Smart cards look set to dominate our wallets

While debate continues over what elements to include in the chips, Keith Newman says smart cards are inevitable.

This could be the year smart cards get a foothold in the world market, but they're not likely to enter widespread acceptance until there's a more compelling reason to use them - and until the dust settles down after the year 2000 storm.

Smart cards have been used widely in Europe for years - in 1998 there were 30 million active in France - however, proving a business case elsewhere in the world has been a tedious process.

The major banks have entered into numerous alliances only to find that test marketing showed the public less interested than they imagined.

The smart card looks like a credit card but carries a tiny computer chip which can be programmed with information unique to the owner.

The foremost use in trials has been as a stored value card to use in place of cash for smaller purchases.

While smart cards can help retailers eliminate the labour-intensive tasks of auditing, receipt collection and simplify back-end operations between merchants and banks, the consumer has been offered little incentive.

Trials of smart cards offering only stored value have been dismal failures.

Shoppers stayed away in droves and retailers became frustrated with the technology. However, the card companies are wising up and beginning to focus on what the customer wants - and, it seems, the requirements are many and varied.

Rather than the many cards we currently carry for credit, debit and loyalty programmes, we may soon be sold a single solution - and why not, they're able to handle 60 or more different applications.

But technology is moving ahead rapidly, producing confusion about what is a standard and what is not. And most won't talk to each other.

Mondex has a card operating system called Multos to handle cashless transactions. IBM and Siemens have Cardos, Sun Microsystems has JavaCard and now Microsoft has entered the fray with a new card operating system due any day.

As more applications are developed to run on these operating systems, smart cards are likely to infiltrate into a range of new areas from being a repository for personal information about the holder to enabling electronic commerce over the Internet. Significant work is being done to include biometrics on cards or the use of fingerprints to enhance security.

Until recently, the main function of smart cards was authentication. The most prominent use to date is the gismo card which is at the heart of every Vodafone GSM digital cellphone and every Sky decoder. The Yellow Bus company uses a stored value version to extract bus fares in Auckland, Telecom is planning to replace all its magnetic stripe phone cards with a new chip card. Wellington City Council wants to distribute smart cards to its ratepayers next year, the Land Transport Safety Authority is about to issue a new plastic card licence and has had the law amended so it can now issue identity cards as a business on the side.

Christchurch-based Security Plastics has opened a new factory in Auckland to handle the growing demand for card technology. The company exports 70 per cent of its work as well as taking on contracts for student ID cards, security cards for hospitals and for a host of other access and identification purposes.

When Windows CE 3.0 ships in June this year, it will have the capability to read smart cards. Compaq and NEC will have WinCE devices with smart card slots ready for the release. 3Com plans to build a smart card reader into future versions of its Palm Organiser.

Auckland's Globesmart Solutions has signed a deal with Schlumberger Electronic Transactions and ActiveCard to release a range of authentication and encryption products for securing access to the Internet, intranets and mobile communications. Globesmart will distribute the portable tokens, smart cards, readers and software for access to corporate business systems.

In May last year research company Ovum claimed there was about to be a radical shift in the balance of power of the smart card marketplace driven by software vendors focusing on applications. It claimed stronger relationships would be forged between software companies and those who deployed cards. Ovum said the smart card market would grow to reach 2.7 billion units by the year 2003 with Europe the largest market and Asia the fastest growing market, led by mass transit ticketing and mobile telephone applications.

Other estimates are even higher. United States consultants Datamonitor predicts 3.85 million cards and Dataquest 4.7 billion by 2002.

Duncan Brown, a senior analyst at Ovum and lead author of the report, likened the state of the smart card market last year to the wider computer industry at the end of the 1980s.

"IBM's grip on the IT world was loosened by the growth of the personal computer which it created, and the growing influence of Microsoft, which it nourished," he said. Within five years, Microsoft's influence overtook Big Blue, almost becoming its executioner.

"Smart card manufacturers have created a technology now moving beyond their control and have handed over market custodianship to the software suppliers," he said.