Choosing Student Credit Card

The U.S. banking industry has finally begun to issue smart cards, which is not a new idea as Europe has used them for years. France , Germany and the United Kingdom have used them for years. The chip-enhanced cards can store more personal data, including online passwords and shopping habits and are expected to become standards in two years by industry analysts, but I believe it will take more like five years.

The U.S. is now issuing smart credit cards led by American Express with its hologram-stamped "Blue" card. In addition, three banks are launching Visa smart card programs primarily to make online shopping more secure and to reduce the amount of credit card losses written off by the banks. Smart card holders will not have to retype all their information when making online purchases because the information is held in the personal profile on the embedded chip. The information is entered automatically.

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A year ago, producing a smart card with a 32K chip costs $12, however that price has now dropped to $3 each to produce compared to 25 cents for traditional magnetic-stripe cards. The Federal Government is utilizing smart cards, as the Pentagon will issue 4 million to employees, who will use then to enter offices, get healthcare and purchase groceries at government commissaries. It is expected that smart cards will be used for telephones, vending machines, retail stores, drug stores, etc. in the near future. It is true that smart cards have numerous capabilities and potential applications, but the problem is that there are very few places in the United States that can presently read the chip on the smart card. Virtually all banks and merchants only read magnetic-stripe cards because it is less expensive. Visa estimated that it would cost over $11 billion to convert the U.S. to a smart credit card system. This may change in the near future because of a Justice Department antitrust lawsuit that accuses Visa and MasterCard of obstructing smart-card development.

Some banks are providing free readers that attach to personal computers to verify online purchases by transmitting data directly, making online shopping easier and more secure. The consumer pushes the card through the reader, input a four-digit password to activate the card and proceed directly to a "Smart Checkout." The cards and readers provide assurance to Internet merchants that the consumer on the other end of the transaction has a card in hand and not just a credit card number, thus reducing fraud and payment disputes. This will result in merchants and banks save money. American Express is expected to charge approximately $25 for the readers in 2001, but the need for external readers may be temporary as I expect computer manufacturers to build smart card readers into computers as demand increases.

Consumers will be able to control what information is on their smart card and control that information so one merchant will not be able to see what was purchased at other online retailers. The smart card comes with a lock on it as a four-digit code that the cardholder knows and you will have to know the code to unlock the card.

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To date, this is about all smart credit cards do right now that traditional magnetic cards do not. Smart credit cards in the U.S. must still carry magnetic stripes to handle most transactions. I expect smart credit cards to expand slowly over the next three years, but will not take over magnetic stripe cards for a number of years. Merchants will have to acquire equipment to convert to the smart card system and I believe that this will have to be driven by consumer demand along with incentives to the retailers such as lower fees to the merchants and discounts and reward programs to the consumers. I do expect banks to expand smart cards as their applications and uses increase.

In 1999 there was an estimated 1.3 billion smart cards manufactured of which approximately 1.2 billion were phone cards and 109 million banking cards. American Express had little trouble convincing consumers to carry the Blue card and was overwhelmed with applications when it began issuing the card in September 1999. In the year since, American Express has issued 3 million cards and expects to have 4 million by January 2001, an impressive start in a very competitive industry.

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