Credit cards get smart

The 97 million credit and debit cards with magnetic stripes now being used in Britain will be replaced over the next three years by "smart cards" containing a microchip, following trials which began yesterday in Northampton and Dunfermline. The trials by 15 members of the banking industry, including Barclays Bank, NatWest, Lloyds Bank, the Halifax and Abbey National, will test cards which use a chip embedded in the face of the card to store the data usually held on the black magnetic stripe on the back.

During the tests, more than 100,000 new cards will be issued, and 600 retailers be given equipment able to read the chips directly. The banks say that the major advantage of the new cards is that they offer better security against counterfeiting, because it is more expensive to counterfeit a "smart card" than one with a magnetic stripe, and a chip can have extra features such as passwords built in.

For the future, smart cards offer a wide range of other functions. They could also operate as cash cards, storing "cash" in the form of encrypted numbers. The private company Mondex, which is not involved in these trials, already offers smart cards which work as "electronic purses", able to store, pay and receive "e-cash". But e-cash has had a slow takeup because financial organisations have been wary about security. Visa and Mastercard have also begun offering "smart" credit cards which can also store cash since last year.

The UK's clearing banks and building societies have 97 million cards in circulation at present, all with expiry dates in the next couple of years.