Visa International has teamed up with Gemplus and Sun Microsystems Inc. to introduce multi-application smart cards that cost $3 each when ordered in large volumes - about half the price of other smart cards, the companies were to announce this morning.
The impetus for the program, according to sources in the smart card industry, is that at least nine of the largest U.S. credit card issuers have committed to use the cards, guaranteeing the collaborators the volume they need to offer such a low price. The banks that are said to be participating are Bank of America Corp., Bank One Corp. and its First USA credit card division, Capital One Financial Corp., Chase Manhattan Corp., FleetBoston Financial Corp., Citigroup Inc., MBNA Corp., Providian Financial Corp., and Wells Fargo & Co.
Visa U.S.A. and some of the individual banks are expected to make announcements this week about the pilots they will conduct and the extent of their commitment to chip card conversion. Some of the news may not emerge until after the Olympics, sources say, so that Visa does not detract from the investment it has made in its sponsorship of the games.
The companies that developed the flexible and low-priced smart card product, GemXpresso Lite, say it can host various combinations of applications, including electronic purse (or stored value), loyalty programs, and secure Internet access. The cards use Sun Microsystems' Java technology and operate on the GlobalPlatform consortium's Open Platform security system.
Depending on how large a commitment the participating credit card issuers choose to make to chip technology, the long-prognosticated migration from magnetic stripe cards to smart cards in the United States could take place soon rather than later.
"I had sort of come to the conclusion that the PC industry's acceptance and usage and deployment of smart card readers as a standard element in PC architecture would be the defining event in the financial industry's deployment of smart cards," said Charles Cagliostro, executive director of the Smart Card Industry Association in New York. "If the banks are committing to deploy it, that changes things. If it were portfolio-wide, that would really shake things up in the United States."
Jerome Svigals, a technologist and longtime smart card consultant in Redwood City, Calif., said that the companies behind GemXpresso Lite "must have a pretty significant forecast [for orders] to get a price that's that low."
Smart card conversion "is going to happen" in the United States, he said. "There's a lot more revenue potential in the multi-application smart card than the credit card, and banks want to tap that," Mr. Svigals said. "There's also a lot more convenience, and that's going to attract the potential users. The multi-application thing is what's exciting."
With most smart card systems, banks must define long in advance which applications they want to put on the cards, and the cards are built to order by the manufacturer. Under the open operating system that underlies GemXpresso Lite, applications can be built on personal computers and modified using software, so that banks do not have to order new stocks of cards whenever they want to change what people can do with them.
"This is a new technology," said Hubert Coyne, director of banking and retail for Gemplus in France. "It has existed for 18 months, but has not been sold in volumes in banking."
He said two small pilots have been conducted: one in Hong Kong by Citibank, and one in Singapore by the British bank Standard Chartered PLC. The more successful was the one operated by the Citigroup subsidiary, which combined standard payment functions with highway toll payment capabilities and some identification features, Mr. Coyne said. "This created a real card that was well used," with about 100,000 cardholders, Mr. Coyne said.
A few banks, whose names Mr. Coyne could not disclose, have already placed orders for GemXpresso Lite, he said.
The product seems most likely to catch on first in countries that already rely on smart cards, most of which are in Europe and Asia. Banks and merchants in those countries already have the infrastructure to handle smart card transactions for credit and debit purchases. Executives at the companies that created GemXpresso Lite say that in the United States, they expect the Internet authentication application to be the one that takes off first.
Though the high price of smart cards compared with magnetic stripe cards has certainly been a big deterrent to U.S. banks as they consider introducing chip cards, it is far from the only consideration. Most U.S. consumers are not familiar with smart cards, and so have not been clamoring for them. Moreover, the cost of the cards themselves is dwarfed by the cost of adapting bank computer systems and retail point-of-sale systems.
Debbie Arnold, vice president of smart products for Visa International, said the introduction of GemXpresso Lite is just one piece of a much larger program, Visa Smart Partner, in which Visa has "selected the best-of-breed globally for everything a bank would need to put together a whole [smart card] system." Visa has negotiated discounts with these vendor partners, aiming "to kick-start this whole migration process" from stripe to chip, Ms. Arnold said.
Visa International is planning a flurry of additional announcements about developments in the Smart Partner program.
For the moment, the only smart card in mass commercial use in the United States is Blue, the American Express card that sports both a magnetic stripe and a microprocessor chip. GemXpresso Lite would also have both features for the foreseeable future, its developers said.
"We're going to see these hybrid products on the market for years and years until the infrastructure changes," Ms. Arnold said. Mr. Coyne of Gemplus said that even in France, where smart cards are routinely used for credit and debit purchases, there are magnetic stripes on smart cards so people can use them abroad.
Mr. Coyne said GemXpresso Lite stores credit and debit information on a fixed part of its memory, and optional applications - like loyalty, electronic signature, and stored value - on an erasable part. "We have a bigger fixed part of the memory and a smaller erasable memory" on this product than other smart cards, he said. "The main part of the cost of the chip in the smart card is the erasable part of the memory, so that is the way we reduced the cost."
GemXpresso Lite is compliant with Open Platform 2.0 and Java Card 2.1 specifications.
"This new $3 card with multi-application capability substantially enhances the business case for smart card adoption by banks," said Duncan Brown, a smart card industry analyst at Ovum Inc., a consulting firm in Burlington, Mass. "Banks considering smart cards must now ask themselves 'Why not?' rather than 'Why?'"