|Consumer Privacy and Smart Cards A Challenge and an Opportunity
Prepared by the
Legal & Public Policy Committee Smart Card Forum
Released May, 1997
Smart Card Forum Inc.
8201 Greensboro Drive
McLean, VA 22102 USA
Consumer Privacy and Smart Cards A Challenge and an Opportunity
The Smart Card Forum was created in 1993 to promote the widespread
acceptance of smart card technology in North America. Central to the Forum's mission are:
(i) providing education in the marketplace about the benefits of smart card
technology, (ii) helping its members identify viable business propositions and
(iii) providing policymakers with the information they need to develop sound public
policy positions on relevant issues. The issue of consumer privacy brings all of these
elements into sharp focus. Indeed, in the arenas of consumer acceptance and policy
development, no issue is more visible or perhaps more important than privacy. As a result,
smart card business propositions will only be successful if consumers, policymakers and
Forum members understand the role this technology can play in protecting privacy while
efficiently and securely delivering services and benefits.
I. Privacy In The Consumer Context
While privacy has many meanings, privacy in the consumer context is
commonly defined as the consumer's interest in knowing how personal information will be
used by a business or government agency, the benefits which will accrue to the consumer
for such use and how the consumer can choose to limit or prevent that use. Smart card
technology, if properly designed and implemented, can enhance both the fact and the
perception of the consumer's ability to exercise a much greater degree of control over
personal information than is the case with any comparable delivery system. The Smart Card
Forum strongly believes that an understanding of the benefits that can be provided and how
privacy can be protected by smart card technology will lead to greater consumer acceptance
and a healthier business environment for the development of this technology.
The following discussion of issues, educational opportunities and
suggested business practices is intended as a guide for our members. It is based on the
simple premise that consumer oriented design and implementation of this technology,
coupled with education of consumers and policymakers, make good business sense.
II. Consumer Issues And Educational Opportunities
- The consumer should be educated about what a smart card is. A brief description of
how smart cards work may be helpful in dealing with consumers. The following may be useful
general information in doing that. There are two basic kinds of smart cards. An
"intelligent smart card" contains a microprocessor that actually stores and
secures information and "makes decisions" as required by the card issuer's
specific application needs. New information can be added to these cards and processed by
the microprocessing unit. Monetary value, for example, can be added or debited as
required. The second type of card is better described as a memory card. These cards are
primarily information storage cards that contain stored value which the consumer can
"spend" in a pay phone, retail, vending or related transaction. Many of today's
prepaid telephone cards are memory cards. In both types of cards, the integrated circuit
chip allows the stored information to be protected from damage or theft. As the storage
capacity of cards increases and their costs decline, smart cards will have enhanced
processing and other capabilities, making them the equivalent of portable computers, the
"computer in the pocket."
The smart card can be a consumer empowerment tool. Smart cards in
general can provide consumers with a high degree of information control. The smart card
microprocessor chip functions much like a miniature computer. To a greater extent than
possible through other technologies, the consumer can play a role in determining what
information, or value, is placed on that chip and deciding who receives access to it and
when. In the future, the microprocessor chip will provide the consumer with a much broader
array of choices with respect to applications placed on a card. It is important that
consumers understand the large role they can play in choosing applications and managing
the disclosure of personal information to issuers of the cards, merchants and other third
Smart card technology is not a product but an efficient and secure delivery
system for consumer products and services. Smart card technology is an enabling
tool which provides access to products, services or value. Current industry regulations
and privacy safeguards will continue to apply to the services, products or value being
accessed or the business transactions being conducted by use of this technology. However,
as this is a new technology for consumers, there is a real need for industry members to
ensure that its applications are responsibly implemented.
- Industry self-regulation and prompt and clear responses to consumer questions will go a
long way toward demystifying the technology and ensuring consumer acceptance of its
The security provided by smart card technology is unequaled in the context of
broad-based consumer access devices for services, products and value. While
security issues will always pose challenges to any technology, it is imperative for the
smart card industry to effectively communicate to consumers the very high level of
security and protection provided by smart card technology. No broad-based system is ever
totally secure. However, successful unauthorized attempts to access or alter data in a
smart card system are unlikely because of the prohibitive cost of those efforts. In
addition, the technology can support various forms of cardholder identification including
identification (such as PINS and biometrics) that can be verified on the card itself.
