The Impact of Smart Cards
Money and Banking I – BU322
March 17, 2010
The Impact of Smart Cards
The Digital Age has changed the way we do business and one of them is a technological innovation called the Smart Card. Though users tout its advantages the concept has been slow to take off in the United States possibly due to the disadvantages that continue to plague the concept. However with the continued direction of business and banking in this new age, we need to be prepared for this new way of doing business and the affect it may have on money and banking. Before we can understand the impact Smart Cards might have on the traditional forms of money and banking as we know them, I think it is important to understand what a smart card is as well as some of the advantages and disadvantages that come with the technology. What is a Smart Card?
A smart card resembles the current credit or debit card yet retains increased capabilities due to an embedded computer chip that holds and transacts data between users like a microprocessor (Smart Card Basics, 2010, ¶ 1). This means the card has capabilities similar to a computer as it not only has memory but can actually carry out transactions and store that information for future use. A debit card reflects merely the balance of an account in which the card is tied to such as a checking or savings account and when the card is used it basically acts the same as an electronic check and is an order to pay (Miller & VanHoose, 2007, pg. 24). A credit card operates as a stored-value card in which it contains predetermined funds. Both of these cards not only require identification but authorization as well. Though a smart card looks and feels the same as debit and credit cards it operates somewhat differently. The microchip embedded in to the card holds a digital signature that is examined and authenticated during transactions whether at a retail location or in the comfort of ones own home. These cards do not require personal identification as do typical cards. A major difference is that smart cards use digital cash. “It acts much like real cash except it’s not on paper” (Puffer, ¶ 2). Digital cash is money that is stored on things like smart cards or the hard drive of a computer and software facilitates transfers of value over a network which means “a digital money balance is a floating claim on a private bank or other financial institution that is not linked to any particular account” (Al-Laham, Al-Tarawneh, & Abdallat, 2009, pg. 341). Transactions that take place can be completely anonymous and recorded only on the hard drive of users. Essentially two consumers can do business with one another without the involvement of a third party and the flow of funds are directly between the two versus through any type of traditional financial institution. Advantages and Disadvantages
The attributes of the smart card with respect to advantages and disadvantages are similar for buyers and sellers, merchants and consumers. Advantages consist of convenience and flexibility with disadvantages being security issues, implementation costs and lack of users. Given the current demand, or lack thereof, here in the U.S., one might surmise the downsides of the technology still outweigh the positives. The smart card technology verifies validity of transactions and authenticates the cards by examining a “digital signature” on the card’s microchip and transactions are deducted immediately and credited to the retailer or seller. The benefits are two-fold. One, neither consumer nor seller have to wait for some kind of authorization process that can lead to long lines or a waiting period for orders to be processed. The second is that the balance of the smart card is a true balance and sellers or retailers cut the risks associated with credit or debit cards such as insufficient funds or inability to pay the debt. Provided both buyer and seller have...