Smart cards have friends in high places.
The federal government, in a pattern it has followed with other advanced technologies, is a major user of the card with a computer chip inside, and is responsible for much of its progress to date in the United States.
That progress has been relatively modest, but the government's support may be ratcheting up a notch in the wake of the recent National Performance Review, better known as Vice President Gore's "reinventing government" task force.
In the task force's report, published last month, was a ringing endorsement of the chip card as an instrument of "electronic government," particularly in the delivery of welfare, food stamps, and other government benefits.
Proponents of the smart card have been hoping that more government activity will rub off on the private sector.
A Practical Matter
And the task force recommendation is not an idle one, according to Joseph J. Leo, a Department of Agriculture official who served on the vice president's
task force and who was instrumental in getting smart cards into a section of the report called "Reengineering Programs to Cut Costs."
Among the dozens of recommendations in the report is the one catalogued as USDA07: "Use electronic technology to distribute food stamp benefits, thereby improving service and reducing the need for current paper stamps."
The recommendation itself did not specify a preferred technology. "Technologists and the private sector can decide how to do the job best," Mr. Leo told the Smart Card Forum, a group that wants to help the technology spread by promoting standardization.
"We have a toehold," he added, "and it's right there in a presidential report."
Mr. Leo's speech was ambitiously titled "The Role of Smart Cards in Reshaping America," indicative of his role as a champion of the cards and related payment technologies within the government.
Attending the Smart Card Forum were about 200 people from banking, technology, and other fields. They had to be heartened by Mr. Leo's message and his enthusiasm for the technology.
He reported that Vice President Gore is taking a personal interest in this aspect of modernizing government.
When it came time to brief Mr. Gore, Mr. Leo had prepared - but said he didn't have to recite - a persuasive argument to drive home his point about the inherent efficiency of card-based government payment programs.
"I didn't have a tough selling job," said Mr. Leo, who, as deputy administrator for management of the Food and Nutrition Service, has overseen the substitution of cards for food stamps in several states.
"He [the vice president] said, |We have to turbocharge this effort.'"
Banks and regional automated teller networks, a few of which are already involved in electronic delivery of food stamps and other benefits, can indeed thank the government for its groundwork. Or at least they will thank government when enough volume materializes to make the transaction processing, and perhaps the smart card, profitable.
Because of limited federal funding, progress has been slow, and smart cards have been only selectively tested. Only in Maryland has a card-based benefits transfer system completely muscled paper methods aside, and those cards carry the traditional magnetic stripe.
Regardless of the card technology, the Gore report is clear about the desirability of automating benefits, through federal initiatives and in programs that states help administer.
"We will support [the Department of] Agriculture's commitment to the goal of issuing food stamps electronically by 1996," the document said under the "electronic government" heading. "Electronic benefits transfer could eliminate the paper chase, improve services to customers, and reduce fraud.
"At the same time, it could be used to authorize Medicaid payments, distribute welfare payments, infant nutrition support, state general assistance, and housing assistance. It could eliminate billions of checks, coupons, and all the other paperwork, record keeping, and eligibility forms that clutter the welfare system."
Mr. Leo added that the Office of Management and Budget is overseeing, through another task force, an aggressive effort to have a national plan for electronic benefits in place by March 1994.
"Vice President Gore has requested that he be kept informed," Mr. Leo said. "The intention is that we have nationwide EBT [electronic benefits transfer] by 1996, which means every state will have begun implementing by them."
Meanwhile, federal benefits agencies and the Federal Reserve are continuing to discuss ways of removing an obstacle to EBT in the Fed's Regulation E.
Adhering to the letter of a 1978 consumer protection law, the Fed wants to impose on electronic benefits programs the same disclosure and liability requirements that bank automated teller machine programs must comply with.
The "reinventing government" report referred obliquely to the problem, saying, "We will have to eliminate some regulations that would prevent this radical change in how government operates."
Mr. Leo said "a high-level group" is holding meetings on the Reg E issue, and he is optimistic they will arrive at a solution that will permit the government to innovate.
Elsewhere in government are some long-established smart card programs.
The Department of Defense, a providing ground for many technologies, has or is finding numerous uses in the armed services for personal identification, privacy protection, security, and data storage.
Michael Noll, deputy director of information technology resources, said smart cards can help ensure data accuracy and security in the increasingly decentralized information systems that Defense is adopting.
One of the more visible smart card applications is in the Agricultural Stabilization and Conservation Service's peanut quota system.
