REPORTER'S NOTEBOOK: Fight Is on for Smart Card Share, Banks Told

Technology exists to make bank card programs more profitable, but banks must do a better job of using what's available, according to several speakers at a recent conference.

Faulkner & Gray's Card Technology Conference '96 provided an overview of innovations in the card industry over the past couple of years.

It also provided an escape from the brutal winter weather affecting the Northeast and the Midwest. The 350 attendees, sporting summer clothes and winter sniffles, were treated to some of Florida's gentler temperatures last week at the Doral Golf Resort and Spa in Miami.

The better part of day one was devoted to an update on smart cards - plastic payment cards with embedded computer chips. Attention subsequently turned to biometrics, the use of human characteristics, such as fingerprints or retina scans, to identify cardholders.

Signature capture wrapped up the first day of lectures. But after lunch, more attendees may have been found teeing off than taking notes. The luxurious resort offered 99 holes of golf on 2,400 verdant acres.

Day two covered client/server computing, neural networks, and electronic commerce.

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Keynote speaker Philip P. Verdi, executive vice president, electronic services group, MasterCard International, discussed the advent of smart cards.

He warned that software companies and the telecommunications industry are trying to capture part of the electronic cash bonanza, and "they will if we're not careful." The market is being driven by "those who want share and those who fear losing share," he added.

Mr. Verdi focused on stored value - the initial emerging application for smart cards in which electronic money is stored on a chip and debited through terminals at the point of sale.

He highlighted revenue opportunities from interchange fees, new services like electronic couponing, new points of interaction like vending machines and parking meters, and advanced risk management techniques through the increased capacity to store consumer information on the chip.

Mr. Verdi also downplayed the fight between Visa and MasterCard over standards for electronic commerce. He assured the audience that the associations are "working side by side."

Catherine Allen, vice president of business development and alliances for Citicorp, emphasized the need for bankers to react quickly to the competitive challenges brought on by smart cards and electronic commerce.

"If Microsoft had their way they'd issue a (smart) card and have consumers download applications onto it," like Visa, MasterCard, and American Express. She said consumers were very interested in this type of multiapplication card.

"Bankers need to be more flexible, adaptable, and quicker to market," to keep up with their new competitors, she added.

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Several conference attendees, mostly mid-level bank executives, technology company executives, and some retailers from the likes of Kinkos Inc., the copier giant, and Exxon Co., found the presentations informative.

Kinkos' Bernadette More, manager of program development, said she had come to find out if the new technology "could help solve our business problems." Kinkos, with its own private label corporate card, is interested in issuing smart cards for use in copiers, computers, and other unattended machines, but she added that after hearing the lectures, "the technology's not there yet."

Some called the conference a review, and many expressed disappointment at the poor showing of exhibitors. Only about 10 booths were set up. Kurt Peters, senior vice president of Faulkner & Gray Inc. and conference chairman, called it a "typical show of vendors for a first-year conference."

Others said many exhibitors saved their promotion dollars for the CardTech SecureTech conference, a far larger event, scheduled for May, where they might get more for their money.

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Rebekah Schloss, senior project manager, Interbold, reviewed developments in biometrics, including hand geometry, voice recognition, signature recognition, retinal scanning, and fingerprint readers.

She said the budding technology must "achieve the same level of accuracy" as the personal identification number, which has proven effective and is accepted by consumers. She also pointed out that biometrics will require additional equipment at the point of sale. "Like any technology, you have to look at the business case - biometrics are not right for every scenario."

Kirk Ergang, senior vice president of Cash Station, said it would be very difficult to introduce biometrics to the existing system. "Who pays?" he asked.

Addressing the crowd of industry experts, he quipped, "When you think about teaching consumers" to use the techretinal scan.

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A part of day two was devoted to electronic commerce. Speakers Magdalena Yesil, vice president of marketing for CyberCash Inc., and Einar Stefferud, founder of First Virtual Holdings, presented differing views on secure Internet transactions.

First Virtual, with 1,000 merchants and close to 10,000 users, believes credit card numbers can never be safe on an open system. With First Virtual, the credit card information remains off the Net in a First Virtual account. A series of electronic mail messages is used to complete sales transactions. The process can take up to 10 days. "To compromise the system, (a hacker) must have access to the user's mail box," said Mr. Stefferud.

CyberCash, processing over 10,000 transactions daily, claims it has 500,000 CyberCash Wallets in distribution. The system is marketed through banks, and uses a 768-bit algorithm to encrypt credit card information traveling over the Internet. Ms. Yesil said it would take a computer 200 years to break the code.

The system is marketed through banks and credit card associations.

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