Dollar bills are dumb. They don’t know when you dine out, whom you call or where you spent last weekend. They don’t keep track of your health records, your Social Security number or name. No one ever need know when you touch one.
And that’s why privacy advocates love cash and fear smart cards.
If Americans one day decide to scrap currency for cards with computer chips, deciding that convenience and security are more important than anonymity, it will be a disaster for privacy, said Charles Langley, consumer advocate for a group funding the Privacy Rights Clearinghouse in San Diego.
“If someone were able to get hold of your transaction records, he would be able to follow you throughout the day and have incredibly intimate details about your personal life,” Langley said. “It’s a map of your life. In many ways, it’s better than a diary.”
Most smart-card technology allows users simply to load cash value onto a plastic card with a silicon chip inside and throw out the card when the money is spent. But other smart cards are reloadable and can be made to store information about the user. Every time such a card is used, it leaves a trail. Those cards are mostly used in places such as military bases and college campuses. Card developers hope usage will spread.
Banks aren’t going to abuse information they might gather through smart cards, said Michael Love, First Union vice president of chip card technology. “We also are a regulated industry,” he said. “And we talk to our regulators . . . to develop guidelines to ensure the privacy of our customers.”
Bill Burnham, electronic commerce analyst with Credit Suisse First Boston, said credit-card companies already know a lot about customers. Besides, he said, it’s unlikely there will wind up being just one smart card that people use for every activity.
But privacy advocates say smart cards would make data gathering too easy. Insurers might inspect cardusers’ grocery shopping habits to see if they’re good risks, they say. Employers could spy on someone’s entertainment habits to build a psychological profile. Law enforcement agencies investigating crimes could know who used a smart card in the area in a given time, turning them into suspects.
With information gathered from a person’s smart card, said Langley, “you’d be able to predict just about every move he’d make throughout the day.”
But will it catch on?
As many as 10 years ago, we were told a piece of plastic with a computer chip embedded in it would change our lives. It would take the place of checks and debit cards, be handier than credit cards. And one day, it could even eliminate good, old-fashioned cash.
Instead of greenbacks, we’d buy stuff with electronic blips and never actually convert anything to currency. Not only that, but this card–this “smart” card–could even be made to know things about us: Our names, where we work, what we buy, where we travel, our medical histories, our driving records. It would let us through doors, onto planes and into computer programs.
None of this is Star Trek science. The technology exists today.
So why aren’t you carrying a smart card?
The short answer is that you don’t need one. It’s pretty easy to scrawl out a check, hand over a couple of bucks, slap down a credit card. In many ways, smart cards are a solution in search of a problem.
But banks and technology companies are pushing ahead with smart-card development, racing to plant flags in a country that doesn’t yet exist. Purchases made with smart cards could total $3 billion in a few years, some experts say. Others put the longer-term potential at $10 billion or even as high as $50 billion–if every American over 14 had a smart card with a lot of money stored on it. But depending whose numbers you use, smart-card sales right now are either as high as $500 million–still not a huge market–or as low as $58 million.
The small returns haven’t discouraged companies like Bank of America and First Union from investing in smart-card research. That’s because for all the meager payoff smart cards have brought so far, bankers and tech experts still believe they will eventually take hold in the U.S. market, and they want to be ready to pounce on sales when that happens.
NationsBank (now Bank of America), First Union and Wachovia issued thousands of smart cards for the 1996 Olympics in Atlanta, where attendees used the cards to buy soda, sandwiches and other small items. Bank of America offers disposable FANCash cards for use at Charlotte (N.C.) Panthers football games in Ericsson Stadium. First Union has cards at Ft. Leonard Wood in Missouri, where army recruits get their first weeks’ pay advances on the cards instead of receiving envelopes of cash as before.
Bank of America issued smart cards to Veterans Affairs medical center employees in the Bronx, N.Y., and Tampa, Fla., to be used for hospital meals. Passengers of the Washington Metro Area Transit Authority system soon will be able to pay for transit system rides with First Union cards.
The common theme to all these experiments: They’re all being conducted in closed environments, where a captive audience has a limited number of places to spend money.
To succeed, smart cards need to get smarter, say Burnham and other experts. They need to do more than just store cash.
“The existing payments mechanisms that people know and trust work very efficiently and are fairly cheap,” said Harvey Rosenblum, senior vice president and research director at the Federal Reserve Bank of Dallas.
“The audio tape never really displaced the record,” Rosenblum said. “It wasn’t until CDs came along, which consumers thought were 10 times better. It’s not just building a better mousetrap; it’s building a mousetrap that’s so superior that it’s what customers are going to want to choose.”
The superior mousetrap might be something as simple as laundries whose machines take only smart cards. A test in New York City last fall revealed that customers liked using cards that way because they seemed safer to carry to a laundry room than cash and saved people the trouble of stockpiling quarters.
It may be that winning the business of college students is the key to securing a big, long-term smart-card customer base.
“Think back to Apple computers,” said Michael Love, First Union vice president of chip-card technology. “How did they come into pre-eminence? They started giving away PCs on campus. You’ve got to go where the early adopters are.”
Experts say another key to smart cards or even simple, stored-value cards landing in every wallet is the elusive “killer application”–the one big use that draws so many customers there’s critical mass.
In the meantime, banks are trying for what Burnham calls “solid base hits.”
Bank of America is focusing research on Internet commerce, hoping customers may want smart-card readers attached to their PCs to buy goods over the Internet. People could buy things more privately than they can with a credit card, because their credit card numbers aren’t flung across cyberspace, said Bette Wasserman, Bank of America vice president and manager of smart-card development.
Rosenblum thinks smart cards will appeal to individual customers when they offer perks, the way credit cards let users rack up frequent flier miles.
And what about smart cards’ original promise, that they will one day usher in a cashless society?
“I’m not sure currency will ever be driven out completely, but my children’s grandchildren might look upon it as something you might only see in the Smithsonian,” said Rosenblum.
Burnham is more skeptical. “Don’t hold your breath,” he said.
