Smart cards have been around for over 20 years but their popularity has grown recently with advances in chip capacity. Invented in France in 1974 by Roland Moreno, smart cards have been widely used in Europe for a variety of applications. In some parts of Europe smart cards have gained widespread acceptance as telephone cards, bank cards, and health cards. In fact, 90% of smart cards are used in Europe. According to Dataquest Inc., the worldwide market for smart cards was 84 million units in 1995 and is expected to expand to more than 1 billion in 2001. In France alone more than 30 million are in circulation.
Smart cards were built around Europe’s fractured telecommunications infrastructure. Europe’s telecommunications system never developed to the point of the United States’ system. Smart cards were designed in part to circumvent the need to verify each credit card transactions via telephone. Today, France’s public telephone infrastructure is based completely on the smart card system. As a result, the telephone system is more efficient and free of vandalism and fraud.
Current Environment
Despite the success in Europe, smart card applications have yet to be fully embraced in the United States. The main factors that need to be resolved in the United States include software standardization, the installation of a card-reader infrastructure, and the unification of smart cards to reduce the number of cards a user will carry. Vendors are reluctant to invest in smart card infrastructure unless they can be assured that consumers will use it. Conversely, consumers don’t want to start using smart cards until the infrastructure is in place.
The biggest hurdle now facing the U.S. smart card market is consumer acceptance. Despite the many benefits smart cards offer, such as convenience and security, smart cards have several shortcomings. Perhaps the greatest concern among consumers is losing the anonymity of cash transactions. Privacy is lost because all transactions are recorded and can be easily traced. In order to measure consumer acceptance, a few U.S. cities have introduced smart card pilots. The most visible pilot study was the money-card roll-out by Visa during the 1996 summer Olympics in Atlanta. Consumer awareness of smart cards increased as Visa distributed almost all of the $2 million smart cards it planned to issue.