The multiple-application smart card will change retail banking - not just the credit card. Now is the time for retail bankers to learn about their new smart-card based future and how to make the most of it.

To succeed in the United States, multiple-application cards will need new leadership. To date, bank credit card departments have controlled the introduction of card functions and services, but unfortunately they do not have a good view of the retail bank. Fewer than one in six cardholders has a checking account with the same retail bank, and fewer than half of bank credit cards issued are from banks. Not much more than half of U.S. retail bank customers have access to bank credit cards.

Hence, the future of retail bank use of new smart card applications, functions, and economic benefits will be determined by retail bankers.

The smart card has several important attributes that will help it bring about lower costs and higher profits for retail banks. It is a self-contained application decision maker that can distinguish among credit, debit, and stored value functions. It has an open system interface for communications, which means that people can easily download or upload monetary value or credit amounts through telephone, cellular, and Internet attachments. Citibank reported that 50% of the cash value used in the New York test was downloaded by the Verifone Personal ATM, an inexpensive device attached to home phones. These units will also allow inquiries, transfer and payment instructions, and bill payment, and their arrival in homes across the United States would mark a significant advance in home banking that would affect far more than credit card operations.

The multiple-application smart card offers important new sources of revenues and profits to the retail bank. It reduces costs with fewer losses, 50% longer life, and ease of electronically updating the card content. It reduces costs by sharing the card use with multiple applications. It increases revenues by extending credit card use to more retail bank customers.

It rents card space to other application providers and offers them card support services. Putting these economic factors together can produce a return on investment of up to 10 times that of a conventional striped credit card.

Multiple-application cards will affect the bank and its customers. The new multiple-application smart card's impact on the retail bank is illustrated by the answer to these questions:

Who will the card user Be? Which retail bank customers get multiple-application smart cards? All of them! The customer is presented with a smart card and a menu of applications and services, including a personalized line of credit. In addition to cash, debit, and credit there will be an ability to shop and conduct financial transactions by phone and TV set-top box. There will be a health insurance application, a phone and mass-transit-card application, driver's license information, shopping loyalty points, student records, and medical and drug prescription records. Each application will be activated by customer choice and issuer agreement. The important feature is that each application may communicate directly with the application provider or a designated alternative.

Current striped cards are also useful in multiple applications. The big difference is that the smart card can be accepted by application providers' terminals and communications interfaces. The magnetic striped card interfaces with a common funnel - the association network.

How will the smart card change the retail branch? Smart cards will steal business in cash value, debit, and credit transactions away from teller machines to communications-based cash-value information transfers. These alternatives will draw more transactions away from the branch counter, and, more important, will allow branch marketing to migrate to the Internet and cable TV.

The smart card will enhance the delivery of remote services, including portfolio tracking, securities transactions, loan alternatives assessment, and investment/retirement strategies assessments. This may be the only way the retail bank can compete with the emerging Internet financial services. All these new functions will be supported by an enhanced and transparent smart card and by communications-based security.

What infrastructure is required to support a multiple-application smart card? The database to support each application is kept at a consolidating point to maintain an application database. This provides for card reissue, card replacement, and billing or statement purposes. However, central data access is generally not required. Routine transaction decisions are made between the smart card and the card accepter, with batch data capture overnight to keep central records up-to-date. This substantially reduces the infrastructure for routine transaction handling, communications, and central decision-making.

Exception transactions are checked online, usually with dial-up facilities. During this periodic central online transaction, possibly once each 30 days, new data may be downloaded to the smart card to update applications, controls, decision criteria, and account or payment status. This allows, for example, reduction of available transaction value for unpaid accounts.

What infrastructure must support each application? A negotiated arrangement between the smart card issuer and the application provider determines who markets, bills, arranges payments, promotes changes, and manages funds and contractual requirements. It offers the bank issuer an added revenue opportunity and gives the application provider an economic and marketing alternative to offering its own card.

Getting started with the multiple-application smart card is a three-step process: First, get educated, then develop a learning experience, then convert that experience to an action plan.

The quickest, least expensive, and most direct education solution is to find a consultant with live-installation experience. Ask for a tailored and customized seminar.

Leave time for questions and discussions. Second, evaluate others' pilot tests in preparation for your own pilot program and action plan. If possible, assign an employee who worked on a previous trial; that would accelerate information-gathering. It's also a good idea to pick the brains of a few vendors. Someone will have to provide your pilot cards, terminals, and support software, and these suppliers can also provide insight.

The multiple-application smart card offers important retail bank attributes. It is the role of the retail banker to manage its introduction and application development. The potential benefits to the retail bank demand a serious retail bank management effort to speed smart card entry at lowest cost.

Mr. Svigals is an electronic banking consultant in Redwood City, Calif., and director of the Smart Card Institute.

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