Are Smart Cards a Financial Improvement for Consumers?
When smart cards were introduced in the U.S., computer magazines positively gushed over this new technological marvel. Some economists, however, wondered if we are smart to demand this type of credit cards.
Smart cards are integrated circuit cards. The embedded circuitry provides a memory, storage and security authentication.
The point of a smart card is to have a computerized chip embedded in a credit card that allows the user to simply tap the card against a smart card authorization machine or even wave the card near the machine to authorize a sales transaction.
Smart cards are intended to provide greater security against fraud and the losses businesses incur from credit card fraud. In Europe, smart cards are a two process payment system.
The card is recorded by the smart card reader and the user must enter a PIN code. This is a two part system that makes sense in controlling fraudulent credit card transactions.
In the U.S. currently, the two step system is not in place and only tapping the card against a special terminal is required to authorize a purchase. Clearly, this leaves some potential for fraud even though the cards are said to be impossible to duplicate.
For now at least, a smart card require a terminal that is specially designed for it. Traditional credit cards with magnetic strips have become much easier to process due to advanced in the machine technology used to swipe them.
For businesses, the problem is the cost of installing a second set of machines to process smart cards while also maintaining the machines used for magnetic strip cards.
Changing to the use of smart technology requires issuing banks, merchants and processing companies to coordinate the effort. This is complicated by the lack of interest of consumers.
Consumers already have protection under the law from most fraudulent credit card losses. Though consumers express interest in the smart card technology there is no demand in the marketplace for a total change.
If you have a credit card, your only concern is whether you have enough spending limit to buy what you need and whether you can pay the bill when it arrives.
Consumers understand when businesses invest significantly in payment systems those costs are reflected eventually in the prices charges for products of that business.
Consumers who use smart cards find their use of the cards limited by lack of card reading machines. Smart cards also have the same magnetic strip found in older credit cards and it's likely they will be used as a swipe card rather than a smart card in many businesses.
Where To Find?
American Express has taken the lead in offering smart cards to consumers with its popular American Express Blue.
The card looks cool with a blue hologram in the center. The terms for this credit account are attractive with no annual fee and 0% introductory APR for six months.
The small chip embedded in the Blue card has the power of an early personal computer. The major draw of the American Express Blue card seems to be in its unique appearance and the status of having the latest technology.
Blue cards make up about 10% of the fifty million American Express credit cards.
It's an impressive number but in use the card is usually processed using the old fashioned magnetic strip on the back. It appeals to a younger consumer and to those who like to have the latest version of everything.
Future cards could have a digitized version of your fingerprint that could be read at check-out. One card could serve as the authorization for an American Express account, a visa account, a debit card and even a driver's license.
The potential is there for every consumer to have one smart card as the only card they carry. That card could contain their personal identifier and personal information for all of their monetary transactions. The potential is there but realization of that potential is far in the future, if it occurs at all.
Smart cards are most definitely a technological wonder and the potential applications are enormous. However, for the consumer the supporting technology isn't yet available.
If you want to carry the latest and coolest credit card available today, by all means obtain a smart card. Skip it for now if the cards are only available with higher interest or annual fees.