A fresh take on the interactive payment card may be the farthest the technology has come in the United States, but the cards' cost may prevent them from reaching beyond niche customer segments.
Many vendors have tried to sell banks on the concept of a payment card that has an embedded screen and buttons but adds no perceivable bulk to the card itself. In most cases these have been suggested as a security tool, such as a card that can present a dynamic password for online banking authentication.
Though these cards have interested some banks, they are far from becoming a common element of consumer cards. Dynamics Inc., which pairs the screen with a rewritable magnetic stripe, may move the technology forward, but observers say the company still has some hurdles to overcome.
Analysts were primarily concerned about the technology's expense. Dynamics would not disclose the cost of each card, or explain its business model, but Gwenn Bezard, co-founder and research director at Aite Group in Boston, said the cards cost about $10 each to make.
"The cost is going to be a barrier, at least in the near term, to making it a mass-market product," Bezard said.
Brian Riley, research director for bank cards at TowerGroup, said issuers could address the cost by offering interactive cards only for accounts that are likely to provide enough revenue to make up the expense.
Dynamics should "focus on getting issuers to issue the cards with that technology for very specific customer segments," Riley said. "You can price that into a card arrangement with the customer even if you spread that out over a year; it becomes a nominal expense."
Dynamics, which is based in Pittsburgh, pitches its product for multiple use cases. In the instance of Citigroup Inc., which has agreed to test Dynamics' product, the technology is used to rewrite the card's stripe at the point of sale to let consumers spend from their rewards balance.
Zilvinas Bareisis, a senior analyst for Celent, said Citi's example may prove confusing for end users.
"Besides the costs, I would have thought that the additional complication would be to manage the acceptance of rewards as a currency," Bareisis said by e-mail.
Typically, loyalty points can be redeemed only at specific merchants, while the card itself will be accepted wherever the its brand — Visa Inc. or MasterCard Inc. — is accepted.
Also, differing redemption rates for each merchant might add to the confusion and be "potentially complex to manage behind the scenes," Bareisis said.
But Citi is bullish on its newest pilot program. The banking company is calling it a first of its kind.
"I personally believe from what we have heard from our customers that there is a significant loyalty component to this," said Terry O'Neil, Citi's executive vice president for its cards business. "We see this as incredibly innovative."
Dynamics said other banks are also testing its technology, but it would not name them.
Another use Dynamics suggests for its technology is to prevent fraud. The card's stripe can be wiped clear until a user enters the proper PIN, so a lost or stolen card could not be used by anyone who found it.
The numbers on the card's face can overlap the embedded screen, allowing some of the numbers to be erased until the consumer needs to see them, such as when making a purchase online.
James Van Dyke, the president of Javelin Strategy and Research in Pleasanton, Calif., said interactive cards may not be enough to solve issuers' fraud problems.
"The online problem, the card-not-present, that's where the problem is, but that's a problem of not being able to prove the buyer's identity," Van Dyke said. "I just don't see any increased value for that online rather than offline."
In Citi's example, users would push a button on the card to access their rewards account, and a light would indicate that change. This function does not need to be used with rewards; a bank could issue a combined credit and debit card.
Riley said that this could be expanded further to allow accounts from multiple providers.
"It has multiple account numbers, so I can load in my debit card from bank, my credit card and my prepaid card from Wal-Mart," Riley said.
Riley said that offering interactive payment cards could help U.S. banks catch up to their international peers that issue cards with chips that adhere to the EMV Integrated Circuit Card Specifications, allowing firmer authentication at the point of sale.
"I think it's one of our strongest bets," Riley said. "It's not the sole bet. But it's the best bet in tech right now."
Dynamics is not alone in producing next-generation cards, particularly those that access multiple accounts.
Both Visa and MasterCard are developing multipurse and multiapplication cards, though their biggest successes have been outside the United States.
Total System Services Inc. has a card that provides access to multiple health accounts. U.S. Bancorp carries a similar card product.
As for the security features, QSecure of Los Altos, Calif., has two cards that display one-time passwords and write dynamic data to the magnetic stripe of the card for each transaction.
Innovative Card Technologies Inc. offers cards with embedded security tokens in them. RSA Security, a unit of EMC Corp., can also build its one-time-password tokens as cards.
But to Dynamics, "all that stuff is just irrelevant," said Jeff Mullen, its chief executive. "It's all not set up right."
Part of the company's approach is the support of multiple payment technologies.
"Dynamics can provide better EMV solutions," Mullen said. "We are not only going to push the magnetic stripe. Dynamics supports contactless."
Founded in 2007, Dynamics has received a lot of attention recently, winning awards at both the Demo Fall 2010 and the FinovateFall conferences.
"This is just our initial foray," Mullen said. "We're just introducing the industry to our vision."