Smart card technology permits higher levels of protection over consumer
information. Not only can smart card technology be designed to allow consumers to
determine who receives access to sensitive or confidential data, the technology can also
be designed to securely compartmentalize information storage so that access to one
application on a multi-application card will not allow access to other applications which
may exist on the same card. In fact, the greatly increased levels of security possible in
smart card designs should remove consumer concerns that access to a financial function,
for example, could provide access to a health care function. This technical capacity to
securely segregate functions on the card itself can be supplemented by ensuring that the
device which reads the card is programmed only to perform the particular function being
used. Depending on the application and the level of privacy protection appropriate for
that application, the consumer will be able to further protect data on the card by
personal passwords or PINs unique to each compartmentalized application.
III. Suggested Business Practices
- Members of the Smart Card Forum are encouraged to adopt consumer privacy principles
and make them known to their customers. The strength of the Smart Card
Forum is the diversity and breadth of its membership. Some of its members are in regulated
industries, others are not. Some of its members have adopted a code of responsible
information practices, consumer privacy principles or similar guidelines, others have not.
THE SMART CARD FORUM STRONGLY ENCOURAGES RESPONSIBLE CONSUMER PRACTICES BY SMART CARD
APPLICATION PROVIDERS AND ENDORSES INDUSTRY SELF-REGULATION. THE FORUM ENCOURAGES ITS
MEMBERS TO INCORPORATE INTO SMART CARD APPLICATION DESIGNS THE CONSUMER PRIVACY
PROTECTIONS AND CHOICES THIS TECHNOLOGY PERMITS AND TO ADOPT A CODE OF RESPONSIBLE
INFORMATION PRACTICES OR SIMILAR POLICIES COVERING THE USE OF CONSUMER DATA THAT MAY BE
OBTAINED THROUGH THESE APPLICATIONS. Because of the diverse membership of the Smart Card
Forum, it is not possible for the Forum to provide a guide for all represented industries.
However, the Forum has attached a Guide to Responsible Consumer Information Practices as a
suggested framework around which each member should develop a policy which takes into
account the realities of the industry that member represents. The guiding principle should
be to give the consumer a comfortable and reasonable level of knowledge and control over
personal information used to achieve the economic or other benefit the member provides.
- The Smart Card Forum has established a Privacy Task Force to assist its members,
consumers and policymakers in understanding consumer and policy concerns relating to smart
card technology. The Smart Card Forum Privacy Task Force will support
Forum members in developing policies which educate consumers and policymakers about the
technology. In particular, its ongoing role will be to educate members about which types
of information and value can be stored on smart cards, how access to that information or
value is achieved and protected, and how consumers can make informed decisions regarding
disclosure of personal information in exchange for the benefits offered.
For smart card technology to be successful, it must be embraced by
consumers and it must not be unnecessarily or unwisely regulated by policymakers. In some
ways, the very designation of this technology as "smart" has become a barrier to
acceptance. The industry and its members must forcefully make the point that the
technology does nothing by itself. What makes this technology "smart" is the
empowerment it provides to the consumer to access benefits, services or information in a
highly personalized, efficient and secure environment. It is the intention of the Smart
Card Forum to continue to work closely with other industry groups, governmental agencies
and consumer groups to assist consumers in achieving the levels of disclosure and
information necessary to use this technology effectively with maximum privacy protection.
Guide To Responsible Consumer Information Practices
- Identify, recognize and respect the privacy expectations of
consumers and make applicable privacy guidelines available to them.
- Establish procedures to ensure that consumer data -- information
directly related to the consumer's use of the card -- is as accurate, up to date and
complete as possible. Promptly honor requests from consumers for information the company
has about them as a result of the consumers use of their cards and provide a
procedure for them to correct inaccurate personally identifiable information.
- Limit the use, collection and retention of information about
consumers to what is necessary to administer their accounts, provide superior service and
offer consumers new opportunities.
- If personally identifiable consumer information is to be provided
to unaffiliated third parties for marketing or similar purposes, inform the consumer of
that purpose and provide the consumer the opportunity to decline (i.e. "opt
out"). If personally identifiable consumer information is provided to a third party,
require the third party to adhere to equivalent privacy standards with respect to that
information. This would not apply to situations where information is disclosed in order to
complete a transaction or pursuant to legal process, including the investigation of fraud
or criminal activity.
- Provide a means for consumers to remove their names from the
company's telemarketing, online, mailing and other solicitation lists.
- Maintain appropriate security standards and procedures regarding
access to personally identifiable consumer information.
- Implement policies and procedures to limit employee access to
personally identifiable consumer information to a need-to-know basis. Educate employees
about privacy standards and employees responsibilities to protect consumer privacy
and monitor employee compliance, and take appropriate disciplinary measures with employees
who fail to adhere to such standards.