Most U.S. bankers remain outcasts from the world of smart cards.

Unimpressed or disappointed by their biggest market tests - at the Atlanta Olympics in 1996 and on New York City's Upper West Side last year - many came to the conclusion that building a new card payments infrastructure would be too costly and of little use.

Yet momentum for cards carrying computer chips is building both in payment systems abroad and in other industries at home, and the U.S. banking community is vulnerable to criticism for not stepping up to the new technology fast enough and for falling behind the rest of the world.

"Banks are largely unconvinced of the benefits of smart cards in the U.S.," said Duncan Brown, director of North American research at Ovum Inc. in Burlington, Mass. "The realization will have to come, otherwise they're going to find themselves in a position where they don't have any say in how the smart card market develops."

As long as the banks are on the sidelines, telecommunications companies, information technology developers, and transportation authorities all may be in position to seize the payments territory that historically belonged to financial institutions.

One institution that is trying to get in on the early action - in a gradual way - is PNC Bank Corp. of Pittsburgh.

"It's pretty hard to believe we can jump from nothing to something and do it well," said Janet M. Mendenhall, vice president and general manager of merchant services at PNC. "The chance to understand how eliminating cash from the payment system or adding another path for the payment system impacts our organization and our customer base is a huge opportunity for us."

PNC Bank is participating in a smart card program with the Pennsylvania Turnpike Commission. Cards were issued to 300 turnpike employees last March for access to buildings and for automated toll payments. The bank also has smart card programs running at the University of Pennsylvania and Robert Morris College.

Transit and parking applications have caught the interest of other banks. Fleet Financial Group finished a nine-month pilot in June with the city of Boston, combining chip cards with parking meters. The Boston-based bank said the smart cards increased revenue by 78% during the first month, a figure that was subsequently matched or exceeded.

The city is evaluating its options for further implementations, according to Fleet.

Both Fleet and PNC not only see these initiatives as a way to test smart card technology, but also as a way to strengthen ties with major customers.

"We used the technology to solve a problem our customer had," said Allen Pease, vice president and smart card project manager at Fleet. "Based on what we learned, we will be aggressively pursuing other opportunities to deploy the product."

Mr. Pease said Fleet was looking for other situations where an electronic purse could replace coin or small-dollar transactions. It is also looking for partners to add applications to the card, sharing the integrated circuit's real estate.

First Union Corp. is issuing 1,000 cards for a six-month pilot with the Washington Metropolitan Area Transit Authority. The Charlotte, N.C., bank is adding its automated teller machine function to the contactless cards that will be used for transit.

Michael G. Love, vice president of the consumer group at First Union and a vocal proponent of electronic purse cards, said he "can't understand why other banks aren't doing transit pilots."

"We found a way to take a low-risk approach," Mr. Love said. "What we're doing now is partnering with people, so that together we bring more functionality to our collective customers."

First Union has also identified college campuses and military bases as initial niche markets.

Mr. Love, like other advocates of the technology, foresees smart cards as user-authentication tools for on-line banking and electronic commerce. Wells Fargo & Co. has discussed similar uses for Mondex smart cards, and it and First Union, are reportedly enrolling 100,000 new Internet banking customers a month.

"If that is going to be the access point of choice for our customers, we want to make sure that we can securely identify them and give them as much access into the bank as if they were standing there in person," Mr. Love said. "One way to do that is through digital certificates, and we think the safest place to store them is on smart cards."

Two major banks that have been active in smart card experimentation have opted not to participate in a major transportation initiative. Citigroup and Bank of America Corp. dropped out of the bidding for the San Francisco Bay Area Translink program, which is designed to unify the payment system of 26 participating transit agencies.

Both banks declined to state their reasons. Bank of America said it had the option to rejoin at any time and that, in general, it saw transit applications as a good use for smart cards.

Judy Darr, executive director of enterprise commerce at Citigroup, said, "We've looked at transit opportunities in the past and have decided not to proceed on any of them, primarily because the open purse which Citibank has supported is not the focus of transit at this time."

Citigroup has allocated its smart card resources for government applications, college campuses, and business-to-business commerce.

"Our focus is really on multifunction cards," Ms. Darr said. "We're very interested in the security side of the function'' as well as a General Services Administration program that promotes various payment and other uses of smart cards.

Citi and Visa began a trial with the GSA last May, issuing 450 cards to employees at the agency's Willow Wood building in Fairfax, Va. The card serves as a commercial charge card, provides authorized entry to secure building areas, tracks the movement of office equipment, and employs digital certificates and biometric identification in electronic mail and computer log-ons.

GSA cardholders are able to use smart card readers at 90 airports to automate check-ins on American Airlines flights. The cards also serve as telephone calling cards for business purposes.

Citigroup is working on some smart card programs on college campuses but could not say more about their plans for implementation. The college market has already been staked out by Cybermark, a joint venture of Huntington Bancshares and Battelle Memorial Institute, both of Columbus, Ohio; the student loan agency Sallie Mae; and Bank One Corp.'s First USA subsidiary.

Bank of America took a step in a different direction with an employee pilot in California using smart cards for on-line shopping.

Several hundred cards were issued to B of A and Visa U.S.A. workers in August 1998 enabling on-line purchases from 10 merchants. Cardholders can load cash value using a Smarty, a floppy-disk-shaped device that enables the smart card to be read by a personal computer.

The program is slated to continue indefinitely and Bank of America plans to offer it to its customers in the future.

"Smart cards will be one of the leading devices to secure transactions over the Internet," said Brenda Yost, head of B of A's smart card group.

Industry analysts warn that chip technology might be bearing down on the banks faster than even some early adopters may think, driven by companies such as Microsoft Corp., which is making provisions for smart cards in many of its software specifications.

"Within about 12 to 18 months, I would suspect a change," said Mr. Brown of Ovum. "Banks need to have a strategy in that time period." n

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