McLEAN, Va. -- Now that it has completed its conversion to smart card technology, the French bank card industry is trying to persuade the rest of the world to follow.
Its argument is less motivated by a desire to export French technology - which the banks don't own - than by a desire to have all countries fighting fraud with what is touted as the best weapon available.
In a spirited pitch to the Smart Card Forum, a multi-industry group promoting the technology in the United States, two French credit card executives argued that the cards have proved their effectiveness under the stresses of their national market.
Difficult to Counterfeit
The computer chips embedded in smart cards are more durable and hold more customer data than the magnetic stripes that are the prevailing international bank card standard, and are difficult to counterfeit or use illicitly.
"The chip is the only technology based on an international technical standard that can be implemented worldwide and offers an evolutionary technique to fight fraud," said Bruno Paoli, director of the information systems division of Groupement Carte Bleue, the French Visa organization.
The value of card payments in France's Cartes Bancaire system, which includes Carte Bleue and MasterCard's Eurocard affiliate, rose by 25% between 1990 and 1992. But in 1992 alone, fraud losses fell by almost 25%, to $72 million.
The industry is forecasting a 38% reduction this year, to $45 million, according to Paul Trecasses, director for risk management and security of Groupement Des Cartes Bancaire, the umbrella organization for the French bank card industry.
Counterfeit losses this year should be about $9 million, less than half what they were in 1991, Mr. Trecasses said.
But 30% of the remaining fraud occurs on French cards outside the country. Fearing further increases in international fraud, Mr. Paoli and Mr. Trecasses want other national card associations to get on the smart card bandwagon.
Mr. Paoli described the chip card as "the right technology" and "the only technology with a path to the future," because it can accommodate existing systems by not requiring hardware changes at merchant locations while allowing for a "migration to the next levels of security."
Much of the international resistance is tied to the relatively high cost of the cards and of converting systems to accommodate them.
Smart-card critics in the United States also point out that the technology was better suited to France, which historically had high telecommunications costs and a poor infrastructure for authorizing card transactions. The chips in the cards promote "off-line" verification and approval of transactions, whereas merchants in most other developed countries typically get on-line authorizations by inquiring into remote data bases.
At the Sept. 30-Oct. 1 public meeting of the Smart Card Forum, the first of the group organized by Citicorp and major nonbank corporations to encourage cross-industry technical standards, Mr. Paoli and Mr. Trecasses were preaching to the converted. Their audience of about 200 included members of the MasterCard International and Visa International staffs who are working with the new technology, in some cases cooperatively.
Lawrence Ladouceur, a MasterCard vice president and Smart Card Forum board member, said the two associations are near agreement on "entry-level standards" for smart cards.
Visa has promised to issue specifications this quarter for integrating microcomputer chips in bank cards.
Though smart cards are several times the price of standard cards and would require a sizable investment to convert or replace retail card-reading terminals, their advocates claim the investment would be recouped in reduced fraud and credit losses.
While the French banks spend about $2 per smart card - roughly $42 million to equip all 21 million cardholders - they are halving the expense by extending the validity period from one year to two.
Mr. Trecasses said an extension to three years is under consideration.
Though he might prefer that the global banking community make the same decision the French made in 1989 and plan a three-year conversion to smart cards, Mr. Paoli endorsed a gradual transition via the "cheap chip" that has been proposed by Visa International.
One of several antifraud measures being promoted or tested by Visa, a cheap-chip card can be produced for about 50 cents. The cheap chip lacks the memory and transaction capacity of a microprocessor device, but it can verify the authenticity of the card to which it is attached.
Visa plans to test the cheap chip in France as it explores the feasibility of on-line card authentication methods, which compare numbers that link the encoded customer information to the actual piece of plastic.
"We believe this can solve our problem in the international arena," Mr. Paoli said.
Preference for Cheap Chip
He said he strongly prefers the cheap chip over two other authentication methods - holomagnetics and Watermark magnetics - which are designed to bolster the magnetic stripe against alteration and counterfeiting.
"They are sealed on track one" of the magnetic stripe, "and track one is not used in France," Mr. Paoli said.
"Internationally, the mag stripe will be dominant for a long time," Mr. Paoli conceded. But he added that something must be done to counteract the ease of altering, duplicating, and skimming information from, the stripe.
The same reasoning led Visa to incorporate the cheap-chip test in the series of card security initiatives known as CardShield.
"It's going to take the industry five to 10 years to evolve to smart cards," Visa executive vice president Roger Peirce said last month. "In the meantime, the mag stripe will stay predominant."
In its Sept. 13 CardShield announcement, Visa International said. "Integrated circuit technology will complement the magnetic stripe to support individual local market needs. Visa's strategy is to provide a chip solution that will work with the magnetic stripe to provide the ultimate in card security."
None of this satisfied Jerome Svigals, the Redwood City, Calif., consultant, newsletter publisher, and smart card enthusiast. He said the stripe enhancements - holomagnetics and Watermark magnetics - do not go far enough, while the cheap chip is a half-measure that is "just a different way of comparing the. codes."