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11.3 Smart Cards 343

or stand alone, functioning independently. Smart card read- An open-loop card is a multipurpose card that can be used
ers are a key element in determining the overall cost of a for transactions at several retailers or service providers.
smart card application. Although the cost of a single reader is Open-loop cards also can be used for other purposes, such as
usually low, the cost can be quite high when they are used a prepaid debit card or for withdrawing cash from an ATM.
with a large population of users (e.g., passengers traveling on Financial institutions with card-association branding, such
®
a metropolitan mass transit system). as Visa or MasterCard , issue some open-loop cards. They
Hybrid cards and combi cards combine the properties of can be used anywhere that the branded cards are accepted.
contact and proximity cards into one card. A hybrid smart Full open-loop cards (e.g., the MasterCard Mondex card)
®
card has two separate chips embedded in a card: contact and allow the transfer of money between cards without the bank’s
contactless. In contrast, a combi card (dual-interface) smart intervention.
card has a single chip that supports both types of interfaces. Stored-value cards may be acquired in a variety of ways.
The benefit of either card is that it eliminates the need of car- Employers or government agencies may issue them as pay-
rying both contact and contactless cards to use with different roll cards or benefit cards in lieu of checks or direct deposits.
applications. In addition, you need only one card reader. Merchants or merchant groups sell and load gift cards.
Various financial institutions and nonfinancial outlets sell
prepaid cards by telephone, online, or in person. Cash, bank
Stored-Value Cards wire transfers, money orders, cashier’s checks, other credit
cards, or direct payroll or government deposits fund prepaid
The stored-value card is a card where a monetary value is cards.
prepaid and can be loaded on the card once or several times.
From a physical and technical standpoint, a stored-value card
is indistinguishable from a regular credit or debit card. In the Applications of Smart Cards
past, the money value was stored on the magnetic strip, but
recently, most stored-value cards use the technology of smart In many parts of the world, smart cards with magnetic
cards. With stored-value cards, the chip stores the prepaid stripes are used as credit cards for retail purchases and pay-
value. Consumers can use stored-value cards to make pur- ing for transportation. They also are used to support nonre-
chases, off-line or online, in the same way that they use tail and nonfinancial applications. A general discussion of
credit and debit cards—relying on the same networks, all types of smart card applications can be found at global-
encrypted communications, and electronic banking proto- platform.org.
cols. What is different about a stored-value card is there is no
need for authorization, but there is a limit set by how much Retail Purchases
money is stored on the card. The most popular applications
of stored-value cards are the transportation cards that are Credit card companies and financial institutions are transi-
very popular in the large cities in Asia. It is a necessity for the tioning their traditional credit and debit cards to multi-
citizens in Seoul, Hong Kong, and Singapore to hold smart application smart cards. In many parts of the world, smart
cards that pay for subways, buses, taxis, and other applica- cards have reached mass-market adoption rates. This is espe-
tions. The transportation cards do not require any fees, but cially true in Europe, where the goal was to have all bank
the bank that initiates prepaid cards may require fixed cards be smart cards with strong authentication and digital
monthly fees or a registration fee. Stored-value cards are also signature capabilities by 2010.
popular to pay for telephone calls and texting. In 2000, the European Commission established an initia-
Stored-value cards come in two varieties: closed-loop tive known as the Single Europe Payment Area (SEPA),
(single purpose) and open-loop (multiple purposes). Closed- encompassing 33 European countries. To bring this initia-
loop cards are issued by a specific merchant or merchant tive to fruition, all the EU banks agreed to use the same
group (e.g., a shopping mall) and can be used to make pur- basic bank card standard, enabling the use of credit and
chases only from the card issuer. Mall cards, refund cards, debit cards throughout the EU. The standard (EMV) is
some toll-pay cards, prepaid telephone cards, and Internet named after the three major card associations that developed
use cards are all examples of closed-loop cards. its initial specifications (Europay, MasterCard, and Visa). It
Among closed-loop cards, gift cards have traditionally is based on smart cards with a microprocessor chip. The
represented a strong growth area, especially in the United chip is capable of storing not only financial information, but
States (CardCash 2015). Over 90% of U.S. consumers pur- other applications as well, such as strong authentication and
chase or receive a gift card annually. In the USA over $100 digital signatures. The history of SEPA along with its key
billion is spent annually on gift cards. The figure has been principles is detailed in Wikipedia (en.wikipedia.org/wiki/
averaging about a 6% annual increase over the last 5 years. Single_Euro_Payments_Area).