Widespread consumer use of smart cards several years away

SCOTTSDALE, Ariz. (AP) _ Widespread consumer use of ``smart cards'' in financial transactions is three to seven years away in the United States, analysts predict. <br><br>The wallet-sized plastic

Friday, October 11th 2002, 12:00 am

By: News On 6

SCOTTSDALE, Ariz. (AP) _ Widespread consumer use of ``smart cards'' in financial transactions is three to seven years away in the United States, analysts predict.

The wallet-sized plastic cards with embedded computer chips are touted as a tool in protecting against financial and identity fraud and helping businesses and governments keep their property secure.

The technology also allows consumers to store digital cash, personal information and loyalty coupons from merchants or frequent flyer points. The cards can hold significantly more data more securely than can the commonly issued magnetic strip cards.

But while industry officials say they are seeing increased use of smart card computer chips in some cellular phones and pay television devices, analysts say smart cards haven't made a huge splash with shoppers.

``They have not caught on at the scale they predicted, but it is catching on,'' said Shalini Chowdhary, an analyst at Frost & Sullivan.

Though popular for years in Europe, Asia and Latin America, smart cards haven't been widely used by card issuers and retailers in the United States.

Card issuers had inadequate financial incentive, and retailers have shown little interest in replacing magnetic-strip card readers with smart card devices, analysts said.

Europe adopted smart card technology to combat fraud, a problem that is much less prevalent in the United States, said Theodore Iacobuzio, director of consumer credit for the Tower Group, a research group in Needham, Mass.

``There has been no strong business case made for replacing the magnetic strip,'' Iacobuzio said.

The only exception is security on the Internet, which represents a small part of the shopping market, Iacobuzio said.

``Chip isn't going to happen without the physical world merchants,'' Iacobuzio said.

In any event, an industry group says 41 million smart cards were shipped in the United States and Canada last year.

Randy Vanderhoof, executive director the Smart Card Alliance, which held its annual conference this week in Scottsdale, expects to exceed that figure this year.

In the first half of this year, 31 million cards were shipped, up from 14 million during the same period last year.

Even though shipments continue to rise in the United States and Canada, consumers aren't using the cards for financial transactions in large numbers because most stores don't have card readers, Chowdhary said.

Target Corp. is the only U.S. major retailer to issue smart cards on a large scale, analysts said.

The U.S. smart card market will improve as consumers learn the cards have functions other than paying for goods and services, said Eric Duprat, vice president of global marketing for Hypercom Corp., a Phoenix-based manufacturer of electronic-payment devices. ``It will take time,'' Duprat said.

Perhaps one of the most promising segments of the business is government-related work.

In addition to issuing smart card IDs to defense workers, military members and other employees, the government is considering testing smart card identification cards for transportation workers at airports in Los Angeles and Philadelphia.

The program, which would likely combine smart card and biometrics technology, awaits congressional approval. The same approach could be extended to frequent airline passengers to allow them to pass easily through security checks.

``The government is going to help accelerate the adoption of smart card technology,'' Vanderhoof said.

Chipmaker Atmel Corp. is focusing on making transportation security one of the many markets it serves, said Jeffrey Katz, vice president of marketing.

Katz said his company's chips can help identify travelers by making a template of their fingerprints and quickly comparing them to the actual fingerprints, Katz said.

``It's going to emerge rapidly in our country with the prodding of the government and the traveling public,'' Katz said.