First Data Corp. has set up a smart card business to support banks and merchants that want to issue or accept chip cards.

On the card issuing side of the business, First Data is embossing and mailing the Visa smart cards that two of its big bank clients - FleetBoston Financial Corp. and the First USA division of Bank One Corp. - began issuing to the public this fall. On the merchant side, the giant transaction processing company is working with retailers to get them equipped to accept chip cards.

Ann Kennedy, vice president of global smart card business development for First Data in Omaha, said her staff includes 20 people who "just do chip" and who work across the company's business lines. First Data, which is headquartered in Atlanta, divides its businesses roughly into three lines: card issuer services, merchant services, and payment instruments (which include Western Union).

First Data actually started printing smart cards for banks in 1997, when several banks were distributing the cards with stored value on them. "We did the personalization of Visa Cash for Toronto Dominion when they were experimenting," Ms. Kennedy said. But the stored value concept did not catch fire, so that business lagged.

This year, Visa U.S.A. cut deals with vendors that lowered the cost for banks to issue chip cards, and in the fall three banks introduced them. Instead of storing loaded cash value, the chips are used for authenticating people's identities on the Internet.

First Data has bought software that can manage chip card applications for banks. "We don't care if it's a financial record, a loyalty record, or a certificate of authority record, First Data will manage the back end of that," Ms. Kennedy said.

By Oct. 11, when the first FleetBoston Fusion cards began hitting the market, First Data was ready on the merchant side to process transactions that the chip helped facilitate, Ms. Kennedy said. Merchants must add software to their Web sites in order to accept chip cards.

Fleet is also putting digital certificates on the chip cards it issues, and First Data is acting as certificate authority, verifying the identities of people who apply for certificates. "We actually did build a certificate authority for Fleet, so we have in our First Data Resources secure-data area the certificate authority running," Ms. Kennedy said. "Any bank that does not want to run its own certificate authority can outsource it to us."

First Data is a member of GlobalPlatform Inc., an independent company that has taken responsibility for the Visa Open Platform specification for multiple applications on a card's chip.

GlobalPlatform was founded last year by Visa, American Express Co., Proton World International, and several other card industry and technology leaders.

First Data also holds a board seat on the Smart Card Alliance, a group formed this month through the merger of the Smart Card Forum and the Smart Card Industry Association.

In the United States, Ms. Kennedy said, First Data has helped put "a couple hundred thousand" chip cards in the market, though she said she did not know whether or how often they were being used. In Basildon, England, the company operates First Data Resources Ltd., a credit and debit card processing operation for European countries, where smart cards have a firmer hold. There, Ms. Kennedy said, "they have been personalizing, transaction processing, and authorizing chips for at least five years, and manage up to three million chip-card-holder records."

Even so, "the U.S. has almost leapfrogged Europe in terms of what kinds of applications and what kinds of platforms they're using" in chip cards, Ms. Kennedy said. "Europe is looking to the U.S. now. They used it there for fraud reduction, where we're using it for security and privacy on the Internet."

Ms. Kennedy, who joined First Data three years ago from Norwest Bank (now Wells Fargo & Co.), predicts more U.S. banks will begin issuing chip cards soon. "The phone has been ringing off the hook" with calls from bankers interested in starting programs, she said. "They're understanding and appreciating that they're not replacing a card they have - they're adding robustness to it."

The migration to chip cards and to a greater use of wireless technology is prompting First Data to redefine itself, Ms. Kennedy said. In the future, the "presentation instrument" for a chip may not always be a piece of plastic.

"It could be a key chain, your phone, a wireless device - we're getting to the point where we don't care what that presentation instrument is," she said. "We want to set up networks and switches and payment and settlement facilities so that wherever the transaction takes place, First Data is there to handle it."

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