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| Subject: name Oysterwas selected in partbecause it did not suggest an exclusive link to transit. | |
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Author: INDUSTRY SURVEY2003: Chip Cards Break New Ground |
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Date Posted: 16:29:18 01/18/03 Sat INDUSTRY SURVEY 2003: Chip Cards Break New Ground By Donald Davis Cornwall is not the world’s biggest smart card project. But it’s growing, and could turn out to be a model for multipurpose chip cards that might be issued by local governments throughout the United Kingdom, and possibly beyond. Roy Cosway, the point man for the Cornish Key Card project as corporate IT services manager for the Cornwall County Council, is hoping that a newly formed national group tasked with setting standards for local smart cards is successful. That way, he says, local governments can collectively order cards in the millions, instead of the tens of thousands, and attract more attention from vendors of smart cards and readers. "We’ve had a lot of trouble with suppliers," says Cosway, who ordered 50,000 dual-interface contact/contactless cards from Germany’s Orga Kartensysteme for the first phase of the Cornish Key project. "They say we’re too small to bother about." Even next year, when Cosway expects to order 150,000 smart cards, Cornwall won’t make much of a dent in the roughly 2 billion-unit chip card market. But it’s typical of the type of project coming online late this year and in 2003 that might have a long-term impact by demonstrating the oft-discussed potential of the smart card to replace many cards in an individual’s wallet. The big numbers for chip card shipments in 2003 will continue to come from the more traditional segments. In the heart of the market, the sophisticated microprocessor cards that can add new features in software, the bulk of the demand will remain in banking and in SIM (subscriber identity module) cards for mobile phones. Growth in microprocessor cards will be steady, if not spectacular, predicts Eurosmart. The association of smart card suppliers predicts microprocessor shipments will increase 13.2% from 689 million cards in 2002 to 780 million next year. SIM cards will account for 440 million units and payment cards 200 million units. The largest single chip card product, memory cards, largely used as prepaid cards for public phones, will decline next year, as mobile phones erode pay phone use, according to Eurosmart. However, the 10% decline from 1.1 billion memory cards in 2002 to 1.0 billion units will do little to deepen the crisis of smart card vendors (see cover story on page 36), because these hard-wired, and thus unchangeable, memory cards are low-priced commodities that big phone companies can buy for around 20 cents apiece. Memory cards, which are also used in public transit, access control and loyalty programs, average around 30 cents, says analyst Shalini Chowdhary of U.S.-based research firm Frost & Sullivan. Most smart card revenue comes from microprocessor cards, which range from 1 to 11 euros in price, averaging around 3 euros, Chowdhary says. (One euro was worth about one U.S. dollar at press time.) Smart card manufacturers’ revenue will grow from 3.7 billion euros in 2002 to 4.3 billion euros next year. Chowdhary says. However, her estimate include magnetic-stripe cards and such services as personalization, as well as revenue from smart cards. Her estimate also assumes a relatively small decline in the average price of a microprocessor card to 2.9 euros in 2003, compared with 3 euros this year. That would mean a halt to the steep decline in prices that has seen the average SIM card falling to under 3 euros, nearly 50% less than during the 1999-2000 mobile phone boom. High End, Low Demand A big reason for the falling prices has been a lack of demand for high-end cards with lots of memory in both SIM cards and banking. Many vendors hoped that by this year 32 kilobytes of EEPROM (electrically erasable programmable read-only memory) for data and applications would be the norm in SIM cards. But 16K cards represented nearly half of the SIM chip sales this year for Japanese chip maker Hitachi Ltd., which targets the higher end of the smart card market. And those 16K chips have become a commodity, with prices falling 30% this year to between 75 cents and 1 euro, says Christopher Koch, marketing manager for smart card products for Hitachi Europe. "In the telecom world, the introduction of new technology is not going as fast as everyone would have liked," says Koch. In particular, smart card vendors have been hurt by delays in launching so-called 3G services that will feed data to mobile phones so quickly that consumers will be able to browse the Internet or watch videos on their handsets. Those 3G, or even intermediate 2.5G, services, are expected to require larger SIM cards for storing new features and larger data files. Some telcos, however, are demanding larger SIM cards for new services, and that will boost 64K SIM cards to 15% of Hitachi’s shipments next year, from around 5% this year, Koch says. And there are other bright spots, such as the addition of SIM cards to a growing number of mobile phones in the United States, which traditionally did not use the European GSM standard that requires a SIM card in each mobile phone. And then there is China, which scoops up large volumes of SIM cards, although cost-conscious Chinese telcos still buy many low-end 8K cards. Koch estimates China, the largest mobile phone market with some 190 million users, will consume 120 million of the 370 million SIM cards sold this year. Chinese sources predict a continuation of the 20% annual growth in mobile phones. However, some vendors say this growth already has slowed in the second half of 2002, cutting into SIM card increases. In the other big microprocessor sector, banking, growth is expected to be substantial in units, although few credit or debit card issuers are opting for sophisticated multiapplication cards. For the most part, growth in the banking sector stems from the conversion of magnetic-stripe credit and debit cards to smart cards. Outside of North America, where credit card fraud is a relatively low .06% of transaction volume, most major markets have adopted deadlines for converting to smart cards that conform to the international EMV standards for chip-based payment. The force behind the deadlines is a shift in liability for any card fraud to whichever party, the card issuer or merchant acquirer, is not able to accept EMV cards. Visa International and MasterCard International both have adopted such a liability shift for Jan. 1, 2005, in Europe and one year later in the Asia/Pacific