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Smart Cards: A Key to the Future

With smart cards, the opportunity to save money and increase convenience is there for the taking.

Someday, a single card, yours exclusively, will allow you to enter your government office building with a single flash or swipe. At your office, you will use your card to log on to your personal computer, gaining access to your program's secure databases.

When you need to take an official government trip, your card serves not only as your passport but as a method of paying for your airline ticket. Want to know how much money you have in your retirement fund? Access the Internet with your smart card and -- voila! -- there is your data.

Get sick overseas? No problem. Your health data is stored on a tiny microchip, allowing physicians on another continent to obtain your entire medical history and to treat you with confidence.

You need to buy a new printer? The card will allow you to make small purchases through the Internet.

Smart Cards -- What are They?

We are all aware of the conveniences of the ubiquitous magnetic-stripe card, which is used today for everything from an ATM transaction to a credit-card purchase at the "point of sale." A smart card stores information on a tiny chip embedded in the card -- called an integrated circuit chip. Both magnetic-stripe cards and smart cards store information; however, a smart card actually carries data on the card itself.

The major advantages of smart cards are that they store much more information than can be stored on a magnetic-stripe card -- between 10 and 100 times more; they have the capability to remotely process data by relying upon a central processing unit that actually resides on the chip; and they are more secure.

Magnetic-stripe cards are notorious for their lack of security. When were you last asked for photo identification to buy dinner with your MasterCard? Smart cards resolve this dicey problem.

Today, the most common type of card is the magnetic stripe card. Another type is the "hybrid" card, which contains both a magnetic-stripe and an embedded strip. This card allows access to smart-card hardware as well as to merchant card readers, ATMs and bar coders. These hold great promise for providing people the opportunity to use the cards for multiple purposes.

Why Do We Need Smart Cards?

The government's need for smart cards is driven, in large measure, by the move to reduce administrative costs and to make transactions more secure. Smart cards can also be used to replace outdated federal processes for delivering services to government employees and residents. Another important benefit is that smart cards improve accountability and reporting. These new requirements come on the heels of a greatly reduced federal government.

The cost reduction in smart-card adoption is expected to be remarkable. One agency found each paper procurement transaction costs about $77 in administrative processing; magnetic-stripe card transactions cost about $17 each. One prediction is that this sum can be halved again for secure Internet purchasing, which brings the administrative cost to less than $10 each.

People often associate smart cards with the exchange of money. The smart card was born in the European phone and financial services industries, but it will have its adolescence elsewhere. Rather than limiting the function of the smart card to the exchange of value, think of smart cards as a token to identify the user to a system.

There are ambitious plans for the federal government, spearheaded by the General Services Administration (GSA) and federal program agencies, to deliver government-funded benefits through electronic benefits transfer (EBT) before the millennium. The numbers that would be affected are quite striking. Over $111 billion each year is transferred to 31 million "unbanked" recipients of 12 government programs. The goal is to provide one user-friendly card that bestows the unified delivery of government-funded benefits; incremental process is being made. Today, 23 states permit citizens without bank accounts to electronically receive benefits or welfare payments, generally through magnetic-stripe cards. These will eventually be smart cards.

Dealing with Which Government?

There is a story about a man in Montana who, frustrated with his inability to get services from a local government organization, called his congressman in Washington. After hearing the man's tale of woe, the congressman suggested he contact his mayor. The man replied, "I didn't want to start that high."

Obviously, this fellow didn't attend Civics 101, but the story illustrates the point nicely. Residents often lump all government institutions into one category, whether they are state, local or federal, and they often do not differentiate between an agency that collects taxes and one that issues driver's licenses -- they are both "government." We all wish that it were so! Regrettably, today there are hundreds of governments at numerous levels that residents must deal with. Smart cards will give us the opportunity to create a virtual "Department of Government," where the locality, level and specific origination are completely transparent to the resident.

Worldwide Acceptance

The federal government is riding the commercial wave in developing and implementing smart-card applications. One of the largest-ever U.S. tests for electronic purse (or e-purse) applications was undertaken at the 1996 Atlanta Olympics. VISA International produced 1.5 million VISA Cash cards, which were sold by banks during the games. Card readers were deployed in merchant locations. Attendees were able to have money stored on these cards, without worrying about exchanging foreign currency. Cards were distributed in pre-established amounts and accepted by the Atlanta transit system and thousands of other Olympic venues. The Atlanta project demonstrated that the e-purse application could operate successfully and there was widespread acceptance of the cards by people from all over the world. The National Football League's two newest football teams, the Jacksonville Jaguars and the Charlotte Panthers, use stored-value disposable smart cards in their ballparks.

The Department of Defense is experimenting with a similar application of e-purse, by issuing smart cards with cash, on military bases. The Department of the Navy is using e-purse cards at its Smart Base site in Mississippi. Cards are being successfully used in the closed environment of college campuses or schools, such as York and Exeter universities in the United Kingdom and the University of Michigan.

The United States is not as far along in the implementation of smart cards as some other countries, especially in Europe and Asia. In 1996, North America had about 3 percent of the smart card industry market, with Western Europe at 70 percent and Asia at 10 percent. By the year 2000, it is projected that Asia will grow to about 40 percent of the market, North America will move up to 12 percent and Western Europe will drop to about 12 percent.

Eleven countries have implemented a major national program using smart cards. There has been significant progress in smart health cards in a region of France. The Germans began rolling out a national health- care card in 1993, and to date, 83 million have been issued. Welfare cards are being pilot-tested in Spain, using fingerprints for identification. Mexico has also issued 2 million smart cards to poor families.

Within the United States, there is much movement in both the federal and state sectors as well as joint projects. The Department of Defense's Multi-Technology Application Reader Card (MARC) started in Hawaii. It included a magnetic stripe, a smart chip, a photo ID and a bar code. Today, there are 47,000 such cards active. It is used as proof of principal for aircraft manifest, accountability, food service and readiness processing. A coalition of eight states, the Southern Alliance of States, began issuing EBT cards that will provide access to state and federal benefits -- including welfare, food stamps and Social Security -- through a single card system.

The state pioneers are Ohio and Wyoming, both of whom use smart cards for benefit delivery -- such as food stamps, Women, Infant and Children benefits, and so forth -- and have plans to expand this to cash programs.

Where there appear to be problems with smart cards is in their use as a national citizen or identity card. Most other countries have so far been unsuccessful. These failures occurred because citizens and interest groups have been concerned over privacy issues, and more than one country has had to scrap plans for identity cards. It appears both "big brother" and the perceived lack of adequate security have railroaded many of these initiatives. The United States, a country suspicious of an invasive government, will move slowly on such a card.

Getting There

The federal government must look to private industry for a technological solution rather than developing a "government solution." This translates into meeting the government's needs with commercial products -- a trend set in motion a dozen years ago. The commercial sector has steadily moved from paper-based systems to card-based delivery systems that support financial transactions. The U.S. private sector has demonstrated interest and investment in improving card technology and the technological infrastructure to support them. While some would argue the federal government must establish the infrastructure, as it did with the telephone system, we at the GSA believe otherwise. We will rely upon the private sector to develop the necessary operating rules and standards and then incorporate them into the products and services offered. This way, we take advantage of the ingenuity of the business world.

We will partner with other federal and state government agencies to facilitate the process of smart-card adoption so they become the tool of program managers rather than the exclusive province of technical experts. When program managers hold this same view, we will see speedy growth of smart-card applications. Our job is to educate program managers about the benefits of smart cards and show them how to reengineer their business process to take advantage of this technological device.

G. Martin Wagner is associate administrator of the Office of Government-wide Policy for the General Services Administration.

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