Banks, card issuers, and retailers consider the adoption of EMV (Europay-MasterCard-Visa) smart cards a lengthy and costly process, and the high price of implementing smart cards compared to magnetic stripes has dampened the speed of migration, according to an industry analysis by Frost & Sullivan.
But industry efforts coupled with support from the major card associations and payment organisations are poised to reduce the cost of migration, the analysis report says. At the same time, EMV's successful application in areas such as telecommunication and transportation have gone some way toward encouraging the acceptance of smart cards in banking (both financial and loyalty) operations.
According to the report, the growing realisation of EMV's multiple benefits (its enhanced security features, large memory size, and type of interface) have added greatly to the appeal of smart cards in the banking sector. Smart card-based banking and payment (EMV compliant) cards are also now seen as crucial to combating the high fraud rates associated with magnetic stripe cards.
Frost & Sullivan smart card analyst, Anoop Ubhey, said: "The security features offered through this technology increase consumer's confidence to conduct transactions both online and offline. In addition, the card's large memory and processing capability opens opportunities for banks or card issuers and acquirers to generate additional revenue and provide value-added services to their clients. In other words, it will act as a key differentiator for the financial institutions and retailers to better acquire and retain customers."
Versatile interface methods between cards and readers are also adding to the popularity of smart card technology. For banking applications, cards offer both contact and contactless interface, and sometimes a blend of both - either in combination (a dual interface on a single chip) or as a hybrid (using two separate chips).
In particular, the use of contactless technology has been steadily expanding with the initial roll-outs and deployments highlighting its advantages. For example, contactless payment credit cards (such as MasterCard PayPass and Visa Wave) are seeing high uptakes due to the speed and convenience they offer cardholders. At the same time, the strong performance of contactless technology in the transportation arena is encouraging its use in other application segments (particularly in access control).
Of course, one of the key reasons for shifting to smart card-based payment cards will be the migration deadlines and liability shift set by both Visa and MasterCard. The process of EMV migration for banking applications has been progressing for the past couple of years in almost all geographic regions. But while fraud was touted as the major motivating factor for large-scale migration in Europe, Middle East and Africa (EMEA), Latin America and Asia Pacific (APAC), banks in North America - which aren't troubled by the same degree of fraudulent card use - have instead adopted a case-by-case approach.
But while multi-application or multipurpose capability has been among the major selling points for smart cards, this has yet to fully materialise. Many currently available smart card projects in both banking and non-banking applications are still dedicated cards with simple applications.
Stressing the importance of developing multi-application functionality, Ubhey noted: "Banking multi-application programmes across all regions will further boost the loyalty market. The first additional service that banks tend to deploy on their bankcards and payment cards is loyalty. A number of banks have partnered with merchants to deploy and operate loyalty programmes on top of their payment function."
According to Frost & Sullivan, unit shipments for the world banking (financial and loyalty) markets totalled 311.6 million in 2004, with revenues standing at US$583.9 million in 2004. By 2010, unit shipments are expected to reach some 1123.8 million while revenues will reach US$1672.0 million. EMEA will continue to lead the market in terms of unit shipments and revenue, especially when focusing on EMV smart cards, with the United Kingdom being at the forefront of EMV migration.
As the market expands, competition is also intensifying. Leading the competition is Oberthur Card Systems with 24.2% market share in 2004. Other key market players include Axalto, Giesecke & Devrient, Gemplus, Incard, and ORGA. And thanks to the looming EMV liability shift deadlines, an increasing number of smaller and more local card manufacturers have also been able to enter the field.
"There is a trend toward module sales to other players outside the key or global companies for banking cards - particularly payment cards. These companies are mostly plastic card manufacturers certified by MasterCard and Visa," concluded Ubhey. The report, entitled 'World Banking (Financial & Loyalty) Smart Card Market', is available for purchase directly from Frost & Sullivan.