region. Those two areas account for most of the EMV activity. French banks will begin in earnest in 2003 converting their 43 million cards–which already carry a chip based on an older payment protocol–to EMV. Visa projects its global EMV cardbase will grow from 62 million cards to 125 million by the end of 2003. With 1.2 billion Visa-branded cards globally, the migration to chip will be barely 10% complete by the end of next year. MasterCard officials decline to provide similar figures, citing regulatory restrictions as MasterCard changes its legal structure. They say there are 125 million MasterCard-branded smart cards in circulation, although not all are EMV-compliant. Worldwide, Dataquest analyst Clare Hirst predicts financial card shipments will grow from 176 million in 2002 to 208 million in 2003, reaching 478 million cards in 2006. Asia Sets The Pace Fraud remains the main driver for EMV. For instance, Malaysia’s national bank recently asked banks to upgrade their cards and point-of-sale terminals to EMV by the end of 2004, seeking to keep fraud in check, says Toni Merschen, senior vice president of chip and mobile commerce/wireless at MasterCard International. However, there are pockets where issuers are adding other functions to their credit or debit cards, hoping to boost market share. This is particularly evident in such Asian markets as South Korea, Taiwan and Japan. For example, JCB, the leading credit card issuer in Japan, from the start of 2002 made its standard card a smart card with a merchant loyalty program called Plet’s. JCB officials predict there will be 15 million such cards circulating by the end of 2003. Even in the United States, where banks have put EMV on a far back burner, No. 2 retailer Target Corp. is expected to roll out a much-anticipated smart card loyalty program in 2003. Target, which owns a credit card-issuing bank, has converted 8 million cards to Visa-branded smart cards, and officials say cardholders soon will be able to download coupons onto their chip cards from such major consumer products manufacturers as Pepsi-Cola, Mattel, Procter & Gamble and Unilever. While Target officials say the program is to begin this year, sources say delays in upgrading Target’s 37,000 POS terminals in 1,000 stores to accept chip cards has pushed back a full-scale launch to early 2003. While most banks are sticking initially with single-function smart cards, there is movement toward multiapplication cards in government ID cards and mass transit. The Cornwall, UK, project illustrates the possibility of combining the two, as the card issued by Cornwall authorities is accepted for payment on 250 of the area’s 350 buses, Cosway says. Other services offered through the Cornish Key smart card include payment for school meals and parking, library borrowing, and tracking pupil attendance. Internet-based authentication with the card, allowing remote access to government services, is in the works. There are several similar city-based smart card projects in Europe. For instance, Tampere, Finland, plans to introduce in early 2003 a smart card that–like Cornwall’s–has both a traditional contact interface that requires insertion into a reader and contactless touch-and-go functionality for paying transit fares. The eKortti cards will feature a digital certificate allowing cardholders to identify themselves on the Internet. Initially, 5,000 students will use the card, and the ultimate goal is to distribute such smart cards to half of Tampere’s population of 200,000. High Hopes Officials in China and Japan have confidently predicted for some time much larger ID card projects that could come to fruition in 2003. Chinese sources say the government has selected five Chinese smart card companies to provide the "next-generation" smart card ID, replacing the current paper ID card. Large tests are set to begin in 2003, and estimates of the number of contactless memory cards to be issued in 2003 range from 10 million to 50 million. Japan’s government also plans to use smart cards for identification, in some cases contactless cards. Twenty-one regions concluded a test this year of an ID card with space for private and public services, and most of them continue to offer it. Starting in August 2003, all local governments will offer a voluntary smart card ID. The government also approved this year a policy for using smart cards for electronic access to official services. Plans call for multiapplication cards so that each ministry need not issue its own card, and each ministry would be required to accept another’s smart card. Japanese officials predict issuing 30 million smart card IDs in 2003. But observers note similar projections in the past have proven overly optimistic. Transit Gets Moving Meanwhile, major transit operators aim to introduce chip cards for fare payment that other service providers can use, potentially providing new revenue streams for the transit agencies. Two programs in the spotlight in 2003 will be in Paris and London. Paris already has issued more than 500,000 contactless chip cards to holders of annual passes, and equipped 800 subway stations to accept them. By mid-2003, the RATP, operator of the Paris Metro, plans to have issued 1 million chip cards. Paris officials aim to expand the card’s use, and have upgraded to a card that can accommodate seven applications securely. RATP officials say they have plans for adding nontransit services to the cards, but would not provide details. Transys, the consortium implementing a new fare-collection system in London, has similar hopes that other service providers, both public and private, will want access to the commuters who will carry London’s Oyster card that will launch in spring 2003. Within 18 months, 2 million to 3 million commuters will use smart cards, with the card initially going to holders of annual passes, then monthly and weekly passes, says Nicole Carroll, marketing director of Transys. While those commuters figure to be an attractive audience for many companies and government departments, Carroll concedes transit agencies elsewhere have yet to succeed in adding mass market features from other service providers to their transit cards. Nonetheless, she notes the name Oyster was selected in part because it did not suggest an exclusive link to transit. Thus, from mighty London to modest Cornwall, and from Target stores in the United States to Tokyo government offices, smart card programs will seek to realize the promise of the multiapplication card in 2003. These programs will not soon produce the volumes of SIM or EMV cards, but they may point the way forward for new opportunities for smart card growth. [ Next Thread | Previous Thread | Next Message | Previous Message ] |