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Mixed future for smart cards
Friday, December 14 2001
by Matthew Clark


According to research, the smart card reader and terminal market is set to
takeoff in the next few years, but the cards themselves may not meet
expectations. 

Anoop Ubhey, smart card industry analyst with research company Frost & Sullivan
said that with expansion and migration of the global smart card applications
industry at hand, the vendors who make smart card readers and terminals will
continue to be successful over the coming years.  



Smart cards are plastic cards the size of credit cards with microchips inserted
into them. They are designed to allow users to keep personal information
electronically stored in on the card and can also be used to personalise and
control devices such as mobile phones or computers, or to restrict access by
unauthorised users and reduce fraud. Already the cards are used to store medical
records, banking details and mobile phone information  (SIM cards), among many
other applications. 



Smart card readers and terminals are the devices that merchants and banks would
use to access and read information stored on the cards. Theses devices would also
be used to allow PCs to interface with cards. 



Although the downturn has dampened the smart card terminal market, new
value-added services in the industry will "alleviate vendors' financial
struggle," Frost & Sullivan said. "One of the main challenges market
contenders are faced with is the improvement of their competitive
differentiators, value proposition and renewed focus on raising profit margins,"
explained Ubhey. 



The report cites Ingenico a smart card terminal maker as the market leader with a
40 percent market share. Other dominant players include Verifone and Hypercom,
which account for a combined share of 25 percent of the overall market. 
Smaller firms mentioned by the research are Thales e-Transactions and
SchlumbergerSema.



Much of the growth in the terminal sector will be driven by EMV migration claimed
Ubhey. EMV migration refers to the standard set by Europay, Mastercard and Visa,
which should see almost all credit cards move from a magnetic strip format, to a
chip, or smart card format by 2005, forcing banks and vendors to replace their
magnetic strip reading equipment with smart card readers. This migration, says
Frost & Sullivan, will drive the POS (point of sale) smart card enabled market at
a compound annual growth rate (CAGR) of 36.5 percent between 2000 and 2005. 





But the cards themselves may not live up to expectations said Ubhey. He explained
that EMV migration will drive growth for banking and smart credit cards, and may
even drive growth of smart loyalty cards for places like Tesco and Sainsbury. But
the notion that users will have one smart card the will contain banking, medical,
work, mobile phone and other personal information will "never happen," he
said. 



"I don't think you are ever going to see the 'white plastic' scenario," Ubhey
told ElectricNews.Net. This scenario refers to predictions in previous years,
where it was thought that users would eventually have a single smart card that
could be used for any purpose, wiped clean of all information, and reloaded with
new details for a different application. Nor would users have a single that
contains all of their information.



Ubhey explained that one of the hindrances to more ubiquitous co-operation with
the technology revolves around control and branding. If a bank co-operates with a
telecom in developing a dual-purpose card, both companies would be forced to
relinquish some control over both the customer and the account, "they are not
prepared to do that," Ubhey said. "Furthermore, whose name would go on the
back of the card?" he asked. 



Despite theses problems, Frost & Sullivan say that the market will be a big one
and over the next five years Europe will continue to lead the US in terms of
take-up. Although users will surely be using multiple smart cards, 100 million
are predicted to be in circulation by 2005 in the UK alone, compared to just 12
million that are currently being used. 



In its analysis of geographical markets, Frost & Sullivan's study confirms
Europe's dominance with a lion's share of 67.4 percent of all terminal and reader
revenues. By 2005, North America will advance to represent only an 18.5 percent
share of the total market.