Many people who are regular Internet users remain suspicious about e-commerce. They'll send e-mail, browse the Net for information, and even research potential purchases, but they won't actually buy anything online. A May 2001 Jupiter Media Metrix survey of online users who have shunned online purchasing found that the fear of having credit-card data stolen was the leading concern among 56 percent of those surveyed. These users, who are otherwise willing and able to use the Internet, are likely to avoid making online purchases until they're convinced that their credit-card information is secure.
What will help them get over their fears? Smart cards may be the answer. Outfitted with a small microprocessor, smart cards perform all the functions of a traditional credit card, but provide greatly improved security as well as a range of specialized applications that take advantage of the card's ability to store and process personalized data.
Smart cards are safer than credit cards because you can't just type a card number and expiration date into an online form or tell it to a sales agent over the telephone. You must physically pass the smart card through a specialized card reader that communicates with the smart card's built-in processor and data storage. That's true if you're at a physical store using a merchant's card reader or if you're buying something online from your own computer equipped with an add-on reading device.
"Physically having something that they think will protect them will go a long way in convincing reluctant buyers to purchase online," says Cate Quirk, an analyst with AMR Research.
While they're widely used in Europe, smart cards haven't made much of a dent in the United States because the major credit-card companies didn't embrace the technology when it was first introduced--probably because it would have meant replacing billions of dollars' worth of existing technology.
But now that the liability for credit-card fraud has shifted from merchants to card issuers--and credit fraud is 8 to 9 times more common in online channels than it is in traditional channels, says Pete Abell, an analyst with AMR Research--credit-card companies have a major incentive to improve security. Smart cards are the most obvious way to do so.
Smart cards have other advantages besides reducing fraud and increasing buying among online users. Users can securely store personal data in the cards, which they can then share selectively to reduce the time they spend filling out tedious forms. Merchants can benefit because they can use the smart cards to offer electronic coupons or other special promotions aimed at improving sales and customer loyalty. Smart cards are also an excellent fit for multichannel sales because they are truly portable and can be used in a variety of settings--from physical stores to PCs to cell phones--as long as those settings are equipped with card readers. (For more on the importance of multichannel sales, see my Dec. 12 column, "E-commerce is not an island.")
"It's a mature technology and it's the most viable approach for providing a mobile form of identity for accessing resources," says Earl Perkins, an analyst with the Meta Group.
In fact, credit-card companies have already started sending out smart cards as replacements for users' existing credit cards. Whether they know it or not, there's a good chance that most users will possess one or more smart cards in the next few years. One of the companies that's ideally positioned to be a leader in smart cards is Target. Target--both a mass retailer with 40,000 terminal locations and a card issuer with 30 million cardholders--is offering Visa smart cards to its customers. In addition to Target's co-branded Visa smart card, CVS plans to install smart-card readers from Hypercom in 450 of its stores.
Most analysts forecast fairly broad adoption of smart cards in the United States in the next two to three years. To propel this adoption, Visa and American Express have started giving account holders free card readers. They are also working with merchants to make sure they have the infrastructure to support smart cards. The readers, which cost issuers about $15 by most estimates, present a hurdle to adoption if the issuers expect to charge users for them. "Consumers aren't going to go out and spend $25 or more on a device to read cards," says James Van Dyke, a research director with Jupiter Media Metrix. Van Dyke says he expects readers will be adopted in offline settings, such as stores and corporations, before many consumers have them.
One of the biggest hurdles to the mass adoption of smart cards will be customer education. "Companies will need to educate the consumer audience," says AMR's Quirk. "We talk to major corporations and they don't even know about smart cards yet." Merchants, card issuers, and enterprise users will need to put programs in place to tell potential users about the benefits of smart cards. They will also need to offer incentives to familiarize users with their cards and the special programs available to them.
IT-savvy retailers and enterprises should begin to investigate smart cards. Meta Group's Perkins, who says any IT plans in the next 18 to 24 months should include smart cards, recommends that companies gauge the progress of the pilot programs being managed by Accenture, EDS, Schlumberger-Sema, and others. AMR's Abell recommends that enterprises begin exploring Hypercom, VeriFone, Ingenico, and other smart-card technology vendors.
In short, smart cards look like yet another technology that we'll come to trust--one that will pave the way for growth in e-commerce and improvements to customer loyalty.
Will smart cards overcome online buying fears? E-mail Adrian or Talk Back below.
