Coming Soon: Smarter Credit Cards

There's smart everything now -- smartphones, smart tablets, even smart refrigerators that remind you that you're out of milk. But one product remains determinedly low-tech: plastic. Until now.
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It seems like there's smart everything now -- smartphones, smart tablets, even smart refrigerators that remind you that you're out of milk. But one product remains determinedly low-tech: plastic. Until now. Citibank will soon roll out the Citibank 2G Cards, which feature a chip instead of a magnetic strip.

The Citi 2G: Rewards a button away

This new technology comes with all sorts of advantages: simply by pressing a button, you can choose to pay with debit or credit, or even with rewards. Allowing customers to choose which account to draw from reduces overdraft and encourages responsible spending. And, let's face it, paying with your credit card rewards points and getting something "for free" is infinitely more rewarding than getting a check in the mail.

The 2G cards offer better fraud protection, too. Users can hide their card number, and use a five-digit PIN to access it. I personally would find this reassuring: some online purchases ask only for your credit card number and CSV, and identity theft is not exactly unheard of. In general, I lean towards keeping more information more private, and I applaud this preemptive security measure.

For nostalgic consumers who think back to the good old days when phones looked like, well, phones, the 2G looks the same as the traditional cards. But for a little light indicating how you're paying for your purchase, they're the same reassuring rectangles. Consolidating debit and credit cards into a single piece of plastic slims down the wallet and, by extension, minimizes the awkward wallet-in-jeans bulge.

Pilot programs for mobile payment systems

Visa and Mastercard are developing new plastic-free payment mechanisms that require only a smartphone. O'Reilly also reported that PayPal and startup Bling Nation are testing a similar system in Silicon Valley, and Starbucks is fiddling with a prepaid card app.

Google, too, will pair up with VeriFone to try out a mobile-payment service in San Francisco and New York in the next four months. The program will expand to Los Angeles, Chicago and Washington, D.C. Google will reach into its deep pockets to install smartphone cash registers from VeriFone, and mobile payment company ViVOtech will also play a role in the pilot program.

Finally, major cell phone carriers AT&T, T-Mobile and Verizon joined forces to build Isis, a national mobile commerce network.

While it would be great to dispense with physical credit cards (and receipts, too) and simply wave a phone over a reader, such technology requires significant investment. Not only do card companies need to create the smartphone-cards, but a critical mass of retailers need to install readers and retrain their staff to use them. The software might be developed and ready to use, but don't hold your breath.

The benefits of smart credit cards

This technology could be a definite boon for consumers. As soon as smartphone-cards hit the market, there will be apps to tell you if you're running low on funds or if you could get more rewards if you wait a month to make your purchase, and file your receipts electronically. They could also help customers to stick to a budget, issuing a warning before you overspend in a certain category.

Such feedback could impose more self-discipline on spenders. Right now, swiping a card doesn't evoke the same feeling as handing over hard-won, tangible cash. But if we could see our bank accounts diminish as we make a purchase, or watch our debt grow, we might regain the visceral feeling of spending what we earn.

But back to Citibank's 2G cards. With this innovation, credit cards join the trend toward personalization and interaction that we've seen in almost every other industry. It's too early to get excited about the Citibank 2G, but I'm glad that credit cards are finally joining the 21 century.

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