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What the Hell Do Smart Cards Do?

Fast Company solves the smart-card mystery.

The coolest credit card in America is American Express's Blue. It looks cool: transparent, with a blue hologram in the center. It offers cool terms: no annual fee and no interest for the first six months. And it comes with cool technology: A computer chip is embedded on the left side of the card. The chip makes Blue a "smart card" — and smart it is. The sliver of silicon is a 32-K chip with the power of an early PC.

But even if you have Blue (and Blue accounts for nearly 10% of AmEx's 50 million cards), you may still have a question: What the hell does that chip (and smart cards in general) do?

The answer: Mostly, nothing. So few stores have smart-card readers that Blue relies on its magnetic strip for routine charges. "Blue has a unique look and feel," says Judy Tenzer, an AmEx spokesperson. "It has technology that appeals to a new audience." But in reality, for the moment, it is style over substance.

So too with smart cards in general. A smart card could be the ultimate secure ID — with a digitized version of your thumbprint, for instance, which could be read at store checkout or airline check-in. A single card could be your AmEx, your Visa, your debit, your frequent-flier card, and your driver's license. But that's a long way off.

So if the smart card doesn't do much for customers, what does it do for AmEx? In a word: differentiation. With 1 billion credit cards in the hands of 285 million Americans, "the toughest job today is finding new customers," says Pierce Sioussat, managing associate with credit-card specialist Auriemma Consulting Group Inc. So while Blue's chip provides little "incremental functionality" for those who already have the card, it does offer powerful functionality for AmEx — cracking young, tech-savvy customers. One card issuer actually asked Auriemma if it should offer a card with a picture of a chip, to get the marketing impact without the added cost.

"Smart-card technology is in its infancy," says AmEx's Tenzer. "Most of the fun and functionality is yet to come."

Learn more about American Express's Blue on the Web (www.americanexpress.com).

A version of this article appeared in the March 2002 issue of Fast Company magazine.

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