The tight relationship between Visa and MasterCard - currently under scrutiny on antitrust charges - has prevented smart card technology from taking hold, according to experts, rivals, and former employees.
American Express, the biggest competitor to the credit card world's version of the Wintel high-tech duopoly, last year began offering a credit card, called Blue, with an embedded chip. The New York-based company also offers users smart card readers that attach to computers and offer an extra level of PIN (personal identification number)-based protection for consumers and other users.
But until major banks adopt smart card technology, such cards won't do a thing - and that's the fault of Visa and MasterCard, according to Rob Enderle, vice president of Giga Information Group.
"Since MasterCard and Visa are the dominant platforms, banks have no reason to install smart card readers or put an infrastructure in place," Enderle said. "That puts smart cards in a bad spot; the two dominant players have no desire to spend any more money.
"We have a chance to have a universal key, and the banks have the trigger and have decided not to pull it," Enderle said. "It's a real drag on the technology."
The US Department of Justice's lawsuit, originally filed in 1998, charges that Visa and MasterCard have illegally conspired to block credit card companies - mainly American Express and Discover Financial Services - from dealing with their member banks.
Smart cards proliferate across Europe
Spanish businessmen use smart cards to settle their Value Added Tax bill; the Portuguese use them to pay their income tax; and the French use them to pay for pretty much anything they want.
Smart cards store information such as bank balances, network access codes, or medical records in a persistent memory. This information can be accessed only by communicating with a microprocessor embedded in the card, which releases the data over an encrypted connection only when authorised to do so by entry of a secret code.
Practicality prompted Europe's smart card development.
Early deregulation of the US telecommunications market meant stores could afford to dial into data centres to verify payments made with magnetic strip cards, said Annemarie Earley, research director at Gartner Financial Services. In Europe, however, such communication was initially very expensive, driving the development of offline systems such as a smart card, which authenticates itself.
Pushed on one side by the costs of a centralised telephone monopoly, the adoption of smart cards was also pulled along by the highly centralised and structured banking industry in Europe, according to Alyxia Do, principal analyst at Frost & Sullivan.