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Maria Ribaulo


Smartcards are the buzzword in the financial world today. Chip technology of today has advanced enough so that a computer chip can be embedded in a credit card sized card and used as a store of cash. The US market is behind in the adaptation of this technology but is poised to begin a more wide spread adoption of Smartcards as financial institutions clamor for the advantages of a large amount of float. Some issues that are being addressed is the overall security aspect of these cards and possible other uses for a personal card that has enough room for a large amount of data. The US seems to be missing the vast opportunities that this type of technology has to offer. If the level of integration into several US colleges is any indication of the success of the Smartcard, they will soon be appearing in wallets everywhere.

The basic properties of Smartcards is the chip and reader technology that come together to allow a quick, accurate exchange of information. The credit and debit card that are currently in use, do not receive information from the reader unit when the card is swiped. The reader only takes an account number and name off the card, verifies the account, and available balance or credit. At the end of the day, the reader transmits to the merchant's bank the information it has gathered and clears the transactions (Kidwell). With Smartcard technology, primarily supplied by Multos and Sun Microsystems, value is deducted from the chip that is embedded in the card and the balance stored on the card is reduced ( The value that was deducted is then stored in the reader-like machine and can be deposited to the merchant's account in the same way as cash. The advantage to the merchant is that there is no clearing time on the transaction. Another advantage to the merchant is the lower instance of fraud per se. If the card has no balance, the transaction will not be completed. It is obvious that fraudulent cards will turn up as hackers gain the ability to crack the encryption algorithms on the chips, but the merchant will avoid some of the risk involved. The US will have an advantage in this case because of the security issues that have already been addressed in other countries.

On March 17, 2000 banks in France found that the security codes to their Smartcard network had been cracked and posted on the Internet ( Further research shows that the encryption technology that the French system was using had not been changed since 1985 ( This scare has forced the whole banking system of France to bring itself up to code with the European Central Bank (ECB) prior to its rollout of the Euro in 2002 ( Security code length is one of the major issues. France is rapidly upgrading equipment from cafés and cash-dispensers to customers' cards in order to handle larger encryption codes that will be more difficult to crack. Even with the technology as it stands, fraud for the chip integrated plastic cards is .02% as compared with .27% with magnetic swipe cards ( Financial institutions in the US are gearing up to take advantage of what has been learned and the advantages of Smartcards.

Normal usage of these cards involves having the cardholder load the card at a bank, cash machine, or enabled phone or merchant. The money then stays in the card until the holder presents it to a merchant as payment. During the span of time the money is not used, this remains on the banks books as a liability against which the bank can invest this balance and earn short-term returns on the funds. On average, it can be deduced that the average holder will use most of the balance in less then one-week. Some holders may use most of the balance in two weeks - the increasingly predominant pay period schedule. The possibility of the holder using the card down the last penny is slim. This remaining balance would always float on the banks' books as a liability. For these reasons, banks are encouraging the integration of this new product into their lineup and will be forced to confront and decrease the risk associated with the security issues discovered in Europe before banking regulators will sanction widespread deployment of Smartcards. The decrease of risk associated with this type of card lends itself to expanded utilization of this instrument.

Rapid increases in microchip storage capacity have evolved the potential of the Smartcard into more of a me-card. The large capacity of these cards can carry medical records, employment records, public-assistance identification and data, education records, and virtually any other personal information. The increased security risks related to this type of confidential information is the critical issue of this functionality. However, the ability to carry your medical records in your wallet can mean the difference between life and death if a patient is brought to an emergency room without a friend along to inform the staff that the patient has a severe penicillin allergy or complex medical history. Current public assistance cards are used as a means of identification. Smartcards would make significant contributions to the fight against fraud against these programs because they could store an image of the recipient and also report information back to the agency regarding purchases made with food credits. Food stamp fraud would be virtually eliminated. The adoption of Smartcards on college campuses around the country is testament to their viability as a utility beyond financial.

Currently, several college campuses nationwide have switched from the typical photo ID cards to Smartcards (Aston). Students now have one card that serves as photo ID, meal plan, cash card, academic record holder, and proof of identification beyond just a photo. Students use the card to 'sign-in' to exams, pay for vending and laundry, and also have an option to use it as a cash card at local and on campus merchants. The University of Michigan's Mcard program is the largest use of Smartcard technology with over 95,000 cards in use (University..). The current program was launched in the spring of 1998 and has gained widespread acceptance throughout Ann Arbor. The University has succeeded in bringing over 30 local merchants, from Ben & Jerry's to the local drugstore, on line with the Mcard. The Mcard serves as ID, access card, epurse for laundry and vending, library card, calling card, and many other on and off campus applications. In addition to the University of Michigan, thirty-seven other colleges in the US and over sixty-six foreign universities have also implemented their own Smartcard systems (University..Other). This means millions of students will be graduating pre-programmed to use Smartcards.

Great technology is useless until it finds a way to become integrated into industry or society. Smartcards are on the verge of this integration. Projections for the growth of this market are staggering. Most people are already acclimated with the ease of using plastic cards in lieu of cash, and now millions of students have come to expect using just one card to replace access badges, coins and cash, laminated ID cards, and phone cards. The banking industry needs to take the lead in this in order to have an ample voice in the security and regulation of these cards. Transactions with these cards need the same security and regulation as current debit and credit cards. By working with existing Smartcard organizations, financial institutions will find themselves in a lucrative position as issuer and regulator of this tool that will, no doubt, find its way into any wallet that now carries a debit or credit card.


Works Cited


ABC 5 Jan. 2001. France Smartens Up: Exposed Vulnerability in Country's Smart Card Prompts Action.

Aston University. 6 Jan. 2001. THE SMART CAMPUS Newsletter

Card Technology.Com. 4 Jan. 2001. More Bulletins.

Kidwell, Peterson, and Blackwell. Financial Institutions, Markets, and Money,

7th edition, Orlando: The Dryden Press, 2000. 4 Jan. 2001. France hit by chip scheme scare.

Smartcard Central. 3 Jan. 2001. Research Statistics: NEW: WorldWide SmartCards Market Forecast (Millions of Dollars and Millions of Units)

University of Michigan. 6 Jan. 2001. The University of Michigan's Smartcard.

University of Michigan. 6 Jan. 2001. Smartcard Other Links.