(FORTUNE Magazine) – In October, 50,000 New Yorkers on Manhattan's Upper West Side will finally get a shot at the next great wave of technology--fresh off the boat, unbelievably, from the Old World. In much-delayed trials, Citibank and Chase Manhattan will test smart cards--bank cards that let you buy your newspaper and coffee with bits and bytes instead of bills and coins.

Ever since a Frenchman named Roland Moreno invented smart cards 20 years ago, retailers, banks, and governments the world over have talked about putting microprocessors in plastic as the supercharged replacement for the magnetic stripe. But while the U.S. is still in the pilot-project stage, Europe has gone whole hog--which says lots about the wacky ways in which technology spreads these days. "The lion's share of all smart-card schemes is in Western Europe, while the U.S. has only 5%," says Steen Lomholt of NCR.

The tightfisted Dutch are on the cutting edge. Banks there have issued some eight million smart cards (called Chipknip because knip is Dutch for "purse")--more than one for every two Dutchmen. The cards contain a microcontroller with eight kilobytes of memory, plus the usual 200-byte magnetic stripe, and are being used as both debit cards and electronic wallets.

In Holland, parking meters take smart cards, as do newsstands, vending machines, and pay telephones. You can reload anytime, just as you would take cash out of an ATM machine, but you don't have to carry around a wad of bills.

Chipknip and its new competitor, Chipper, which is issued by ING Group's Postbank subsidiary, want to do more. They've begun trials using the cards to check out library books and pay fines as well as keep track of points earned in Holland's "loyalty schemes," the retailing equivalent of frequent-flier programs. Bus and rail ticketing are also in the works.

The real bonanza, says Rabobank Nederland, will be when banks start selling information off the chips. It's a marketer's dream: Each time a smart card is stuck into a retailer's terminal, the machine collects juicy data about the buyer and his purchases. "There are lots of parties that want information about our clients," says a Rabobank spokesman. "We can earn some money from that." The Chipper group, which has issued half a million cards so far, has put a 16-kilobyte IBM chip--with the same memory as a cellular phone--on its card to accommodate such future uses.

The cell-phone folks have even grander ideas. Europe's digital phones can accommodate smart cards that someday will not only log billing information and phone numbers but also act as pocket ATM machines. Need cash? Dial your bank and download some money. SGS-Thomson Microelectronics, which claims 35% of the smart-card chip market, believes mobile phones will account for 23% of the smart-card chip market by 2001, with bank cards taking up a 54% share.

At last, all this European smart carding has drawn the attention of American Express, MasterCard, and Visa. Each is developing a scheme with a view toward introducing the cards worldwide. Last year Amex began testing smart-card use with American Airlines at 21 U.S. airports; travelers can check in without passing through a human agent. In May, Amex expanded the trial to include eight U.S. Hilton hotels. Mondex International, the 15% MasterCard-owned subsidiary, has a trial with 300 AT&T employees in Jacksonville who are using smart cards to shop via the Internet.

So why were the Europeans out in front on this technology? It turns out they needed to leapfrog their own antiquated phone systems. Dutch retailers got fed up with spending as much as 500 Dutch cents ($2.50) for verifying a purchase; a Chipknip purchase costs just 11 cents (5 cents). "With 650 shops in Holland and millions of customers every week," says an Albert Heijn spokesman, "that adds up to a hell of a lot of money."

--Janet Guyon