'Smart Cards' Connect Consumers

THOUSANDS of years ago, when man finally got serious about trade, he created metal ingots; then coins (probably invented in Asia Minor around 650 B.C.); then paper money (18th-century France); and finally credit cards (United States, 1950).

The next leap will be just as revolutionary: computer chips embedded in plastic or "smart cards," as they are commonly called.

Consumers around the world are starting to use smart cards for everything from public phones to paying highway tolls. Many companies are bullish on the technology and predict that the market is about to take off.

"Probably within three years, most Americans will have a smart card in their wallets," says Michael Jacobs, a spokesman for AT&T, which is promoting smart-card technology.

The technology is certainly superior to its predecessor credit cards. The magnetic stripe on the back of today's cards carries about 125 characters (or bytes) worth of information. Smart cards can carry more than 1,000 times that amount. Tests are under way to quadruple that.

With that much capacity, plus the ability to process new information, smart cards could dramatically boost security and lower the costs of many kinds of cash transactions. (See story to the right.) One day they might eliminate cash altogether, some proponents say.

AT the moment, Europeans are the leading users of the technology. Japan is catching up as the United States lags behind. Events this fall and next year could boost American usage, but analysts there remain cautious.

"In the US, it's always just around the corner," says Stephan Seidman, editor of Smart Card Monthly, a Montara, Calif., newsletter. "There needs to be some sort of a national success in this country and we haven't had one."

The cheapest smart cards, used in pay phones, are not really smart cards at all. Here in France, for example, drugstores sell phone cards in various denominations. Callers insert the card in the public phone, which automatically deducts the amount of the call. While the card stores information, it does not really process that information, which makes it more of a memory card than a smart card.

But Europeans are moving to more sophisticated applications.

Germany's Premiere cable channel, for one, uses a smart-card derivative called a "smart key." When any of the premium channel's 650,000 subscribers want to tune in, they insert their smart key. The key reads their code and, if legitimate, unscrambles the signal.

"We're happy with it," says Hermann Steiwer, technical manager for Premiere Medien GmBH and Company. "It's still the only system that is not hacked" by video pirates. Premium cable channels in France, Spain, Austria, and Switzerland also use the technology.

These smart keys are manufactured by Gemplus SCA, a French company outside Marseille which is the world's largest producer of the cards. The company makes some 12 million telephone and higher-order smart cards a month.

"In one year it will be 20 million," says Marc Lassus, Gemplus president and chief executive officer. And "Germany will be the biggest market in the world for the smart card."

BESIDES cable television and public phones, Germany's minister of health plans to give each citizen a smart card with personalized health information.

And Germany's mobile-phone subscribers will soon be able to use smart cards for Europe's next-generation digital cellular technology.

The system, called Global System for Mobile Communications, will allow mobile phone users continent-wide access. A subscriber in Britain could travel to Germany and plug her smart card into a German mobile phone, which would bill her British account.

British Gas is using smart cards to encourage deadbeat customers to pay up. Japan is promoting smart cards for such diverse things as vending-machine sales and construction-worker licensing.

In the US, smart cards have not caught on yet. But several trials this year could change that. Perhaps the most important is the MAC system, a northeastern US debit-card company that will put sophisticated Gemplus chips into its debit cards and sign up retailers to use the card.

The cards will lower the stores' cash-handling and transaction costs. For consumers, it means not having to carry a pocketful of change and paper money.

AT&T expects to host similar trials with banking partners this fall.

In the meantime, it is installing an electronic toll-booth system on three new toll roads in Orange County, Calif. They will be the first electronic toll roads based on smart cards. Cars equipped with the smart card and two-way radio devices will have tolls automatically deducted as they pass particular spots along the highway. A similar AT&T system is already in use in Italy.

The same card will have to be accepted by systems such as telephone, cable TV, cash purchases, and toll-road collection, for the public to sign on to the technology, Mr. Seidman says. He estimates that 33 separate functions can be incorporated onto a single smart card.

When the coordination between separate uses is accomplished, "that's where the card really shines," Seidman says.