Undaunted by consumer indifference to smart credit cards, Visa U.S.A. says it is poised to introduce both a smart debit card and an application that some people in the chip world think may become a killer app: a rewards feature that will take advantage of the chip's memory to track cardholders' loyalty points.
Diana Knox, Visa's senior vice president of emerging channels, said Tuesday at the 14th annual Card Expo and Forum in Washington that there has been "a lot of issuer interest" in smart Visa check cards, and that a product would be brought to market soon. The technical obstacles to adding chip technology to the debit function are negligible, she said.
An executive at Providian Financial Corp., who spoke on the same panel as Ms. Knox, said that a rewards feature would probably be popular, but that a standalone smart debit card did not seem as compelling as the credit card product. Then again, though Providian is one of the three banks currently offering the smart Visa credit card, Providian does not offer deposit accounts, and therefore would not be eligible to issue a smart Visa debit card.
"With combined functions, the consumer would see value," said Elizabeth Tse, the senior vice president in charge of Providian's smart card program.
Addressing merchants' tepid enthusiasm for smart cards, Ms. Knox also told the forum that for the last 18 months Visa has been working on a smart card platform that would plug into different issuers' loyalty programs, a first in the marketplace. Many merchants, she said, have told Visa that they would be more enthusiastic about smart cards if more banks offered them and if they did more things. Visa realized that satisfying these demands would require building new network infrastructure that could facilitate multiple issuers and multiple merchants, Ms. Knox said.
"We have no intention of defining a rewards program, but we wanted to build a network" that can provide marketing and customer service support to participants, Ms. Knox said. Without that infrastructure, she said, issuers have largely been on their own - with eye-catching but expensive microchips but nothing much to do with them.
Smart Visa cards have always been programmed so that they could accommodate a rewards application, which issuers have been free to use in their own fashion, she said. The problem was "they found there weren't a lot of off-the-shelf, ready-to-go, end-to-end solutions" out there, and "heavy development" was required if they wanted to take advantage of the feature.
Visa has not decided whether it wants to support such an infrastructure forever, but it wanted to see if it could at least "get the market moving," she said.
Sitting on the six-member panel with Ms. Knox, David Bonalle, the vice president and general manager for advanced payment development at American Express Co., expressed some reservations about Visa's beneficence. "I think it's a fantastic initiative, but it's important to have interoperability across the associations," he said. Mr. Bonalle added that Visa, MasterCard, and American Express would each play a role in developing loyalty programs that would boost the smart card market.
Alison M. Colquhoun, the vice president of smart cards for the First Data Resources subsidiary of First Data Corp., said that a Visa "smart rewards" programs might spark merchant interest in the next six to nine months. But, she said, contrary to popular belief, "smart-card-enabled merchant terminals are going out to North America." Twenty percent of the card terminals shipped this year by First Data have been "smart-card ready," she said.
Ms. Tse of Providian said a flexible rewards program would change the relationship between issuer and cardholder. "Think if you could save points not just with a national retailer, but with a local dry cleaner and a regional supermarket." Customers probably would not defect from those cards, "because it would be hard to rebuild those points" on another, she said.
Ms. Colquhoun said that one hurdle for multirewards cards would be sorting out the commercial arrangements. For example, she said, people who hold the American Express smart corporate card with Continental Airlines and Hilton hotels, which was introduced in late 1997, might get confused when they require customer service. "Do I phone American Express about my Hilton hotel room, or do I phone Hilton if my plane is not on time?" she said.
Another possible point of contention for flexible loyalty programs might be which logos get printed on the card, or which one gets the most prominence, she said.
First Data faces one particularly "huge challenge" in the general migration to smart cards, she said. Replacing a lost or stolen smart card is a much bigger challenge than replacing one with a magnetic stripe. The operation of "card replacement" becomes "card reconstitution," with the quest to find out "what was on that card the day it was stolen." Not only the data on the card but the versions of the applications it used would have to determined and recovered, she said.
And more could be at stake than financial or retail data. Paul Beverly, the vice president of smart cards and e-transactions for SchlumbergerSema and the president of the Smart Card Alliance, predicted that in the future people will carry one card - with a microchip, of course. The smart card, he said, will be "the bridge" for multiple functions, including payment applications and identification features used, for example, by the government. "I don't think we can avoid that convergence," he said.
But Ms. Tse of Providian said that liability issues alone would probably deter financial institutions from getting involved in any government projects to build identity cards. "As an issuer, I am capable of telling whether someone is good based on whether or not they pay their bills, but not whether they are a good or bad person," she said.
Ms. Knox of Visa said that there is "a point of diminishing returns in how many applications you can put" on a smart card. "Consumers won't remember everything these cards can do for them," though limits would probably vary by individual, she said.
Mr. Bonalle said that American Express has realized that its smart card customers appreciate their cards for different reasons. "There are distinct segments," he said. For example, "there is one that values online security, and there is another that does not." American Express has learned not to try to market "the ultimate card," he said.
