MasterCard International's board has formally endorsed smart card technology.

The action, at a meeting last weekend in Los Angeles, put an official stamp of approval on several activities already in motion.

On top of a similar vote in June by MasterCard's European affiliate, Europay International, the announcement adds momentum to what now appears to be an inexorable move by the banking industry to more advanced card systems.

"Virtually all" MasterCard products and card-accepting locations will be equipped to handle cards with computer chips inside them by the year 2000, the New York-based association said.

MasterCard did not specify the financial commitment that may be required of the association and its members, but Europay said it is willing to spend more than $1 billion over seven years "to lay the foundation for the next generation of payment technology [and] enable banks to begin introducing chip cards by late 1996."

May Replace Strip

MasterCard said its global business-case research projected net savings of $3 billion over seven years, through reduced fraud and processing costs.

Visa International has taken similar steps to prepare for a smart card future, and in fact is working with MasterCard and Europay on technical specifications that are Scheduled to be completed in the fall.

While there may be some differences of opinion on the details and pace of implementation - MasterCard claims to be more aggressive - all three associations are officially saying the chip will at least coexist with the current magnetic-stripe encoding system, and may ultimately replace it.

Smart card advocates point most often to France, where chips have become standard on bank and telephone cards and are credited with a significant reduction in fraud.

'Value Added' Potential

Bankers in countries like the United States, with more comprehensive telecommunications networks that permit immediate and reliable transaction authorizations, were slower to come around to smart cards. But they have begun focusing on the "value added" potential of chips, superior memory capacity.

"Chip technology has been successfully married with payment products in markets the world over," said H. Eugene Lockhart, president and chief executive of MasterCard International.

"It can be used to reward consumer loyalty through electronic couponing, open new markets by reducing our dependence on local telecommunications systems, and increase consumers' feelings of security by dramatically reducing fraud.

"We think that is only the beginning," Mr. Lockhart said.

MasterCard said it has gone beyond the framework of the joint specifications project by setting an implementation schedule.

It calls for global rules for acceptance and issuance of chip-based products by the end of 1995, and availability of point of sale terminals that take both chip and magnetic-stripe cards in 1996.

The company added that it expects to announce its first chip-based application within several months.

"The competition that is developing outside of our industry for a place in the cardholder's wallet is tremendous," said Richard A. Greenawalt, a MasterCard director and president of Advanta Corp.

"MasterCard's strategy is absolutely the right direction for financial institutions like Advanta to stay competitive by adding even more value to our customers' MasterCard-branded cards."

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