ARTICLES AND AWARDS
Smart Cards Need a Higher IQ
Monday, August 20, 2001
By Geoff Smith, Bloomberg Business Week
More than a year ago, I signed up for the American Express Blue Card and was disappointed to find that it's a clumsy way to buy things online. This so-called smart card, with an embedded computer chip, was billed as the next generation of technology for secure online transactions. But the software was annoying, and the credit-card reader -- a device that hooks up to your computer that was supposed to simplify the payment process -- had a blinking green light that was always on. My Blue card sits in my wallet, unused.
Here's a surprise: Amex has distributed more than 5 million Blue cards since its late 1999 launch, making it far more popular than Amex had ever expected, according to one consulting firm's estimate. That's not because folks are using it to shop online, since less than 1% of Blue holders use it for that purpose, according to Bruce Brittain, president of Brittain Associates in Atlanta. Instead, most people have picked up a Blue card because it's free and charges low interest rates. It's an Amex card without the high fees.
The moral of the story: Online consumers are basically lazy and cheap. They're also not terribly worried about online security problems. A survey by Forrester Research shows credit-card fraud fears ranked 15th out of 18 reasons cited for why consumers didn't shop online.
SPECIAL DEALS. Smart cards aimed at online shoppers are headed down a stormy path. Visa and Mastercard have announced plans for them, but both issuers will need to up the ante if they want consumers to use them online. Issuers will need to offer enticing deals on these cards, such as lucrative rewards programs, cash-back plans, and favorable repayment terms.
Banks and retailers should arrange special deals for consumers who buy using the cards. Retailers, now paying steep premiums to cover online credit-card fraud, should push credit-card issuers to offer attractive terms.
The first Visa smart card, Fusion, from Fleet Financial Group, is a dubious approach. On the plus side, it's designed to work in tandem with a computer keyboard from Compaq that has a built-in card reader -- a good idea more PC makers should copy. Fleet also has plans for a rewards program offering up to 15% cash back at participating merchants.
Any sizzle the card might have, however, fades quickly when you look at the fine print. Fleet slaps a $35 fee on late payments, which are any made more than 20 days past the statement closing date. The company also hikes the interest rate to 24.99% for anyone making late payments. Ouch.
NEW COMPETITION? Smart cards won't gain much traction on the Net until consumers are given a compelling reason to use them. They need an incentive to go to the trouble of using a scanner and special software.
Smart cards will also have to compete against new technology. One major threat is a new payment system in the "Passport" software embedded in Microsoft's upcoming XP operating system. Passport is Microsoft's online-authentication system that lets you access a wide range of services with a single user name and password.
Among other things, Passport will hold your credit-card and delivery information, with the idea of simplifying online transactions. Passport could potentially support smart cards. But privacy and security experts have raised questions about how safe Passport will be. And its fate could depend on whatever ultimate decision is rendered -- or settlement reached -- in the Microsoft antitrust case.
Single-use credit-card numbers, such as those issued by American Express, are so far not-very-compelling alternatives to smart cards. But a company called Privasys is working on a single-use variation that I'll look at more closely in a future column. It has developed a smart card that contains an LCD, a rewriteable magnetic strip, and a PIN-entry keypad. The card generates a one-time-use credit-card number each time the owner types in a password. The card can be read by any credit-card reader. Sounds like a good idea.
Direct link to the article:
http://www.businessweek.com/technology/content/aug2001/tc20010820_982.htm
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ARTICLES AND AWARDS
Smart Cards Need a Higher IQ
By Geoff Smith, Bloomberg Business Week
More than a year ago, I signed up for the American Express Blue Card and was disappointed to find that it's a clumsy way to buy things online. This so-called smart card, with an embedded computer chip, was billed as the next generation of technology for secure online transactions. But the software was annoying, and the credit-card reader -- a device that hooks up to your computer that was supposed to simplify the payment process -- had a blinking green light that was always on. My Blue card sits in my wallet, unused.
Here's a surprise: Amex has distributed more than 5 million Blue cards since its late 1999 launch, making it far more popular than Amex had ever expected, according to one consulting firm's estimate. That's not because folks are using it to shop online, since less than 1% of Blue holders use it for that purpose, according to Bruce Brittain, president of Brittain Associates in Atlanta. Instead, most people have picked up a Blue card because it's free and charges low interest rates. It's an Amex card without the high fees.
The moral of the story: Online consumers are basically lazy and cheap. They're also not terribly worried about online security problems. A survey by Forrester Research shows credit-card fraud fears ranked 15th out of 18 reasons cited for why consumers didn't shop online.
SPECIAL DEALS. Smart cards aimed at online shoppers are headed down a stormy path. Visa and Mastercard have announced plans for them, but both issuers will need to up the ante if they want consumers to use them online. Issuers will need to offer enticing deals on these cards, such as lucrative rewards programs, cash-back plans, and favorable repayment terms.
Banks and retailers should arrange special deals for consumers who buy using the cards. Retailers, now paying steep premiums to cover online credit-card fraud, should push credit-card issuers to offer attractive terms.
The first Visa smart card, Fusion, from Fleet Financial Group, is a dubious approach. On the plus side, it's designed to work in tandem with a computer keyboard from Compaq that has a built-in card reader -- a good idea more PC makers should copy. Fleet also has plans for a rewards program offering up to 15% cash back at participating merchants.
Any sizzle the card might have, however, fades quickly when you look at the fine print. Fleet slaps a $35 fee on late payments, which are any made more than 20 days past the statement closing date. The company also hikes the interest rate to 24.99% for anyone making late payments. Ouch.
NEW COMPETITION? Smart cards won't gain much traction on the Net until consumers are given a compelling reason to use them. They need an incentive to go to the trouble of using a scanner and special software.
Smart cards will also have to compete against new technology. One major threat is a new payment system in the "Passport" software embedded in Microsoft's upcoming XP operating system. Passport is Microsoft's online-authentication system that lets you access a wide range of services with a single user name and password.
Among other things, Passport will hold your credit-card and delivery information, with the idea of simplifying online transactions. Passport could potentially support smart cards. But privacy and security experts have raised questions about how safe Passport will be. And its fate could depend on whatever ultimate decision is rendered -- or settlement reached -- in the Microsoft antitrust case.
Single-use credit-card numbers, such as those issued by American Express, are so far not-very-compelling alternatives to smart cards. But a company called Privasys is working on a single-use variation that I'll look at more closely in a future column. It has developed a smart card that contains an LCD, a rewriteable magnetic strip, and a PIN-entry keypad. The card generates a one-time-use credit-card number each time the owner types in a password. The card can be read by any credit-card reader. Sounds like a good idea.
Direct link to the article:
http://www.businessweek.com/technology/content/aug2001/tc20010820_982.htm
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