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Real Estate Today

Get Smart:
The Coming Revolution of Smart Cards

by Robert S. Griswold, CRE, CPM, ARM

What is a Smart Card? || Smart Cards in Action
Smart Management || Becoming Smart || A Cashless Future

When the banking industry first introduced automatic teller machines years ago, plenty of nay-sayers claimed it would never replace the old system of face-to-face contact with human beings. Today it's hard to imagine conducting any personal banking without the convenience of an ATM.

With the introduction of "smart card"-based electronic transactions, we are in the midst of a change of equal or greater dimensions. Already used for financial transactions, insurance identification, storing medical information, and measuring customer frequency and loyalty, smart cards are finding a host of uses for consumer activities.

According to French smart card manufacturer SGS Thomson, about 730 million cards were in use worldwide in 1996 and more than 1.1 billion will be issued by the end of 1997. The number of smart cards in use is expected to triple by the year 2000, when Social Security recipients could be getting payments from smart card kiosks, according to the U.S. Postmaster.

As these figures show, it is only a matter of time before smart cards dominate the property management horizon. In fact, they are already in place at many multifamily dwellings across the United States, where they are revolutionizing monetary transactions, access security, and facilities use privileges. And greater innovations are on the horizon.

What is a Smart Card?

A "smart card" looks like a credit or debit card, but is capable of storing more data, is more secure, and has more abilities. Instead of a magnetic stripe, a smart card has a computer chip, which can store up to 4 million bytes of memory (the equivalent of dozens of text pages), compared to the 40 bytes of memory magnetic stripe cards hold. Instead of swiping a smart card, you insert it in a card reader (or wave it by a reader if it is a contactless card that sends data via radio frequency). There is also a hybrid card which has both a magnetic stripe and a microchip, that allows more flexibility between card readers.

Smart cards come in four basic configurations: integrated circuit (IC) memory cards, IC processor cards, optical memory cards, and PC cards. Optical memory and PC cards are used for applications that require large amounts of memory and probably won't concern property managers as much as IC cards.

IC memory cards (also known as "dumb" smart cards because they can only store data, not process it like a computer) are the most common and are typically single-use, disposable cards. IC memory cards hard to access without damaging the card's microchip. Prepaid telephone cards and the Visa Cash cards used last summer at the Atlanta Olympic Games are examples of this type of IC card. A reusable version, which can be reloaded with monetary value at an ATM or special kiosk when the balance runs out, is being tested this year in New York by Visa, MasterCard, Citibank, and Chase Manhattan bank.

But the truly "intelligent" smart card is the one that has a memory and can process data. Also known as a "stored value" card, and IC processor card contains a microprocessor that gives the card more flexibility and better data security. Processor cards are a step closer to the ideal of one card does it all (smart card Nirvana). A processor card can act as electronic purse, debit card, credit card, access gate card, and personal identity/data card. It is more private than a mere memory card in that it shields its vital data while interfacing with a card reader. A memory card tell the reader all the information (such as account balances) on the card, while a processor card tells the reader only whether or not it has authority/value to complete a transaction, without revealing what is on the card. The Amex Corporate Card from American Express and IBM is an example of a processor card that is being tested in conjunction with American Airlines for ticketless bookings and check-ins at 21 major U.S. airports.

Smart Cards in Action

Oakcrest Apartments, a 250-unit master apartment planned community in Southern California, works with DANYL Schlumberger and Consolidated Lauco Systems to provide smart cards to its residents. New residents receive and IC processor smart card that can be customized for individual use and identification (including the resident's photograph and apartment community logo printed on front). At an "Added Value Station" located in the apartment manager's office Oakcrest residents "load up" on the card's value in increments of $1, with the typical resident placing $20 or more on the smart card. (Of course, more funds can be added at any time by cash, debit card, or credit card).

Once this simple process is established, the ways in which smart cards can enhance the lives of residents and apartment managers alike become obvious. Following are some of the benefits discovered at Oakcrest from using IC processor smart-card technology:

The laundry room. Using the smart card to operate the washer and dryer means never again having to worry whether or not you have enough quarters to get the job done. When you insert your card in the card reader of a washer or dryer, the amount gets deducted, and you can proceed with washing and drying your clothes (sorry, no card yet exists to eliminate this drudgery). Imagine eliminating the hassle of the finicky coin-slot laundry machine where quarters get stuck or lost, leaving you with nothing -- not even clean clothes -- to show for it. And you don't have to stuff one machine with two loads of clothes because you don't have enough quarters!

With smart cards in the laundry room, there is a greater sense of security for both patrons and managers. No funds are exchanged or stored there, so the lure of easy money is gone. There is no threat from slugs or other type of "laundry fraud" (some apartment properties lose up to $100 a week from fraud, and the cost to repair damage to the laundry machine often exceeds the actual loss of funds). The effects of vandalism -- ultimately paid for by property owners -- are greatly reduced in these "cash-free" settings.

For managers, the smart card system offers another great advantage: the price charged to use the washers and dryers can easily be adjusted to higher or lower amounts. If you experience over-usage of facilities at certain peak times (say, Saturday mornings), with the smart card's "Time of Day Pricing" you can offer a "Tuesday Night 99 Cents Special" to lure residents to the laundry room at other times of the day or week. Overall pricing changes can be in increments as low as 1 cent.

