Network Security: Is This The ‘Killer Application' For Smart Card Acceptance?

When was the last time you gave the United States government credit for something positive? Probably not last April 15th.

Systems integrator Tom Gregg has been thanking the government since 1991. Why? Gregg, founder of 3-G International (3GI), credits the growth of his business to the government's willingness to adopt smart card solutions. "I started out helping U.S. businesses conduct business in China," says Gregg, who founded 3GI when he was 27. "A former employer gave me a subcontract job involving a smart card application. Smart cards very quickly became the focus of my business."

3GI (Springfield, VA) has completed installations for various government agencies, including the U.S. Department of Defense, the General Service Administration, and the U.S. Air Force Academy.

3GI has received numerous awards, including a ranking of #193 on Inc. magazine's 1999 list of the 500 fastest-growing companies. Gregg has been named in a 1999 Nielson report as one of the 20 most influential people in the smart card market. Today, 3GI has 150 employees, with 1999 sales expected to reach $13 million. 3GI also develops and markets its own Passage™ smart card software.

Smart Cards Replace Cash On Navy Cruiser
"After the Y2K issue dies down, more focus will return to smart cards," predicts Gregg. That's why he says point of sale (POS) VARs should be paying attention to the billion-dollar smart card market. While Gregg concentrates on corporate network security applications, recent government applications have a decidedly POS feel. Take, for example, 3GI's solution for the U.S. Navy cruiser, the USS Yorktown.

The ship, with approximately 350 seamen on board, is much like a small, floating city, according to Gregg. "Sailors can buy anything from toothbrushes to potato chips from the onboard store," he explains. "There is also a full-service post office, a disbursement office (similar to a bank), and several vending machines. The Navy wanted to eliminate the need for sailors to carry cash. Smart cards made that possible. Everything money-related is done on board the ship using smart cards. Even the vending machines accept smart cards." The solution also automated banking on the ship, eliminating the need for someone to count money every day. Instead, smart cards are electronically loaded with cash value.

3GI was also responsible for a similar solution at the Navy's recruit training center in Great Lakes, IL. "The training center had been using chit (voucher) books. Every purchase was recorded, down to the last penny," says Gregg. "We replaced that system with smart cards. Now, new Navy recruits are issued smart cards as pay. The cards are used to purchase clothing, toiletries, and food. Recruits don't have to go back to the barracks to get money for purchases." The cards have a one-time load, meaning that once the stored monetary value is spent, the card is empty. "Loading the cards is easier than processing checks, which can take from three to six weeks," says Gregg. To date, 3GI has enabled the Navy to distribute more than 5,000 smart cards at the Navy's only boot camp. Once the recruits graduate from the nine-week boot camp, they return the cards for recycling. Data is erased and replaced with new recruit information.

Counting On Network Security Applications
While the government has been good to 3GI, Gregg says the "killer application" – the one that will make smart cards take off in this country – is corporate network security. And, if POS VARs think this type of application isn't for them, Gregg says think again.

With PCs on most workplace desktops, securing access to information and the Internet is becoming increasingly important. Electronic commerce (e-commerce) is making the need for desktop security even more important. 3GI markets a line of network security products that improves the security and convenience of e-commerce. For example, smart cards replace computer passwords, which can be lost, stolen, or copied. "With smart cards, you can control access to desktop computers," says Gregg. "Once a smart card is pulled out of the reader (built into the keyboard), no one else can access that PC. E-mails can also be encrypted using the card." Similar security measures can also be incorporated into hospitality and retail PC-based POS systems.

What else will it take to make smart cards as popular in the United States as they are in Europe? Many people say the adoption of industry-wide standards, as well as the endorsement of card issuers, will spur smart card popularity. Gregg says there is a definite shift toward both trends. "Microsoft recently announced a new standard for smart card operating systems, and American Express advertised its new Blue card on television," says Gregg. "These events lend tremendous credibility to the smart card industry and show the technology is taken seriously by big players.

The Blue card allows people to shop securely online with their personal information encrypted in the smart card chip. With the Blue card, you don't have to fill out your name and address on every online order form. The card does it for you." American Express is reportedly giving away smart card readers to spur widespread use of the card.

Multiple Applications Drive Retail Smart Card Adoption
Another trend that will fuel smart card adoption is cost. "Smart card prices are down to $5 each or less," says Gregg. "However, cards with more memory will be more expensive. Shopping malls are starting to adopt smart cards used for both stored (money) value and loyalty programs. The cost of issuing the cards is shared among several stores, making it cost-effective and beneficial to institute. Stored value cards are best used with small payments, when it's not convenient to carry around a pocket full of change.

The creation of a smart card infrastructure is still needed before smart cards will be adopted nationally. The U.S. telecommunications infrastructure makes the use of magnetic stripe cards a less-expensive option for many businesses. However, smart cards themselves have a longer life and can be used for multiple applications, notes Gregg. He is optimistic that banking on smart cards will continue to pay off for 3GI. The company has opened offices overseas and throughout the United States. Gregg is considering taking his company public, after years of reinvesting profits and turning down financing. And it's thanks, in large part, to the U.S. government.

Questions about this article? E-mail the author at lisak@corrypub.com.