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Smart Cards Go to College

University students are using all-in-one microchip cards to store cash and do the laundry.

(8/13/97) -- To most people, the notion of a cashless society is just hype. But across a handful of college campuses, students are using microchip-based smart cards for everything from phone calls to laundry. And the industry is watching closely, since students are among the first to preview a technology that promises to reinvent the ways we spend money.

Cash on a Chip
Smart cards are nothing new. First introduced over a decade ago in France, the cards have embedded microchips that store value locally. Because all data is on the card itself, the smart card is like cash: No record of its value exists anywhere else. (You're out of luck if you lose your smart card.)

Smart cards are accepted by any business that has a smart-card reader--a small, inexpensive, self-contained device. Accepting a credit card involves connecting to the card issuer's network, but accepting a smart-card sale requires nothing more than a local reader (which may be as cheap as $10). And the cards don't leave the "electronic trail" that credit cards do: No central database records who buys what. Smart cards can serve as convenient alternatives in settings traditionally limited to cash transactions, such as taxicabs and newsstands.

Trial rollouts of smart cards have already begun. But before they gain widespread acceptance, the cards will likely catch on around corporations and other "closed" systems, such as college campuses, says Dan Amdur of the market research firm Yankee Group. "Any closed-loop system is attractive, because you don't need to worry about interoperability," he says. When the system is based on one standard, Amdur explains, adapting to the new technology will be easier.

A Day in the Life of a Smart Card
A further twist is the trend toward the consolidation of several cards into one. In this respect, the PennCard program at the University of Pennsylvania provides an early glimpse of what the future has in store. Combining smart-card technology with conventional forms of payment, the PennCard rolls a variety of systems into one.

Upon arrival this fall, each Penn student will receive a new "smart" ID card with a digital photo, a mag-stripe, and an embedded microchip. Whereas the chip lets the student store up to $50 in a "PennCash" account, the mag-stripe enables the card to function as an ATM card. Combining these features with traditional ID information and even with phone-card functions, the PennCard virtually eliminates the need to carry cash.

On a typical day, a Penn student's routine might proceed something like this: On the way to class, he uses his PennCash account to pick up coffee at a local stand. After class, the PennCard doubles as a photocopy card. Next, realizing that he's running low on PennCash, the cardholder swings by the ATM and transfers money from his checking account to his PennCard. When he swipes his PennCard for lunch, the student's meal is automatically charged to his dining bill. And after catching another class, he uses the PennCard to call Mom and Dad from a corner pay phone. Returning to his dorm room to drop off books, he swipes the card to gain access to the building.

Next Stop--Your Block
While students at Penn, the University of Florida, and the University of Michigan are working out the kinks in their smart cards, the technology promises to make its way into the mainstream soon. Later this year, Citibank--in conjunction with Chase Manhattan Bank, MasterCard, and Visa--will bring smart cards to Manhattan's Upper West Side, the first public test of the cards in the unforgiving New York City market. Breaking consumers of their old habits will probably take several years, but these companies and others are betting that they can teach plain old cash--and its users--some new tricks.--Jon Kaufthal

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