Trends in Financial Smart Cards and beyond · 10/14/2003  · Contactless Payment ID/Network Security NOT Prepaid Public Phone Asia Pacific/China US Card Adoption E Purse, Loyalty

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Trends in Financial Smart Cards and beyondClare HirstIndustry Analyst, Gartner

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Key Issues

•What is the status of the chip card market now and over the next 5 years? What key issues are affecting the growth of the market?

•Where has EMV been successfully implemented? What have enterprises affected by EMV migration done to take advantage of the change?

•What is the trend in other financial chip card applications? What are the hot topics in financial use of chip cards aside from EMV migration?

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Key Issues

•What is the status of the chip card market now and over the next 5 years? What key issues are affecting the growth of the market?

•Where has EMV been successfully implemented? What have enterprises affected by EMV migration done to take advantage of the change?

•What is the trend in other financial chip card applications? What are the hot topics in financial use of chip cards aside from EMV migration?

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Chip Card Hype Cycle 2003

Trough ofDisillusionment

Slope ofEnlightenment

Plateau ofProductivity

Maturity

TechnologyTrigger

Peak of Inflated

Expectations

Visibility Key: Time to "Plateau"Less than two yearsTwo to five yearsFive to 10 yearsBeyond 10 years

Prepaid public Phone card

GSM SIM

Pay TV

EMV

E-purse

IT Security

Loyalty

Transit(Includes Health, Govt. ID Access)

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The Smart Card Market Now..What’s Hot and What’s Not?

HOT

EMV credit/debitContactless PaymentID/Network Security

NOT

Prepaid Public Phone

Asia Pacific/China US Card AdoptionE Purse, Loyalty

Smart Card Supply Chain Issues

Slow POS deploymentFalling Prices, market commoditization2 Factor authentication

High-end SIM demand

EMV credit/debit

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Smart Card Industry Vendors 2002

GemplusSchlumberger

Giesecke and DevrientOberthur

OrgaIncardOthers

185.0194.6

63.899.1

36.634.0

114.2

Infineon

HitachiPhilips

ST Microelectronics

AtmelSamsungOthers

286.0159.2

110.6141.6

59.055.030.8

Systems Integrators

Smart Card Vendors Silicon Vendors

Datacard

Activcard Cards Etc

RSA SecurityGemplus

ACI Worldwide

IncardEDS

KPMGIBM

Hewlett PackardAccenture

More smart card focussed More Professional Services focussed

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Smart Card Market Forecast 2002-2007: Applications

0

200

400

600

800

1000

1200

1400

1600

2002 2003 2004 2005 2006 2007

Millions of Units

Financial CAGR 20.9%

GSM SIM,RUIM,USIM CAGR 9.5%

Pay TV CAGR 19.9%

IT Security CAGR 30.2%

Health CAGR 25.1%

Transit CAGR 12.7%

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Key SIM Forecast Factors• Largest single application for smart (microprocessor) cards in 2002,

representing 60 percent of total smart card shipments

• Strong growth in emerging regions such as Africa, Eastern Europeand Middle East. China remains central to growth

• Growth expected in high end SIMs 64K and move to 128K

• GSM SIM will remain the largest end-application for smart cards during the forecast period 2002-2007, and will grow at a CAGR of 9.5 percent.

• While subscriber and handset forecasts provide a useful basis for forecasting SIM market growth, the number of SIMs will always behigher because of a number of factors, e.g subscriber churn, growth in prepaid handset market, SIM upgrades.

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Smart Card Market Forecast 2002-2007: Applications

0

200

400

600

800

1000

1200

1400

1600

2002 2003 2004 2005 2006 2007

Millions of Units

Financial CAGR 20.9%

GSM SIM,RUIM,USIM CAGR 9.5%

Pay TV CAGR 19.9%

IT Security CAGR 30.2%

Health CAGR 25.1%

Transit CAGR 12.7%

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IT Security Forecast Factors• Gartner Dataquest categorizes the following applications under IT

security: ID, network security, access.• National ID projects are exploding: China, Japan, USA, Oman Saudia

Arabia, Italy, to name but a few are either planning or have actively begun ID schemes

• Growth for this market offers very strong potential, but how quickly will these projects happen? Will all of these projects happen?