After a 1985 test in three Georgia counties, smart cards were eventually issued to replace a cumbersome paperbased documentation system for 70,000 peanut producers at 540 buying points in 16 states. The states administer the government program to control peanut sales, and the smart cards work like debit cards, keeping track of the respective growers' "accounts" without requiring entries in a centralized paper file or computerized data base.
Dallas R. Smith, director of the Stabilization and Conservation Service's tobacco and peanut division, gave the Smart Card Forum a year-by-year account of his card program and its inevitable technical glitches. Not until 1992 was the peanut quota system able to operate without outside contractor support.
In the end, the department calculated that for its approximately $12 million in discounted system costs, in 1985 dollars the benefits will be $27.2 million between 1985 and 1986 - a benefit ratio of 2.27 to 1.
It is not lost on the smart card industry that President Clinton has mentioned its technology in his musings about health care reform. Nothing would do more to create a mass chip-card market than 250 million national health identification cards.
The Smart Card Industry Association, a four-year-old suppliers group, has vowed to campaign actively for a role for the card in health care.
"We will be making its case to government committees, service providers, and to the consumer - without whom this industry. cannot survive," said Janet Sayles-Falls, executive director. She described the technology as "the best way to protect the privacy of medical records while offering patients more control over their files and more freedom in seeking alternate sources of health care."
Applied Systems Institute, a Washington firm active in the forum and in numerous smart card projects, will be making that case in "Health Care and Smart Cards," a presentation Nov. 17 to the North American Telecommunications Association's Unicom '93 conference in Washington.
Accordance to ASI vice president Peter J. Ognibene, medical care can be more efficient and diagnoses more accurate because the smart card memory can contain patient histories and insurance files. He estimates the implementation cost would be $200 per computer and $3 to $4 per card when issued in the millions.
Mr. Leo of the Department of Agriculture urged the Smart Card Forum to stay focused on the goals of streamlining systems and satisfying customers, rather that get bogged down in debates over whether smart cards are superior to entrenched, on-line information technologies.
"Why can't you do both?" he said. "Technologies can coexist on the same card, as in our demonstration in Ohio" -- a smart card test in the Dayton area.
He also pointed to the Defense Department's Multi-Technology Automated Reader Card, known as MARC or Multicard, as proof that coexistence is possible.
Those cards have bar codes, magnetic stripes, embedded computed chips, embossed and printed information. Initially they are to be tested as identification cards for health care, and the range of technologies creates numerous options for future applications.
"We have to make it easy for the customer," Mr. Leo said. "We can't issue 10, 15, or 20 different cards. And the technology cannot be unaffordable.
"One of the principal assets of the smart card is its security features -- they are overwhelming, at a small cost."
The rapid early growth of the Smart Card Forum, and the attendance of 200 at its first formal open meeting, may indicate that the 20-year-old technology is finally poised to take off.
Since the forum announced its incorporation in August, the membership doubled, to 51 at the time of the Sept. 30-Oct. 1 annual meeting in McLean, Va. Members pay dues of $1,000, $10,000, or $15,000, depending on the desired level of activity and access.
The 15-member board includes representatives of Citicorp and Bank of Montreal; MasterCard, Visa, and American Express; and several manufacturers of cards and card-reading terminals. Technology powerhouse like AT&T and IBM, Apple Computer, and Microsoft are members.
Catherine A. Allen, a vice president in Citibank's corporate technology office who played a key role organizing the forum, is its chairman. She announced an ambitious schedule of meetings and reports for the Smart Card Forum and its working groups, culminating in a second annual meeting next September.
The various working groups are assessing their respective markets and the need and potential for "interoperability standards" for smart cards. The panels are inviting contributions from outside experts and consulting with other organizations such as the Electronic Funds Transfer Association and Smart Card Industry Association.
Ms. Allen has been heading the forum's financial services working group, but with the added demands on her time will relinquish that role to Ronald Braco, a Chemical Bank vice president and Smart Card Forum director.
It's a key working group because "financial services and payments are viewed as the glue tying together many new [technology] developments," Ms. Allen said. The technology can allow for the creation of a "virtual bank," available at any time. wherever a customer is.
"Consumers increasingly will carry devices that connect over public networks and require security" that the smart card can ensure, Ms. Allen said.
Ms. Allen has yet to persuade MAC, the automated teller machine network owned by Electronic Payment Services Inc., to join the forum. MAC, which is developing a prepaid, or stored value, smart card system, attended some preliminary meetings but is reluctant to share information with potential competitors.
At the least, "we will ask them to make presentations," Ms. Allen said. "We hope to bring them in, because they are doing something very important in the Philadelphia market."
