To understand just how dramatic a reversal of fortune smart card technology is confronting in the United States, listen to what some of its big-bank adopters are saying - and consider the real-world applications they intend to bring to market.
"The last time I was this excited was when I introduced the GM card," said Joseph Saunders, chairman and chief executive officer of Fleet Credit Card Services, who was at the helm of Household International's card division when it began issuing the groundbreaking and cobranded General Motors MasterCard in 1992.
On Friday the FleetBoston Financial Corp. subsidiary formally made available its first smart card, Fusion, becoming the first Visa/MasterCard issuer to offer magnetic-stripe credit cards with microprocessor chips to the general public. Anyone can apply for the card through the www.fusioncard.com Web site, and Fleet will send direct-mail offers around the country.
"We're betting a lot" on smart card technology, "because we think it is the future," Mr. Saunders said.
Fleet is one of three bank issuers that Visa U.S.A. identified last week as customers of its new "Smart Visa" chip card product. The others are Providian Financial Corp., which said it will begin promoting its soon-to-be-launched Providian Visa with Smart Technology card shortly through direct mail; and Bank One Corp.'s First USA division, which is keeping fairly mum about its plans but says it will have a product available by yearend.
Interestingly, Fleet decided not to put its name on the front of Fusion, in part because it plans to market the card well beyond the geographic reach of its retail bank.
On the flip side, Providian, which already does business nationally but does not have a sizable branch structure, has made its card the first with the Providian name on the front. The card is a cornerstone of Providian's push to emphasize its own brand.
Fusion is a Visa product. In July, Fleet quietly switched its allegiance from MasterCard International to Visa U.S.A. Mr. Saunders, a former chairman of the MasterCard board, offered only a terse explanation: "We believed it was strategically the right decision for us."
The jolt of smart card activity is taking place roughly a year after American Express Co. formally introduced Blue, the first mass-market U.S. smart card, on Sept. 8, 1999. Blue's popularity seems to have inspired some credit card industry veterans, who may have previously felt that the chip was still not ready for prime time among U.S. consumers.
"Blue has been an enormous success for us," said American Express spokeswoman Judy Tenzer. "We continue to work to look for new applications we can put on the chip."
At first Blue's chip could only be used for Internet security. Cardholders who requested a free card reader to attach to their computer could authenticate their identity through a digital certificate stored on the smart card. They also got a free e-wallet to make online shopping less of a hassle.
Over time American Express added more uses for the chip. Under a "BlueLoot" program, customers earn a point for every dollar they spend with Blue (online or offline), and points are redeemable for merchandise, including books, CDs, gift certificates, and camping gear.
Last summer, under a promotion with the SFX entertainment group and TicketMaster, Blue cardholders who ordered certain concert tickets through TicketMaster's Web site got the ticketing information loaded on their cards, which they could then take to the concert venue and exchange for paper tickets.
"We introduced Blue to be an evolving product," Ms. Tenzer said. "American Express believes in smart cards and their benefits for both consumers and merchants. We're happy to see more people in the marketplace embrace the technology - I would only wonder why it took this long."
Price and the lack of a compelling business case are the reasons banks cite for holding off on chip cards. Just last week Visa formally introduced a set of smart card tools that work on a consistent platform and are cheap enough - as little as $3 a card - that just about any bank can use them to create its own program.
"Last year those chips were $10 or $12 each," said Michael Abbott, senior vice president of e-commerce at Fleet. "It really wasn't viable from a market standpoint. It's just the evolution in the last six to nine months" that has put this technology within banks' financial grasp.
Fleet has been developing its smart card program for more than two years. Fusion, with 32K of memory, comes loaded with three applications: credit/debit payment capabilities (which will probably not come into use until terminals that accept smart cards become more common at the point of sale); an Internet authentication feature (which lets cardholders identify themselves everywhere on the Web with a single password); and a loyalty feature (which lets people amass points, rewards, and discounts, and buy and redeem electronic tickets).
"Out of the gate it has the ability to load and delete multiple applications on a post-issuance basis," Mr. Abbott said. "We're powering the car with a V-8, not a lawnmower engine."
That swipe is probably aimed at Providian, which initially is providing a chip with eight kilobytes of memory and says it will give customers more powerful cards "as the technology evolves to 32K." Blue has a 32K memory capability, according to American Express.
Fusion "is the next-generation clicks-and-mortar credit card strategy," Mr. Abbott said. "In 1980 only about 10% of transactions used magnetic stripes, and now it's about 100%. You're looking at the same revolution about to happen here."
Mr. Saunders said Fleet Credit Card will be "embellishing the functionality of this card over the next six to 12 months," ultimately tying in its marketing alliances with Lycos Inc., Go2Net Inc., and 24/7 Media Inc.
"What we expect is that during the first quarter we will wind up with a substantial number of e-commerce merchants that will be capable of reading the chip," he said. That "will allow us to effect a one-click checkout environment for our customers."
This set of advances is expected to reduce the number of fraudulent Internet transactions. "It will make a 'card present' transaction for a merchant," Mr. Saunders said. "It will make the checkout simpler. It will eliminate or significantly reduce the number of defections at the checkout counter.
"It will make the process eminently simpler for an individual, and even safer than the e-wallets that are out there, because all the information resides on the chip, not a remote server."
Fleet and American Express are giving away free card readers - Providian will give away 50,000 of them, then will charge $19.95 for the rest - but these attachments will become obsolete, since most of the major computer manufacturers have pledged to build smart card readers into their hardware.
First USA, the only bank on Visa's press release that has not trumpeted its smart card plans publicly, seemed a little puzzled to be included on the release before it was ready to make noise.
"Based on what we've seen, the product we're going to launch has some features and functionality that go beyond what we think is currently available in the marketplace," said a reluctant Jeff Unkle, a First USA spokesman. Will it be cobranded? "Initially it will be a First USA product," he said, adding that details will be revealed later this year.
It is expected that all the U.S. banks that launch smart card programs will begin by giving consumers ways to use the chip on the Internet. From there, more uses will arise as chip readers make their way into society, both in traditional merchant locations and through wireless devices.
"It's a chicken-and-egg story - do you wait for the merchants to put all the readers into the shops, or do you come out with a card that creates the demand and tells all the merchants to put the readers in the stores?" said Bill Buchanan, senior vice president at Providian. "We've elected to be a leader. These moves will allow the merchant network to see that consumers want this kind of technology."
Providian says its card stands out for its design. The plastic is translucent and bluish-gray, and Providian said it was created by Colorado Plasticard Corp. using a patent-pending process that incorporates "Stealth technology-developed ink." American Express had wanted to use clear plastic for Blue, but production complications led the company to issue it in an opaque white.
While Providian's mail offers, which will target to wealthy consumers, may start reaching people soon, as of now there are only two smart cards for which every U.S. consumer can apply: Blue and Fusion. This early-to-market advantage may help their issuers during the Olympics, when Visa, a sponsor company, plans to run nationally televised chip card advertisements.
The early-out advantage is not lost on Mr. Saunders, who confesses that despite his many years in the cards industry, he still has not seen it all.
"I am very bullish on this product," he said. "I expect it to be a significant success. We're prepared to put the cards out. We're prepared to put them out in a timely basis, and we're prepared to issue a lot of them."
