New Haven and Smart Cards

The City of New Haven has instituted a smart card system. Read about it here.

The idea is that participating merchants will issue cards and the holder can put money ‘on" the card. They do this at the merchants. They can then use the card at the merchants like cash, and they can also use it to pay their parking.

This is the "electronic purse" concept. You find it beginning to be used in Europe, Singapore, Hong Kong, and other spots. It has been tested to some success in colleges where parents want to keep control on their kids and limit their ability to "charge." In a perfect world, there would be a smart card scanner in every store, on every gas pump, and in every bus, train, and office. Any place that took cash, could also take a smart card.

I wish New Haven success. There are some draw backs, such as the fact that the city pays the smart card company 10% of its revenues to run the program, and the small number of beginning participating merchants.

This will work as soon as the concept takes hold at merchants. However, my guess is that it will work best at stores that sell low ticket items (newsstands, candy stores, donut shops.) Places where you normally pay cash anyway.

This by the way, is a "smart card" with a computer chip inside. No magnetic strip to wear out or be easily read by a thief. There’s an algorithm that keeps the card secure. However, my experience is that it won’t be long until someone figures out how to diddle these cards. Mag Stripe cards were supposed to be secure, too.

What gives any security at all to such cards today is that the system is on line. When you use a card, it checks with your bank to see if the card is valid, if there is money in your account (or credit limit) and whether or not your spending patterns are legit. The problem is that the idea of a smart card is that all knowledge about how much money you have is onthe card.

However, why do you care. Your liability is limited to the amount of money on the card when you lost it. Its just like losing the cash in your wallet. Its the banks that will take the hit when the security of the card system is compromised.

A friend of mine told me that if you operate based on the fact that you are smarter than the next guy, you do so at your peril.

If you want to learn more, this paper, written by a Brit, seems as good as any.

http://ourworld.compuserve.com/homepages/pagrosse/j036.htm

He comments for this to work, the user needs to be assured that if the card is compromised, that his money is safe.  But the questions is how to do that.  If all knowledge about the amount of money you have is on the card, and you lose it, then you lose it. There is nothing a bank can do to reimburse you.

This guy wrote his white paper six years ago and predicted that the roll out would be slow. Well, its been over half a decade and the roll out is slow indeed.

Isn’t technology wonderful…

JVH