GE Capital Services's equity investment in Gemenos, France-based Gemplus-"significant" by some accounts-has some analysts praising the financial services company for its proactive strategy, while others are dubious of the venture's potential long-term benefits.

The apparent synergies between Gemplus and GE Capital seem too great to be coincidental benefits resulting from a standard corporate investment. "This gives (GE Capital) the keys to the castle around what the underlying technology is," says Chris Speer, partner of Deloitte & Touche's financial services practice. "They may, to some extent, be able to influence how it is developed and where it's rolled out." The possibility for that kind of joint effort exists, but the alliance status is still to be defined, says Gemplus North America president Brigitte Baumann. GE Capital officials declined comment.

But if GE Capital does work with Gemplus to develop smart card applications for financial services-perhaps tailored to GE Capital's card strategy-the company would clearly have an advantage when smart cards take off in the United States. "If I'm GE Capital and I have credit cards, private label cards, and I can add smart cards to that portfolio in a number of regions where I compete head-on with Citibank or Amex, it starts to differentiate me from the rest of the crowd," says Speer. "All of a sudden, I go from an aggressive marketer of card products to a technology leadership position." He adds that this alliance also jibes with GE Capital's aggressive strategy in Asia, a region where smart cards are expected to explode. "So you start putting the pieces together-GE Capital's interest in Gemplus, big investments in Asia-and things might start coming together for them."

Not everyone agrees. "It might be part of GE Capital's overall strategy to push further into the space where banks have typically been considered kings of the terrain," says Octavio Marenzi, research director for Needham, MA-based Meridien Research. "But taking an equity stake in the manufacturer of smart cards isn't necessarily the right way to go about doing that." He likens the move to banks purchasing ATM manufacturers.


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