The Great Card question:Will It Be Smart or Debit?

Depends on where you are. In Europe, smart cards reign. In the U.S., credit and debit cards are king. eventual answer could turn out to be Thirty years down the road to the checkless society, we're using more checks than ever. Still, the universe of payments is overtaking checkwriting, as evidenced by the current phase of the transition, the move from paper checks to newly popular debit cards. This transition is rightly one of the industry's primary concerns, because payments are the remaining domain of commerce that banks now dominate. surge of debit cards in particular is fortuitous for banks because these cards access demand deposit accounts in the main. Smart cards are a little less clearly defined as a bank product and are seen more as a replacement for cash than checks. Most U.S. banks then may well favor debit cards for that reason and also for the more tactical reason that financial institutions here have the huge advantage of a reliable, ubiquitous, and inexpensive telecommunication system. It provides the backbone of an infrastructure that connects users' cards to merchants' point-of-sale devices to online authentication services to banks and automated clearing and settlement systems. Because so much information is available on the network, the cards need carry only minimal information on a magnetic-stripe memory. European countries have taken a different route to the checkless society. Consumers there don't buy so much on credit. And they pay their bills in person at a utility provider's office or pre-authorize their banks to deduct monthly payments. Historically, these methods have been preferred because telecommunication in Europe is costly. Over the years, these differing systems have won acceptance from, and shaped the behavior of, all the respective parties involved. America finds new applications for its smart networks and dumb cards. Meanwhile, Europe keeps transactions offline and puts new sophistication into its cards, making them smarter by embedding in them semiconductor chips with bigger memories-and now with the brains of computer processors. However, the global drive to electronic commerce, turbo-boosted by the efficiencies of the Internet, is straining the capabilities of both online and offline systems. Sometime soon, Europeans will have to telecommunicate more efficiently, and Americans will need smarter cards. accompanying graph tells this story in terms of the expected growth of smart cards. In 1997, Europeans bought 87% of a 135-million-card world market, while North America's share was a paltry 2%. By 2005, Europe's share will shrink to 31% and North America's will grow to 15%. according to the Tower Group's forecasts. By then, the world market will have grown more than 12-fold, so Europeans, too, will be buying a lot more smart cards. Theodore Iacobuzio, a senior analyst at the Tower Group, says, The value proposition for smart cards in the U.S. has yet to be made. He says that the transition to smart cards will only begin here over the next three to five years, and the cards won't be widely accepted for another eight to ten years after that. Most analysts-even smart-card advocates-agree with the muted tone of that forecast. Debit cards flourish What does payment technology do while it's waiting for the U.S. to warm up to smart cards? Take another step away from checks. After a decade or so of all but ignoring debit cards, merchants and consumers have recently made them the fastest-growing segment of the payments system. Since 1993, the number of credit card transactions in the U.S. has about doubled to nearly 11 million a year. In that same period, debit transactions have increased six-fold to about 2.5 million a year. Visa has the lion's share of this debit-card business: in 1997 Visa's U.S. volume was $94 billion, compared with $30 billion for Mastercard. In the debit-payment world, offline transactions surpassed online ones in 1995- despite the fact that online debit payments are cheaper and more secure, and despite predictions that online is the wave of the near future. …