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Smart cards get smarter

Businesses savvy enough to leverage these technological improvements will make their customers more loyal and benefit from new efficiencies.

When Tom Cruise's character walks into a clothing store in the sci-fi movie "Minority Report," a robot with retinal scan recognition asks, "How did the assorted tank tops work out for you last time?" While that scenario isn't likely to happen anytime soon, smart technology is improving at a rapid rate with new levels of customization in store.

At least one retailer, Target, uses electronic kiosks at store entrances to identify customers and offer them special deals based on previous buying patterns. At Target, rather than retinal recognition, customer identification is performed using smart card technology.

With this card, you program it yourself to do just the things you want it to do. 
    Carl Gunter, professor, University of Pennsylvania

A smart card is a type of credit card with an embedded microchip. The chip makes it possible to store and process data, and offers security to reduce the incidence of fraud and account number theft. According to Randy Vanderhoof, executive director of the Smart Card Alliance, there are more than 20 million "smart" credit or debit cards in the hands of U.S. consumers today. To date, these cards have been single-function, meaning one company issues them for a specific use. In the future, smart cards are expected to be multi-use, e.g. where a bank issues a credit card and a merchant "piggy-backs" a customer loyalty or product promotion program.

Carl Gunter, professor of computer and information science at the University of Pennsylvania, has developed a prototype smart card designed to enable third parties to add programs after cards are issued. Furthermore, Gunter's invention would offer an unprecedented level of customization.

"We're used to banks telling us what our limit should be, but with this card, you program it yourself to do just the things you want it to do," says Gunter. "The limits could be anything at all, for instance, usable only on weekdays or only on purchases of less than $50." Gunter suggests one practical application would be for parents with college kids. The students would have ready access to money for books, supplies and related items, but would be blocked from non-essential purchases.


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Another potential application is internal business operations. Rather than requiring employees to seek approval before making purchases and submitting expense reports, organizations could issue smart cards with buying parameters already in place. Should the employee attempt to make an unauthorized purchase, the card would fail to work.

Gunter says the next hurdle is figuring out how consumers can program the cards themselves. The power of the card is in its customization potential, so it's critical to give consumers control over how they use it. He expects it'll be two to three years before the customizable smart card hits the marketplace. Vanderhoof predicts it'll be another five to seven years before usage is pervasive because in-store infrastructures have to be changed.

"Retailers will have to convert from magnetic stripe to chip reader technology in order to use the information on smart cards," says Vanderhoof, "and so far, in the U.S. they haven't seen the return on investment." Meanwhile, most retailers in Western Europe already have converted to smart card technology because of a higher incidence of fraud, he says, and Canada is feeling pressure to switch. Therefore quicker adoption outside of the U.S. is more probable. But it will be worth it, according to Diane Kroll MacPherson, director of leadership development for Peppers & Rogers Group.

"As a tool to increase share of customer, the smart card will create opportunities for retailers to discreetly vary discounts, sales dates, product promotions and much more to suit the needs and value of each customer," she says. "The [organizations] poised to win a competitive advantage will be those that configure the smart cards to reflect knowledge about customer needs and value acquired through interactions; information that cannot be easily duplicated by the competition."

To read more articles like this one, visit Peppers and Rogers Group's Web site at

Copyright © 2004 Carlson Marketing Group, Inc. All rights reserved. Peppers & Rogers Group is a Carlson Marketing Group Company.

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