SMART MONEY

Smart card advocates and skeptics alike say it will be some time before the computer chip cards establish a retailing foothold in this country.However, the technology already has made its way into some supermarkets through electronic benefits transfer tests and electronic marketing, and is sure to make headlines next year when 5,000 Atlanta retailers begin accepting the card in place of cash during

Smart card advocates and skeptics alike say it will be some time before the computer chip cards establish a retailing foothold in this country.

However, the technology already has made its way into some supermarkets through electronic benefits transfer tests and electronic marketing, and is sure to make headlines next year when 5,000 Atlanta retailers begin accepting the card in place of cash during the summer Olympics.

Exposure to programs such as these will give retailers a taste of how the technology can streamline point-of-sale transactions, and consumers will get a glimpse of new ways to pay for merchandise, manage personal finance, health care, travel and a host of other applications that the smart card's lesser brother, the magnetic stripe card, could only dream of providing.

Futurists and some retailers contend that, once exposed to the dessert cart of technological possibilities, the public will develop an appetite for the smart card, which contains a mini microprocessor and can store 80 times more data than magnetic stripe cards.

Detractors, on the other hand, say the 20-year-old U.S. commercial infrastructure, based on magnetic stripe cards, is far too mature to withstand such a dramatic change.

"The smart card is clearly the technology of the future. The magnetic stripe card is at the far end of the bell curve in terms of its use and the smart card is at the beginning of that bell curve," said Paul Bernish, director of corporate affairs at Kroger Co., Cincinnati.

The critical unanswered question, he was quick to point out, is how far off in the future a commercially viable smart card might be. "Some estimates seem to indicate that the smart card is at least two to three years away, and the technical standards that will govern the use of smart cards haven't been set yet," he added.

A lack of technical standards is not the only obstacle to widespread penetration of smart card technology in the near term, some retailers told SN.

"I think smart cards are little better than a distraction in the U.S. marketplace," said an East Coast chain executive who requested anonymity.

"Retailers don't have a business case to invest," he added, "and most importantly, consumers don't have a vested interest in moving to smart cards because of the very limited liability the consumer has for misused [magnetic stripe] cards."

Retailers involved in smart card-based food stamp test programs, such as Kroger and Albertson's, Boise, Idaho, envision a gradual introduction of smart cards, perhaps through a hybrid card that features a computer chip as well as a magnetic stripe.

"I think there's room for both technologies," said John Danielson, assistant treasurer at Albertson's. Five Albertson's stores in Wyoming currently are accepting smart cards from shoppers making purchases through the Women, Infants and Children federal benefits program.

WIC transactions are a natural fit for smart card technology, he noted, because WIC-approved purchases are customized for each recipient's nutritional needs and are therefore complex and labor-intensive to handle at the store's front end.

Smart cards' ability to store and process vast quantities of data -- for example, to verify that "Mrs. Jones is entitled to buy 2% milk, whole wheat flour and three loaves of bread on the WIC program in August" -- is the technology's most frequently cited attribute. Other advantages it offers over the magnetic stripe card include:

Security: Considered as yet impossible to counterfeit, smart cards' data reservoir can be compartmentalized and protected with personal identification numbers or through special encryption processes.

Durability: Smart cards far outlast the more vulnerable magnetic stripes that can be deactivated with repeated handling.

Versatility: Multiple application smart cards enable cardholders to determine what kind and how much information is stored on their card. Consumers would also be able to control access to ensure, for example, that their personal physician can tap into medical records only, and does not have a window into their banking records, which also may be stored on the card.

Off-line processing: Because smart card transactions are processed off line, they are not vulnerable to "downtime" or delays that can occur with transactions processed on line.

"I am truly an off-line proponent because of the way the technology is structured: There's only one batch transmission needed each day, and that could limit our exposure to ever-increasing transaction fees," said Mac McDowell, owner of Jack & Jill, Wheatland, Wyo. The store accepts smart cards in place of WIC vouchers as part of Wyoming's EBT test.

Rising fees for processing debit and credit is also a serious concern at Ralphs Grocery Co., Compton, Calif., said Al Gray, senior vice president of administration. "Right now, banks seem to be hell-bent to increase fees," he added.

Although both Visa International, San Francisco, and MasterCard International, New York, have indicated they will migrate to smart card technology, neither company has addressed how transaction fees might be affected.

Gray said retailers are not yet ready to switch to smart cards. However, he added that if the security features of the technology enabled credit card companies to reduce fraud and pass on the savings to retailers and consumers, perhaps a business case could be made to invest in new equipment.

Gray's not too optimistic that will ever happen, though. A stronger incentive to upgrade front-end equipment to accommodate smart cards would be the introduction of a national EBT system that combined multiple entitlement programs onto one card.

"If the benefits were enough that we could justify the capital expenditures for changing systems over, great. But if we change systems just to accept food stamps, which may or may not be a federal program, then it would be a real waste" to invest in new equipment, he said.

Currently, Wyoming's EBT program is the first to combine two benefits programs -- WIC and food stamps -- on one smart card. Smart card EBT programs aside, some retailers gained their first experiences with the technology through the Vision Value Network marketed by Advanced Promotion Technologies, Pompano Beach, Fla. The system, which was once used for smart card-based electronic marketing tests, delivers promotions via shopper-interactive terminals mounted at the checkstand.

However, adding equipment to the checkstand in order to accept smart cards is a concern for many retailers, including Craig Wright, vice president of support services at Buttrey Food & Drug Co., Great Falls, Mont. The 40-store chain is participating in Wyoming's smart card EBT test.

"We certainly don't want to have two or three terminals hanging on the checkstand: one of them for EBT, one for credit and one for something else," he said.

Systems integration is key, he added, whether a smart card initiative is limited to an EBT program or if it extends further into other applications.

Ralphs' Gray said smart card technology is "something to watch."

"Frankly, we would just as soon stay with the magnetic stripe card reader technology, because that's what we have in all of our stores. And to change that would be very expensive," he added.

"I think the most economical way for this whole thing to go would be for a federally run and funded [EBT] program that was even-handed across all states," Gray said. "If that kind of a program were to develop, then I think it would be worth it for retailers to go to smart cards."

"Smart cards will have their place," added another executive from a Midwestern chain. "I just don't know if it'll be in our lifetime."

Until recently, smart card tests had been launched in "closed" environments and available to limited groups of users. Banks have issued cards to employees for use in the company cafeteria, for example, and the military has tried out smart cards as a replacement for dog tags.

However, broader-based tests are progressing at a steady pace. The most "open" test of a stored-value smart card gets under way this month and will involve some 5,000 retailers in Atlanta. The Visa-sponsored program will coincide with the 1996 summer Olympics and will enable visitors to use the card for purchases at grocery stores, restaurants, pay phones, taxis and mass transit.