The International EMV Software Market AuthorAntti Öfversten SupervisorProfessor Heikki Hämmäinen InstructorM.Sc. Sakari Ranta.

The International EMV Software Market

Author Antti Öfversten

Supervisor Professor Heikki Hämmäinen

Instructor M.Sc. Sakari Ranta

The International EMV Software Market

Introduction

EMV is an internationally agreed standard for payment cards

The name EMV is an acronym of ”Europay MasterCard Visa”

The main purpose of the EMV standard is to introduce a more secure payment method by using a chip card instead of a magnetic stripe card

The risk with regard to fraudulent transactions is much higher when magnetic stripe cards are being used

This risk will be shifted to them who do not support the EMV functionality

Points of sale

Card Issuers

The International EMV Software Market

Research Problem

How can target market characteristics be measured?

What are the key factors that make the target market suitable for EMV software products ?

When should market entry take place? When is the shift from magnetic stripe cards to EMV cards going to happen?

What strategy should be applied at market entry?

Which markets should be targeted?

The International EMV Software Market

EMV Payment System Model

Issuer (ex.g. banks, oil companies)

• Issue chip cards to the payment system

Acquirers (ex. g. Luottokunta)

• Release payment accepting terminals to merchants

• Process the terminal transactions

• Pay the merchants for the transactions

Merchant

• Obtain terminals that accept EMV Payments

Cardholder

The International EMV Software Market

EMV Security Mechanisms

The actual EMV functionality for authorising transactions resides with the issuing bank

• Authorisation requests

Asymmetric algorithms

• Authenticate the card as valid to the terminal

Symmetric algorithms

• Generate and verify transaction cryptograms based on key shared between the card and the issuer bank

The International EMV Software Market

Payment Applications

EFTPOS

• PC POS / standalone terminals

Mobile EFTPOS

• Uses the GSM or GPRS networks

Contactless Payment (RFID, bluetooth, infra red)

• Contactless cards

• Mobile phones

• Payment tokens

The International EMV Software Market

Foreign Market Entry Modes

There are several methods of foreign market entry including

Exporting

Licensing

Joint ventures

Direct Investment

The chosen method depends on a variety of factors…

ModeConditions Favouring This

Mode Advantages Disadvantages

Exporting• Limited sales

potential in target country; little product adaptation required

• Distribution channels close to plants

• High target country production costs

• Liberal import policies

• High political risk

• Minimizes risk and investment.

• Speed of entry

• Maximizes scale; uses existing facilities.

• Trade barriers & tariffs add to costs.

• Transport costs

• Limits access to local information

• Company viewed as an outsider

ModeConditions Favouring

This Mode Advantages Disadvantages

Licensing• Import and

investment barriers

• Legal protection possible in target environment.

• Low sales potential in target country.

• Large cultural distance

• Licensee lacks ability to become a competitor.

• Minimises risk and investment.

• Speed of entry

• Able to circumvent trade barriers

• High ROI

• Lack of control over use of assets.

• Licensee may become competitor.

• Knowledge spillovers

• License period is limited

ModeConditions Favouring

This Mode Advantages Disadvantages

Joint Ventures•Import barriers

•Large cultural distance

•Assets cannot be fairly priced

•High sales potential

•Some political risk

•Government restrictions on foreign ownership

•Local company can provide skills, resources, distribution network, brand name, etc.

•Overcomes ownership restrictions and cultural distance

•Combines resources of 2 companies.

•Potential for learning

•Viewed as insider

•Less investment required

•Trade barriers & tariffs add to costs.

•Difficult to manage

•Dilution of control

•Greater risk than exporting & licensing

•Knowledge spillovers

•Partner may become a competitor.

ModeConditions

Favouring This Mode

Advantages Disadvantages

Direct Investment•Import barriers

•Small cultural distance

•Assets cannot be fairly priced•High sales potential

•Low political risk

•Trade barriers & tariffs add to costs.

•Greater knowledge of local market

•Can better apply specialised skills

•Minimises knowledge spillover

•Can be viewed as an inside

•Higher risk than other modes

•Requires more resources and commitment

•May be difficult to manage the local resources.

The International EMV Software Market

Selecting Foreign Markets

Target market indicators:

- Not yet fully mature

- Credit card liability shift

- Number of independent payment terminals vs. PC POS software

The International EMV Software Market

Credit Card Liability Shifts

Visa

Asia Pacific 2006

Canada 2010

Central/Eastern Europe, Middle East, Africa

2006

Europe 2005

Latin America / Caribbean 2 years after 50% of regional credit card sales volume is chip-based. Critical mass expected in 2008.

