February 21, 2002

Steady, but gradual. That will characterize the growth of the U.S. smart card market in the years ahead, according to Joel Tolbert, regional manager for e-transactions and smart card systems at SchlumbergerSema, a New York-based IT services company.

While the number of issuers offering smart cards will rise in the next few years, the focus will be on select consumer markets.

"While I am optimistic about the future of smart cards in the U.S.," Tolbert said, "issuers are still searching for smart card applications that add unquestionable value for all those involved: issuers, consumers, merchants and acquirers."

Tolbert spoke at a workshop hosted by the Payment Cards Center of the Federal Reserve Bank of Philadelphia.

Today, consumers attracted to smart cards tend to be technologically savvy. In the future, more consumers will be attracted to smart cards because of their multiple uses, Tolbert said.

Although on the increase, the penetration of these cards in the U.S. financial card market has been limited when compared to Europe. "Europeans have been quicker to embrace smart cards for payment applications," Tolbert said, attributing Europeans' widespread acceptance of smart cards to the lower telecommunications and fraud costs associated with their use versus magnetic strip cards.

Currently, consumers in Europe are using smart cards to pay for calls at public phones, store health-care records, get prescriptions filled, gain access to buildings, perform ATM transactions and pay for public transportation. Smart card applications generating interest in the United States include secure online shopping, transportation and entertainment ticketing, wallet management and merchant-loyalty program tracking.

In the future, chores such as grocery shopping may become faster and easier with smart card added-value applications. With such an application, the smart card could store a consumer's shopping list, allow for electronic usage of coupons, and, at the checkout counter, offer the consumer discounts he may have missed while shopping as well as simplify payment.

Smart cards are similar to traditional credit cards but they contain an embedded computer chip. This chip has a central processing unit, an operating system and memory. "Given the increased efforts of credit card issuers in employing smart card technology, it is important that we understand the technology's strengths, weaknesses and implications for the U.S. payment system," said Peter Burns, vice president and director of the Payment Cards Center.

The Payment Cards Center serves as a source of expertise on this segment of the financial system, which includes credit cards, debit cards, smart cards, stored-value cards and similar payment vehicles. Its mission is to provide insights into developments in the payment cards industry that are of interest to the industry, other businesses, academia, policymakers, and the public at large.

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