Controlled access. The smart card can control access to a building lobby, recreation room, swimming pool, laundry room -- any area that currently makes use of a common-area key. There is no need for conventional locks to access gates. Unlike keys that can be easily copied, smart cards are virtually impervious to duplication because of a 30-digit computer code that protects their stored information.

When a resident moves out without returning a key, this usually means having to replace all locks in common areas. But if a resident moves out without returning a smart card, the code to use the access control reader can be inexpensively changed throughout the community or the cards can be set to expire every few months if not renewed at the rental office.

Facilities. Smart cards can turn on lights throughout a community (including tennis, volley ball, or racquetball courts) and activate car wash facilities, spas, tanning booth, and other services. Because smart cards can contain various levels of identification information, they can control any amenity that the manager wishes to limit to certain residents or charge for usage. For example, minors can be issued special smart cards that allow access only to facilities that do not require some parental guidance.

Vending machines. Modifying vending machines (beverage, snacks, etc.) for smart card use is a simple matter. By eliminating actual money, there is far less risk of theft or vandalism -- a tangible benefit to people who live in the community.

Office equipment. To accommodate the increasing numbers of people who work out of their homes, some apartment communities offer a general-use office space with computers, a fax machine, and a copy machine. The use of smart cards allows residents to conduct their business without disturbing on-site management for correct change. Internet access charges can be billed to individual accounts using a special reader card hooked up to the computer. And for $60, a device can be inserted into a computer's floppy drive to allow residents to use the computer for electronic cash transactions through a secured Internet connection to banks and retail outlets.

Smart Management

The convenience smart cards bring to residents is clear. But smart cards are more than just a lure to attract residents who like living in a state-of-the-art community. They also yield practical operations benefits that can make a management's job easier.

Electronic payments are much easier to reconcile than non-electronic payments. Stations where residents load value onto their cards are hooked up to the credit company via modem. When payments are made to the machine, the company automatically credits your account. Card holders that use their smart cards as credit cards or debit cards are ultimately accountable to credit companies and banks, which eases the manager's collection of credit.

The use of card readers to conduct transactions could reduce maintenance for pay phones, vending machines, etc. However, card readers could also come with their own set of electronic bugs that would probably need to be repaired by an off-site vendor.

Most likely, revenues from laundry and other services will increase by 10 to 30 percent with the use of smart cards. Card machines eliminate the need for "right change," a main cause of lost sales, by making it more convenient for residents to spend money at your property.

Becoming Smart

Adapting your apartment community to a smart card system involves a minor cost and selling the idea to your residents.

As smart cart use continues to spread, the cost of card readers continues to drop. A reader and connection for an IC smart card can run from $50 to $500 depending on what applications you want it to perform, according to Gareth Herschel of Gartner Group, Inc., advisors of personal information technology based in Stamford, Conn. Some manufacturers offer readers that will accept both magnetic stripe cards to accommodate users of the older card technology. Processor cards run about $8 to $12 each, Herschel says.

If selling the idea to residents seems to be a hurdle (in most cases the cards will sell themselves), try offering resident "perks." Apartment managers can provide new residents with a small balance for their smart cards ($3 or $5) as an incentive to try out the new system. Or if residents load $20 into their smart cards, managers can offer $30 value at the community's readers. New residents discover the benefits of using the smart cards and are quickly converted.

Property managers can also arrange special "point of sale" discounts for their residents who use their stored value cards in the community. When a resident makes a smart-card purchase at a cooperating grocery store, dry cleaner, doughnut shop, video rental store, or health club, the retailer recognizes him or her as a local resident and discounts the cost of products and/or services in exchange for the property manager's referral of new customers. However, warns Herschel, some college campuses that have extended their cards off campus are wondering if the complex responsibilities and liabilities that a public arena brings are worth the added benefit.

A Cashless Future?

No question about it, "electronic money" is the way of the future. Stored value cards offer speed, simplicity, and convenience, things we can use more of in our daily lives. Who knows? Maybe someday we'll look back nostalgically on dollar bills, quarters, dimes, and pennies.

In the mean time, we'll probably have to carry around both a smart card and cold hard cash for those who have not or will not adapt to cashless transactions. Add another card slot to your wallet.

May/June 1997Journal of Property Management
1997 Institute of Real Estate Management

Robert Griswold and the Real Estate Today! radio show strongly support the intent and the letter of all federal and state fair housing laws.  As a reminder to all owners and managers of real estate, note that all real estate advertised is subject to the Federal Fair Housing Act, which makes it illegal to advertise "any preference, limitation, discrimination because of race, color, national origin or ancestry, religion, sex, physical disability, or familial status, or  intention to make any such preference, limitation or discrimination." Additional state and/or local fair housing laws may also apply.  Be sure to inform all persons that all dwellings offered or advertised are on an equal opportunity basis.

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Revised and Updated - Wednesday, April 26, 2006

Robert S. Griswold, CRE, CPM, CCIM, PCAM, GRI, ARM
Griswold Corporate Center
Griswold Real Estate Management, Inc.
5703 Oberlin Drive, Suite 300
San Diego, CA 92121-1743
Phone: (858) 597-6100
Fax: (858) 597-6161

Email: rgriswold.ret@retodayradio.com

2006, 2005, 2004, 2003, 2002, 2001, 2000, 1999, 1998, 1997, 1996 Robert S. Griswold.  All Rights Reserved.
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