The U.S. marketplace has just gotten a number of major announcements on multiple-application smart cards, and all indications are that more are forthcoming.

Recent card association presentations suggest that the multiple-application smart card is economically justified. Hence, card issuers should move now to develop their niche in this new marketplace, before nonbank players establish an irreversible market dominance with nonbank-issued products like the American Express Blue card.

The reason for this new association position is the discovery that the multiple-application smart card is an economic gold mine. The combination of a longer market card life and a shared card-issue cost reduces the per-application card expense to that of a magnetic-stripe-card issue. The savings from reduction of fraud and bad debts compound the benefit.

However, the real payoff is in the multiple functions and applications, which produce new revenues. For example, the card issuer "rents" application space on the multiple-application smart card. This is combined with a security-protected portion of the memory allocated to each application, with a visible logo space on the card to show the cardholder and merchants the applications for which the card is intended.

This also lets the card issuer supply, at an appropriate fee, the mechanics of gathering the supporting application data and adding it to the card personalization process.

This process creates two revenue opportunities: first, to give the application provider the support process for the merchant's terminal transaction capture and processing and, second, to prepare a combined monthly statement of the multiple-application transactions for the cardholder. It also lets customer service be supplied for each application provider.

The multiple-application smart card also brings new functionality that creates revenue opportunities through in-card authorization decisions. Each credit application is proved with a three-way decision process (number of transactions, value of transactions, available transaction days) to authorize transactions between the card and the accepting terminal.

Ten years of experience in France with 35 million smart cards have resulted in 90% of the credit card transactions being authorized between the card and the accepting terminal.

These transactions do not require online authorization via a network to a central database. Hence, the new revenue opportunity is a substantial reduction (to 10%) in transactions requiring network-based authorization and the prescribed network-based transaction fees.

The use of in-card credit controls will allow credit extension to cardholders who were not previously considered creditworthy. This already has substantially expanded the numbers of credit-using customers in countries such as South Africa and the Philippines. It also creates a multiple-application smart card market in the United States for up to one-half the adult population. This means an entirely new credit-using marketplace, with added revenue opportunities.

This market will required an extended database, added authorizations, added data capture, and added loss control. As with conventional credit card controls, an added issuer revenue opportunity will enhance this extended card business.

The new challenge is how these added revenue opportunities and implementation responsibilities will be allocated among the card issuers, transaction capturers, and card associations.

Issues raised include: How should the associations charge for their changed services? How should the multiple-application card implementer allocate the added revenues and expenses? And how should application providers pay for their processes and controls?

In other words, the smart card will bring a new set of opportunities and challenges that will change historic solutions. Now is the time to think through the new processes and prepare action plans and revenue allocation opportunities.

The new focus will need to examine these new options: changing the method of charging for services, terminal support, card personalization, issuing, and application updating; testing to introduce the extended credit offerings and multiple-application enabling and marketing; and supporting and extending card facilities.

An important byproduct of the migration to multiple-application smart cards is the introduction of card-based personalized security and controls. These will need to be transparent to cardholders and acceptors.

Now is the time to test these new facilities and prepare the necessary migration. There is more gold in them there mountains, but it will take care to extract it.

Mr. Svigals is an electronic banking consultant in Redwood City, Calif.

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