can be achieved at a reasonable cost-and with considerable growth.
For all these reasons, banks can't just let chip cards fall where they may. With a host of nonbank competitors ready to step in and fill the void, banks must act now. Waiting even a few years to start may be too late. Mr. Williamson is president and chief executive officer of Visa International in San Francisco.
