Chip-based smart cards dominate the payments space, and can be found in use for social security programs, on-campus services for students, corporate access and citizen identity management schemes.
Even in the U.S., where magnetic stripe cards are still pre-eminent in financial services, smart cards can be found in use at travel programs, for example, alongside other non-financial applications.
The use of smart cards is limited only by the storage capacity of their chip and the imagination of those deploying them. And the possibility of multi-application smart cards, that combine any number of customer-centric services on a single piece of plastic real estate, has excited marketing managers and business analysts for years.
And so we see schemes in Europe, for example, where certain supermarkets combine loyalty card with credit card – and thus gain even greater insight into their consumers spending habits. In London, Barclaycard offers the OnePulse card that combines credit card, contactless card and season ticket for the city’s transport network in one.
But these notable exceptions aside, most of the smart cards that are in circulation today are single application. If they have multi application capacity, it is dormant and, to date, cards are still not meeting their potential.
The business case for multi-application cards is not as advanced as the technology that supports them, and the inherent tensions of having several owners of the card itself, the data and the customer relationship have yet to be solved.
But has their time come at last? The new generation of potential customers has a completely different set of expectations, which suggest that it might.
This demographic operates in a world of on-the-go convenience, where speed is more important than security. They expect real-time delivery of goods and services to match real-time delivery of entertainment and social activities. A multi-application smart card, offering speed, portability, convenience and extensibility, is a sleek, sexy product whose appeal is obvious to this new tech-savvy generation.
Except that something has got there first. While bankers and merchants have been debating and pondering the merits of smart cards, smart phones have stolen a march on them. Multi-app chips are already widely deployed and widely used, but they are best suited for mobile phones rather than cards – given the inherent strength of a mobile phone as a multi-application device.
Although the younger generation wants the lightweight, impermanent, always-on mobile lifestyle they are more likely to get it from their phone than from a card.
Part of the problem is that a consumer can’t interact with a card. The data is self-contained with the chip, and is only accessible when inserted into a device that can open up and unlock the application itself. It’s in a fixed state unless it is being accessed by another piece of technology which is a critical and limiting factor.
What’s more, through incremental innovation of plastic card technology, financial institutions have invested heavily in perfecting the card-as-payment-method. The technology has been honed to serve its specific purpose, but for it to become a true multi-app card, that technology has to be unlocked and extended outwards. The whole model has to be refined, whereas smart phones already have the model in place.
This creates a dilemma. In the U.S., at least, the infrastructure necessary is not in place for either smart cards or smart phones. And financial institutions face a fundamental problem: how to bring value to consumers to create a long-standing and profitable relationship at a time when margins continue to decrease, the threat of fraud is always imminent, and new alternative forms of payments are carving out market share. In this environment, smart cards feel like the smarter bet.
There is a call option on that bet, however. Unlike a smart phone, there is little return on investment in adding multiple applications to a card. But if smart cards can be deployed that focus on providing more secure payments – their big advantage over magnetic stripe technology – and a few targeted, specific, and highly value-added services then the value is much greater, and the return on investment much quicker.
And this is where they become very relevant for credit unions. As in the UK, the real value in smart cards is likely to be found in targeted partnerships with merchants, and in offering customer loyalty and retention programs with that merchant.
It will likely take the big retailers and big banks to work together to get the industry as a whole to make a shift to smart payment devices of any sort, but smaller, more nimble credit unions are ideally placed to develop successful schemes. With their specific, focused customer base, credit unions have effectively pre-segmented their consumers making them an ideal partner for specific retailers and service providers.
The question for many years has been about whether we will see multi-application cards in widespread deployment. Reality has overtaken the debate, but the multi-app phenomenon has taken a different form. Now the question needs to move on: will we see convergence between the two?
In cases, where merchants have the wherewithal and relationships to create a consumer-friendly ecosystem where they can offer payments alongside other value-added products and services, we probably will. That’s an environment that is open for credit unions, perhaps more than any other financial institution, to take a leading role.
Jim Schlegel is a senior product manager for ACI Worldwide of Elkhorn, Neb.