Chip-based smart cards dominate the payments space, and can befound in use for social security programs, on-campus services forstudents, corporate access and citizen identity managementschemes.

Even in the U.S., where magnetic stripe cards are stillpre-eminent in financial services, smart cards can be found in useat travel programs, for example, alongside other non-financialapplications.

The use of smart cards is limited only by the storage capacityof their chip and the imagination of those deploying them. And thepossibility of multi-application smart cards, that combine anynumber of customer-centric services on a single piece of plasticreal estate, has excited marketing managers and business analystsfor years.

And so we see schemes in Europe, for example, where certainsupermarkets combine loyalty card with credit card – and thus gaineven greater insight into their consumers spending habits. InLondon, Barclaycard offers the OnePulse card that combines creditcard, contactless card and season ticket for the city’s transportnetwork in one.

But these notable exceptions aside, most of the smart cards thatare in circulation today are single application. If they have multiapplication capacity, it is dormant and, to date, cards are stillnot meeting their potential.

The business case for multi-application cards is not as advancedas the technology that supports them, and the inherent tensions ofhaving several owners of the card itself, the data and the customerrelationship have yet to be solved.

But has their time come at last? The new generation of potentialcustomers has a completely different set of expectations, whichsuggest that it might.

This demographic operates in a world of on-the-go convenience,where speed is more important than security. They expect real-timedelivery of goods and services to match real-time delivery ofentertainment and social activities. A multi-application smartcard, offering speed, portability, convenience and extensibility,is a sleek, sexy product whose appeal is obvious to this newtech-savvy generation.

Except that something has got there first. While bankers andmerchants have been debating and pondering the merits of smartcards, smart phones have stolen a march on them. Multi-app chipsare already widely deployed and widely used, but they are bestsuited for mobile phones rather than cards – given the inherentstrength 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 getit from their phone than from a card.

Part of the problem is that a consumer can’t interact with acard. The data is self-contained with the chip, and is onlyaccessible when inserted into a device that can open up and unlockthe application itself. It’s in a fixed state unless it is beingaccessed by another piece of technology which is a critical andlimiting factor.

What’s more, through incremental innovation of plastic cardtechnology, financial institutions have invested heavily inperfecting the card-as-payment-method. The technology has beenhoned to serve its specific purpose, but for it to become a truemulti-app card, that technology has to be unlocked and extendedoutwards. The whole model has to be refined, whereas smart phonesalready have the model in place.

This creates a dilemma. In the U.S., at least, theinfrastructure necessary is not in place for either smart cards orsmart phones. And financial institutions face a fundamentalproblem: how to bring value to consumers to create a long-standingand profitable relationship at a time when margins continue todecrease, the threat of fraud is always imminent, and newalternative forms of payments are carving out market share. In thisenvironment, smart cards feel like the smarter bet.

There is a call option on that bet, however. Unlike a smartphone, there is little return on investment in adding multipleapplications to a card. But if smart cards can be deployed thatfocus on providing more secure payments – their big advantage overmagnetic stripe technology – and a few targeted, specific, andhighly value-added services then the value is much greater, and thereturn 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 foundin targeted partnerships with merchants, and in offering customerloyalty and retention programs with that merchant.

It will likely take the big retailers and big banks to worktogether to get the industry as a whole to make a shift to smartpayment devices of any sort, but smaller, more nimble credit unionsare ideally placed to develop successful schemes. With theirspecific, focused customer base, credit unions have effectivelypre-segmented their consumers making them an ideal partner forspecific retailers and service providers.

The question for many years has been about whether we will seemulti-application cards in widespread deployment. Reality hasovertaken the debate, but the multi-app phenomenon has taken adifferent form. Now the question needs to move on: will we seeconvergence between the two?

In cases, where merchants have the wherewithal and relationshipsto create a consumer-friendly ecosystem where they can offerpayments alongside other value-added products and services, weprobably will. That’s an environment that is open for creditunions, perhaps more than any other financial institution, to takea leading role.

JimSchlegel is a senior product manager for ACI Worldwide ofElkhorn, Neb.