Resources
See latest resources ยป
Smart card industry braces for new era

Smart card industry braces for new era

Source:

Deepening mobile-Internet convergence, a flourishing market for e-payments and the arrival of multi-application smart cards signals the beginning of a new era for the smart card industry, says industry analyst Frost & Sullivan.

Smart cards have evolved from a secure means of payment to become a universal tool for authentication and security, as well as host to a multitude of applications.
According to Frost & Sullivan, 1.79 billion million smart cards were in use worldwide in 2000 (with microcontrollers commanding a 35.6 per cent share); the international marketing consulting company expects that number to explode to 3.66 billion by 2004.
Anoop Ubhey, Industry Analyst at Frost & Sullivan, warns that vendors active in the smart card arena must bring more benefit to customers through a wider range of products and applications and expanded support organisation in order to grab a bigger share of this fast growing market.
As signalled by the wave of merger and acquisition activity, the smart cards market is undergoing profound transformation as its fortunes increasingly depend on the ability to provide one-stop secure, integrated solutions. This trend, in turn, will accelerate the development of competitive e-business offerings. The repositioning of smart card manufacturers as end-to-end solution providers will put market participants in pole position to capitalise on developments in the flourishing e-payment solutions industry.
Heightened security and fraud reduction, as well as improved customer service and convenience count amongst the key strategic challenges contenders in the smart card market are currently confronted with. Fuelled by the need to enhance security processes, network security displays major potential uses for smart cards.
Smart cards are entering a dramatically growing number of service applications to take the place of money, tickets, documents and files. Pay-TV and network security are just a few of the current examples. These applications need more and more intelligence inside the card to ensure an ever-increasing level of security. The next generation of smart cards could take security into the mainstream, boosting convenience and customer loyalty.
In 2000, the smart card market's star performer was the GSM SIM card sector, accounting for 15.2 per cent of total unit shipments. A slowing business environment and downturn in the European GSM market and subscriber growth continue to exert pressure on SIM card sales and contribute to the further deterioration of the mobile phone business.
"Gemplus has been hit hard by the slowdown of the GSM market, as the main thrust of the company's business, nearly 75 per cent, consists of the provision of smart cards with build-in microchips for GSM-based mobile phones," Ubhey explains.
The study confirms that Gemplus will retain its number one spot as the world's leading producer of smart cards.
Earlier this year, SchlumbergerSema acquired Bull CP8, a leading provider of highly secured microprocessor-based cards, in a move to reinforce its presence in the banking and network security segments. A few months later, Schlumberger expanded its information technology operations by buying Sema. While Oberthur's consulting arm, Advise, accesses existing infrastructure, Oberthur's development and introduction of"4Most" multi-application management tools that enable financial institutions, card issuers and vendors to add, change and delete applications over the Internet demonstrates the company's determination to become more end-to-end solution focussed.
Meanwhile, the second tier of smart card manufacturers, such as ID Data, Citech and Incard, have started encroaching on the top players' market share.
Despite a slow start and trailing behind at a meagre 2 per cent of global smart card sales, growth in the US market is picking up speed, aided by the mushrooming of small regional smart card manufacturers. Europe continues to lead the field with a massive 53 per cent share in 2000. The Asia Pacific region is expected to raise its share from 24 per cent in 2000 to 31 per cent in 2002.
Microsoft recently announced that it will be licensing out its smart card platform source code. Although this statement is subject to many different interpretations, most industry experts believe, and Frost & Sullivan agrees, that Microsoft is bowing out of this market leaving Java and MultOS to fight it out.
The smart card market has had to hurdle a number of obstacles in its transition from a single function to a truly multi-application product. Euronet's Card Management System (CMS), a relational database software system that enables banks to manage ATM and debit card usage, has been hailed as a step in the right direction. In addition to account file maintenance operations, CMS also allows the bank to update and track information related to card activity. Application management plays a pivotal role in the management of the application as well as the smart card itself.
Ubhey continues: "Events of the past twelve months show just how volatile relations between banks and telcos have become. We believe banks should have realised there was trouble ahead when privatisation began. The telcos had the networks, billing systems and a growing diverse card base and knowledge of their customers. The threat to banks was apparent."
Increasing mobile phone usage to conduct micropayments will inevitably introduce higher value payments and billing services. "The E-purse was a reaction from the banking community. In Denmark, the Netherlands and the UK, these schemes were launched in partnership with telcos, while banks in Belgium and Germany were spearheading projects without the involvement of telcos. The costs for banks associated with these schemes were enormous and generally e-purse schemes have failed to take off. The parallel rise in mobile phone networks and the Internet presented an even more serious threat to the banking arena," the study says.
Chip technology is the key enabler for mobile telephony. Telcos can leverage chips under their control to capture parts of the payment value chain, including origination, authentication and settlement. By creating a more streamlined payments infrastructure, telcos will be able to transform the access device into a mobile wallet that offers seamless payment services to consumers both in the online and offline worlds.

Comments: (0)

Comment resources
See all Comment resources »
The millennial mindset
/comment

The millennial mindset

Globalisation, demographic change, virtualisation, new technologies - the confluence of these drivers is forcing European banks to adapt rapidly to stay on their game and remain relevant in a world that, five years from now, will demand an entirely new way of doing business.

Thomson Reuters and multimedia
/comment

Thomson Reuters and multimedia

Learn how financial services firms are using multimedia.

Sepa - where do we stand?
/comment

Sepa - where do we stand?

The European Central Bank's Gertrude Tumpel-Gugerell, outlines the obstacles to the creation of a Single Euro Payments Area at an offsite meeting of the European Payments Council.