Banks announce release of Visa 'smart' cards

The U.S. has been lagging behind Europe when it comes to the adoption of "smart card" technology, with New York-based American Express Co.'s Blue the only credit card with an embedded chip on the market.

That's about to change, as three banks -- Providian Financial Corp., FleetBoston Financial and First USA Bank N.A. -- have announced that they will soon be releasing Visa smart cards. San Francisco-based Providian and Boston-based FleetBoston will launch the cards this month, while Wilmington, Del.-based First USA will launch them sometime in the fourth quarter.

According to bank officials, these cards will provide greater security for online shoppers, reduce costs for Web merchants and allow for other services, such as electronic ticketing.

"The technology and economics now make it viable," said Jay H. Lee, senior vice president of e-business strategic development at FleetBoston Financial.

A year ago, the embedded chips cost $12 each; now, the price has dropped to around $3, he said. In addition, the industry has started to converge on a standard -- Java Card for the readers and Europay Mastercard Visa (EMV) for the payment standards.

"This is the standard," said Theodore Iacobuzio, an analyst at Needham, Mass.-based Tower Group. Not all cards are EMV yet -- many European systems use their own proprietary standards, as does American Express, with its Blue card.

"But people are moving in that direction," Iacobuzio said.

According to Frank Prince, an analyst at Cambridge, Mass.-based Forrester Research Inc., there are two hurdles to widespread adoption. Consumers have to be persuaded to use them, and merchants have to be persuaded to shell out the money to install smart card readers.

"It's a chicken-and-egg problem," he said.

The banks will try to overcome that problem by issuing free readers to their customers. Providian alone will give out 50,000 readers for customers to plug into their computers.

After those run out, customers will be able to buy them for around $20 each, according to David Alvarez, who heads the integrated card business for Providian.

These readers will allow smart cards to be used with online merchants, who only have to install software.

Merchants with brick-and-mortar stores, on the other hand, will need to install new readers to accept the cards. It's for this reason that smart cards will continue to also have a magnetic stripe for many years to come, said Iacobuzio. The cards will also have embossed numbers for those merchants who still have the nonelectronic swipers.

Meanwhile, a handful of other Visa card issuers are expected to release their own smart cards in the next few months, which will encourage even more merchants to get involved, Alvarez said.

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