• VAST potential growth for the smart card industry-and the cards will be sophisticated. BUT will all of these projects use smart cards? There are alternatives-e.g RFID, e-passport

• However, smart cards can offer the ideal medium for IT security. E.g Digital Signature for e-government proposals, information segregation, durability

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Smart Card Market Forecast 2002-2007: Applications

0

200

400

600

800

1000

1200

1400

1600

2002 2003 2004 2005 2006 2007

Millions of Units

Financial CAGR 20.9%

GSM SIM,RUIM,USIM CAGR 9.5%

Pay TV CAGR 19.9%

IT Security CAGR 30.2%

Health CAGR 25.1%

Transit CAGR 12.7%

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Financial Forecast Factors• Migration to EMV chip cards from magnetic stripe remains very slow

especially across most of Europe. E. Europe is more advanced in making the move than some major W.Europe countries. Turkey is also proving to be a forerunner

• The US market for EMV cards halved in 2002, and will stay relatively flat during the forecast period. Fraud in the US market is not a major factor in the move to chip cards for financial applications. Loyalty and network security will be the major chip card drivers in this region

• Migration to EMV credit/debit in Japan will affect the forecast for the Asia Pacific region.

• In Latin America, Brazil leads the way. Venezuela is also migrating to EMV, although migration in Mexico is happening slower than anticipated.

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Key Issues

•What is the status of the chip card market now and over the next 5 years? What key issues are affecting the growth of the market?

•Where has EMV been successfully implemented? What have enterprises affected by EMV migration done to take advantage of the change?

•What is the trend in other financial chip card applications? What are the hot topics in financial use of chip cards aside from EMV migration?

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Case Study: Major Retailer-Safeway

Chip and PIN to be installed across 480 stores across the UK14 Month implementation program. Significant investment, but expecting ROI within 6 months

Safeway, major UK supermarket chainKey Points:

Implementation Timetable: September 2001: Project started -software development August 2002: Pilot store. Hardware testing startsOctober 2002: Software RolloutNovember 2002: Hardware rollout completedMay 2003: Entered public trial-by July more than 40% of chip card transactions in store were chip and PIN

“It was a new experience for us and our acquirer. I’m glad now that we’re ahead of the game but at times it was tough and no-one should underestimate the time and resource needed”

Jeremy Wyman, Business Systems Manager

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Safeway Viewpoint

• Little problem moving to become EMV compliant. Software was purchased to modify payment systems in store, and EMV compliantreaders were purchased.

• Suppliers were IBM for in-store software (already incumbent till supplier), and Ingenico supplied EMV hardware. Safeway chose integrated readers as a lower TCO solution

• ROI partly due to bank subsidy, but also lower transaction costsassociated with fraud. Furthermore, reduction in consumables-Safeway will save 13,000 miles of till receipt paper per year!

• Migration was easy-but achieved in 2 steps. Chip, then PIN which will be national by 2003. The biggest hurdle was acquirer approval and testing

Bottom line advice: Plan early- it takes longer than you think-but customers are very receptive

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Case Study 2: Major Retailer with Credit Card- Target

Target, major US General Merchandise RetailerKey Points: First major retailer to offer branded smart Visa credit cardCards offered through Retailers National BankTarget Corp. operates 1,147 stores throughout the USImplementation Timetable: Fall 2001. Launch. Several million cards deployed2002. Smart card enabled POS terminals deployed in all target stores2002-3. Deployment of in-store kiosks and smart card readers for uploading of e-coupons onto card in 20032003 Rollout of smart couponsImplementation Aims: Target smart cards will provide payment capability, online security for e-payment/account management, access to loyalty and reward programsImplementation Vision: Strengthen relationship with customers by providing greater convenience, increased value and expanded reward schemes to customersMaintain leading-edge image

