How smart cards are set to change banking (and your life)

by Auren Hoffman

Just when you thought that no pundit could ever reasonably declare any new product to drastically change your life, here comes this column. You heard the Internet was going to change your life (it hasn't yet) and that the PDA was going to organize you (you are still utterly disorganized). In fact, the last great product that change people's lives was the personal computer -- and before that it was the television, the airplane, and the telephone.

So here I am, some guy who thinks he's some modern day Nostradamus -like high-tech prophet, preaching that smart cards, like Mondex, might actually change society. Maybe not for the better or for the worse, but they will have a significant impact on our lives.

So, you think I'm a futurist? A far out-of-touch-Internet-philosopher? A video-phonephile looking for his new crush? Well, read on.

Smart cards are debit cards that act like those photocopy cards you see at your local library. They store electric cash on an encrypted microchip embedded within the credit-card sized device. You put money on them first (say $100) and then money gets debited from the card after every swipe. A convenient way to pay for things. With a smart card wallet, you can pay your friend the $5.28 you owe him without having to make change. That will do wonders for group dinners (but it might knock the waiter's tip down a wee bit).

Smart cards are secure. They utilize RSA public-private key encryption, not unlike PGP. But instead of memorizing your pass-phrase, all the security is embedded within the card. One techy at Chase Manhattan Bank, a partner with Mondex USA, told me that the Mondex card has a similar security level to the United States' Inter-Continental Ballistic Missiles (I'm not sure if that is a good or bad thing).

New products are coming out everyday to help you use a smart card to its full potential. A smart card wallet will transfer money between individuals without any authorization from a bank. Manufacturers like Hewlett-Packard and Microsoft will be including smart card readers in their upcoming keyboards and right now you can integrate your smart card and your computer through a device that inserts into your floppy drive. Soon, phones will be equipped with swipes.

Imagine never having to even go to the ATM again. Just sit at home, and download cash directly to your smart card through the Internet. Downloading money may seem far-fetched, but it is just around the corner. Banking at home can be a reality, rather than a triviality, with smart cards.

Now imagine how that transforms banks. Already brick and mortar buildings are coming crashing down in favor or ATM's, but smart cards could render even the ATM obsolete. Banks are fast becoming extremely profitable businesses and their margins will only increase with the advent of the smart card. Replacing ATM's which run a few million dollars a piece is a very measurable savings.

But the smart card might go even further--it could change the way you think about change. By "change" I mean that clunkety stuff that jingles around in your pocket and comes in different sizes and colors (but is always shaped like a circle from some odd reason. A really bold country would mint triangular pennies--but I digress). Change could fast become obsolete--replaced by easy-to-store electrons. Soon parking meters will sport smart card readers--no more buying a candy bar in a 5-and-dime store just to make change. Newspaper stands, vending machines, toll-booths, telephones, and subways will all take smart cards in the near future. And as clinkety change becomes less common (and real change is more the norm), old Uncle Sam stands to gain by minting less coins (and saving big bucks--not just small change).

The Mondex homepage proclaims that smart cards "are set to revolutionize spending habits." I have to agree.

Auren Hoffman is a recent graduate of UC Berkeley and now is a consultant with Kyber Systems (, an Internet database firm based in Berkeley, CA. Check out Auren's bi-monthly column called SUMMATION (