The tight relationship between Visa USA and MasterCard International -- currently under scrutiny on antitrust charges -- has prevented smart card technology from taking hold in the United States, according to experts, rivals, and former employees.
American Express, the biggest competitor to the credit card world's version of the Wintel high-tech duopoly, last year began offering a credit card, called Blue, with an embedded chip. The New York-based company also offers users smart card readers that attach to computers and offer an extra level of PIN (personal identification number)-based protection for consumers and other users.
But until major banks adopt smart card technology, such cards "won't do squat" -- and that's the fault of Visa and MasterCard, said Rob Enderle, vice president of Giga Information Group, in Santa Clara, Calif.
"Since MasterCard and Visa are the dominant platforms, [banks] have no reason to install smart card readers or put an infrastructure in place," Enderle said. "That puts smart cards in a bad spot; the two dominant players have no desire to spend any more money.
"We have a chance to have a universal key, and the banks have the trigger and have decided not to pull it," Enderle said. "It's a real drag on the technology."
The Department of Justice's lawsuit, originally filed in 1998, charges that Visa and MasterCard have illegally conspired to block credit card companies -- mainly American Express and Discover -- from dealing with their member banks.
"Later this year, American Express will introduce new products that will enable consumers to browse and shop online with virtually complete security and as much privacy as they wish," said American Express Chairman and CEO Harvey Golub, testifying before the Senate Banking Committee last month. "However, banks won't be able to take advantage of these innovations because the Visa-MasterCard policies prevent them from working with us."
Nevertheless, software vendors are pursuing smart card plans.
Microsoft, which has been pushing Windows for Smart Cards on the security, cellular phone, and e-commerce fronts, will host a Smart Card Forum the week after next at its Redmond, Wash., campus.
Rival Sun Microsystems last month teamed up with Metrowerks to provide a set of tools integrating Java Card development components with Metrowerks' CodeWarrior IDE (Integrated Development Environment). The toolset aims to accelerate delivery of Java Card applications such as PKI (public key infrastructure), loyalty applets, and financial applications.
At the trial, Visa and MasterCard cited a study they commissioned in 1987 indicating that moving from magnetic strip cards to smart cards would be too expensive.
SIDEBAR: Smart Cards Proliferate Across Europe(by Peter Sayer) Spanish businessmen use smart cards to settle their Value Added Tax bill; the Portuguese use them to pay their income tax; and the French use them to pay for pretty much anything they want.
Unlike in the United States, where smart card use is nearly nonexistent, the technology is a way of life in Europe.
Smart cards store information such as bank balances, network access codes, or medical records in a persistent memory. This information can be accessed only by communicating with a microprocessor embedded in the card, which releases the data over an encrypted connection only when authorized to do so by entry of a secret code.
With smart payment cards, the level of fraud is 10 to 15 times lower than with magnetic stripe cards, according to officials at Paris-based smart card manufacturer Bull.
Practicality prompted Europe's smart card development.
Early deregulation of the US telecommunications market meant stores could afford to dial into data centers to verify payments made with magnetic stripe cards, said Annemarie Earley, research director at Gartner Financial Services, in Stamford, Conn. In Europe, however, such communication was initially very expensive, driving the development of offline systems such as a smart card, which authenticates itself.
Pushed on one side by the costs of a centralized telephone monopoly, the adoption of smart cards was also pulled along by the highly centralized and structured banking industry in Europe, according to Alyxia Do, principal analyst at Frost & Sullivan, in San Jose, Calif.