"Hey buddy, could you spare a charge card?"
The line sounds like a cynical gag. But major financial institutions worldwide are already working toward replacing the metallic jingle of cash with the snap of plastic. The change could happen sooner than you think. And when it does, it's liable to bring with it both a new era in e-commerce, and some potentially thorny societal issues.
Proponents of this revolutionary idea are betting on "smart cards" — so-called because of the tiny embedded microchips they carry.
Chances are you've yet to actually see a smart card if you live in the United States. It's estimated that only 2 percent of the smart cards currently in use worldwide are found in America. But travel to Europe, home to 90 percent of the smart card market, and it won't be long before you encounter the technology. It's literally just a phone call away.
Prepaid phone cards have taken the European pay telephone market by storm. And recently, the cards preferred by most customers have been smart cards. Though they resemble any other card in your wallet in most respects, you can recognize a smart card by the glittering gold chip on its surface.
On a phone card, this circuitry stores the amount of usage time remaining. There are no numbers to dial, no codes to enter. Just insert the card into a pay phone, and as you talk this internal store begins to deplete, automatically.
Once expended, some cards can be "recharged" by adding more money at vending machines. Others are simply disposable, their chips burned out once their value is depleted.
This system has proven so successful that in many European cities it seems almost impossible to find a pay phone that still accepts old-fashioned coins.
And smart card technology hasn't stopped there. European credit card issuers have embraced the technology as well, using it to replace the traditional magnetic stripe on the back of their plastic.
Because they can hold about 500 times more information than a magnetic stripe, smart chips open the door to a range of new value-added features that card issuers can use to attract customers to their products.
Buy admission to a movie with your smart chip credit card, and a receipt could be stored on the card itself. A second swipe of the card at the theater door could then verify that purchase, and you could take your seat without ever seeing a printed ticket.
The card could further track the number of purchases you make, perhaps then offering you an automatic free movie for every 10 you buy. Or it might hold a notarized copy of your date of birth, allowing you to buy tickets to R-rated movies without presenting identification.
A study conducted by Visa International in 1999 found that these types of features could boost overall credit card purchasing by 10 percent.
But what makes smart card technology so compelling is that it offers much more than just data storage. Smart chips are actually microprocessors, typically running a custom operating system suited to their specific needs.
Most agree that chief among the needs of any payment system is security. And it's here that some experts say smart cards offer an advantage over any other system created so far.
The ability to manufacture forged smart chip processors will likely be beyond the means of all but the most organized criminal operations. Because of this, Visa International believes that a move to smart card technology could reduce payment card fraud by as much as 90 percent.
That's because defrauding a smart card system isn't merely a matter of copying down numbers and expiration dates, or forging government notes. Those types of crimes involve fooling a person. But smart card purchases don't go through until the card itself says they're OK.
A smart card can use any of a number of means to ensure that only the actual account holder can use it. It might trade digital signatures with a retailer. It might even verify the user's fingerprint from data stored in its memory — it all depends on the design of the system.
Better yet, it can do all this without connecting to a central computer, because the card itself is a computer. This last feature is a particular boon to retailers in Europe, where phone rates are high and a call to a central database to verify a charge can be prohibitively expensive.
Switching to a smart card system involves more than just issuing the cards, however. It also means migrating present card infrastructure to the new technology. Every card reader and point of sale system now in use will need to be upgraded to accept smart cards. This area the United States, with its estimated 14,000 banks and hundreds of telecommunications companies, is at something of a disadvantage. By comparison, the European infrastructure presents a much less thorny logistical challenge.
But Malcolm Williamson, president and CEO of Visa International, cautions U.S. finance companies against adopting a complacent attitude. "As the rest of the world moves to the chip, fraud rings will find it harder to operate elsewhere — and concentrate their activities here."
Another technological trend in recent years is likely to be a major factor in ushering in the smart card era in the United States, as well. Perhaps not surprisingly, that trend is the Internet.
Visa International forecasts that by 2002, consumer spending on the Internet will rise to in excess of $100 billion. And, Williamson points out, "On the Internet, cash is not king." Nearly all those transactions will be fulfilled by some kind of payment card scheme.
That makes smart cards pretty attractive. In the same way that smart cards can benefit seldom-connected European retailers, they can help protect online retailers against fraud as well. Home PCs can be equipped with smart card readers, which can then be used to authorize charges right at your desk.
Such cards are already here. In 1999, American Express introduced its Blue card, becoming the first U.S. institution to try a high-profile rollout of an Internet-oriented smart card system. Visa and MasterCard are both experimenting with similar ideas.
But other, even more ambitious smart card plans are in the works as well. Key to most of these is the idea that a "rechargeable" smart card could be deployed for a much wider range of uses than just phone calls.
Such a card would work like a portable electronic wallet. You'd "load" the card from your bank account via an ATM, then spend its value anywhere you want — on the Internet, and at retail stores as well. In other words: real digital cash.
It certainly sounds convenient. Don't bother fumbling for change for that Muni ride downtown; pay with a smart card.
Such cards could support the same value-added features mentioned earlier, as well, like electronic ticketing and identification.
And because they aren't "credit" cards, digital cash smart cards could be used by minors as well as adults.
Clearly, smart cards offer plenty of advantages. But there is a dark side. Some analysts point out that a switch to electronic cash poses some serious societal questions. What might happen to free speech, or political activism, when individual use of funds can be cut off completely simply by denying access to a computer network?
Are smart cards a welcome revolution? Or do they represent the final slide down the slippery slope we've been traveling for years now, with the increasing computerization of the banking industry? It's an issue you may face sooner than you think.
Wells Fargo is already participating in a digital cash smart card program from Mondex, with more than 250 cards in use in San Francisco. And according to the Metropolitan Transportation Commission, smart card ticketing for all forms of public transit in the Bay Area will begin testing next year.