The International EMV Software Market

Credit Card Liability Shifts

MasterCard

Asia/Pacific January 2006

Canada Indefinite

Latin America / Caribbean January 2005

Europe January 2005

South Asia & Middle East Africa January 2006; January 2005 for South Africa

U.S. No current plans to support EMV

Target Market The total number of cards Number of Issued EMV-cardsThe total number of PC POS

systems and standalone terminals

Number of EMV certified PC POS systems and

standalone terminals

Finland 2,9 million 1,8 million (5 %) 54000 2700 (5 %)

Sweden 8,1 million 4,9 million (5 %) 190000 9300 (5 %)

Norway Unknown Unknown Unknown Unknown

Denmark 4,0 million 40 million(100 %) 90000 4500 (5 %)

Estonia 1,3 million 0,5 million (40 %) 11000 4400 (40 %)

Latvia 1,2 million 0,5 million (40 %) 15000 9000 (60 %)

Lithuania 1,6 million Unknown 1000 Unknown

Poland 16,9 million Unknown 112000 Unknown

Hungary 7,0 million 1,4 million (20 %) 36000 14400 (40%)

United Kingdom 141,1 million 141,1 million (100 %) 899000 899000

Ireland 3,3 million (60 %) Unknown Unknown

Poland 16,9 million Unknown 112000 Unknown

Germany 114 million (40 %) 500000 (5 %)

Netherlands 26 million (5%) 180000 0 (0 %)

Belgium 12,7 million (40 %) 73000 (60%)

Czech Republic 5,8 million Unknown 25000 Unknown

Slovakia 2,4 million Unknown 12000 Unknown

Austria 8,7 million (80 %) 109000 (5 %)

Slovenia 3,3 million (5 %) 35000 0 (0 %)

France 49,1 million (53 %) 850000 (73 %)

Spain 61,6 million (5 %) 915000 (20 %)

Portugal 15,5 million (0 %) 151200 (20 %)

Italy 53 million (5 %) 950000 (5 %)

Greece 9,9 million (5 %) 183700 (20 %)

Malta 400000 0 (0%) 6600 (5 %)

Cyprus 700000 0 (0%) 11000 0 (0%)

The International EMV Software Market

Software Entry Strategies

Most interesting target markets can be divided into two groups:

1. Group:

Percentage of PC POS systems and standalone terminals capable of EMV payment 0..50 %

Total number of PC POS and standalone terminals: 0 .. 100000

2. Group:

Percentage of PC POS systems and standalone terminals capable of EMV payment 0..50 %

Total number of PC POS and standalone terminals > 100000

Group 1

Country Terminals Capable of EMV payment

Cards capable of EMV payment

Total number of PC POS and standalone terminals

Finland 5 % 5 % 54000

Denmark 5 % 100 % 90000

Estonia 40 % 40 % 11000

Hungary 40 % 20 % 36000

Slovenia 0 % 5 % 35000

Group 2

Country Terminals Capable of EMV payment

Cards capable of EMV payment

Total number of PC POS and standalone terminals

Sweden 5 % 5 % 190000

Poland Unknown Unknown 112000

Germany 5 % 40 % 500000

Netherlands 0 % 5 % 180000

Austria 5 % 80 % 109000

Spain 20 % 5 % 915000

Portugal 20 % 0 % 151200

Italy 5 % 5 % 950000

Greece 20 % 5 % 183700

Suggested Strategy

Target Market Entry MOde

Estonia Indirect exporting / EMC

Hungary Indirect exporting / EMC

Slovenia Indirect exporting / EMC

Poland Indirect exporting / EMC

Sweden Joint venture

Germany Indirect exporting / piggyback exporting

Spain Indirect exporting / piggyback exporting

Portugal Indirect exporting / piggyback exporting

Italy Indirect exporting / piggyback exporting

The International EMV Software Market

Software Entry Strategies

The design of a market entry strategy is actually iterative with many feedback loops

The strategy proposed in the thesis can be used as a starting point for iterative development of the international marketing plan

As some of the markets are entered, more detailed information of the EMV situation is inevitably collected

Further research for more detailed information should excercised so that target markets can be included or limited out of the marketing plan

Finding useful data for the internationalisation plan will be an ongoing challenge

No literature study can replace the information and data that can be obtained through a visit to a potential foreign market

The International EMV Software Market

Thank You!