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Case Study 3: Financial Institution-Akbank Turkey

Key Points: Largest private sector bank in Turkey606 branches, 1266 ATMs, 100,000 online terminalsAxess smart credit card combining real time rewards and cashback in single payment process Implementation :

Implementation Vision:

Launched November 2001 Features: Payment (Mastercard) and loyalty. Delivery of targeted incentives based on frequency of use and value. Cash back scheme- cash generated through purchasesProviders: Cards:- Gemplus (MPCOS EMV 16k), Giesecke & Devrient (StarCos 2Kb) Software:- Welcome (eXtended loyalty system)

Akbank's credit card business has been reshaped aiming to make the lives of customers and related companies better and easier by providing competitive payment and loyalty solutions

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Akbank viewpoint

Multiple benefits:New revenue generationleading edge innovation within banking sectorIncreased card usage- becoming preferred payment methodImproved customer retention and acquisition

And More…..1 million cards issued in the first 9 months-fastest growing co-branded

scheme in EuropeAKbank’s credit card portfolio increased by 45%AKbank’s share of the Turkish credit card market increased by 53%Preferred credit card at 6,500 merchant locations

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Key Issues

•What is the status of the chip card market now and over the next 5 years? What key issues are affecting the growth of the market?

•Where has EMV been successfully implemented? What have enterprises affected by EMV migration done to take advantage of the change?

•What is the trend in other financial chip card applications? What are the hot topics in financial use of chip cards aside from EMV migration?

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What About Contactless Card Technology?

Transit Access Control

Payment

4 Major Applications...

One Key Technology….but three varieties….

Widespread Use...

ISO 14443 Types A,B or C

LondonParisRome

SeoulSingapore

Visa

MastercardBerlin

Manchester City Football

ClubSun

Gartner

Nissan

Access Control

Payment ID

China

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The rise of contactless payments

Oyster

Navigo

4. Contact-less travelcards

2. Windshieldmounted tags

Telepass

Sydney

Speedpass

EasyPay

3. Gas-stationcards (RFID )

GeldKarte

1. ElectronicPurses

Proton Be

ChipknipMoneo

EDY

Octopus

EZ-Link

5. Contact-less Multi-purpose

ExpressPay

Paypass

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• 12% transaction value is non-transit • Average non-transit spend HK$15• 380,000 Automatic top-up accounts

Migration to a cashless society

VENDING MACHINES

• Parking & Cinema• Payphones & Photocopiers• Hospital & University canteens• Access control & Leisure facilities

• 20% faster than a paper ticket• Interoperable between transit networks• 95% of Hong Kong residents* use it• 8 million transactions per day

Octopus Card

Octopus: The contact-less card success story

* economically active residents

TAXITAXI

?

These materials can be reproduced only with Gartner’s official approval. Such approvals may be requested via e-mail [email protected].

Let’s Draw some Conclusions….

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EMV Migration. The Pros and Cons..

• Its going to kill fraud..while banking community have concerns about the cost of implementation versus the cost of fraud, fraud will move from EMV compliant regions to those regions which have not converted.

• EMV migration can enhance consumer offering. It can offer benefits of security to the consumer, but also allows the opportunity to offer additional benefits. In the future this will be multi-application.

• Large Retailer community are excited about the migration. Major retailers are looking for opportunities to maximize the benefits of quick ROI, and customer retention and interest. Strong opportunity for improved loyalty schemes. Furthermore, cost of transaction is reduced

• Contactless payment offers further benefits in terms of consumerconvenience. Now, this incentive is being driven by transit and community schemes.

• In the UK Northampton trial, customers using Chip and PIN were very receptive to both technology and motivation behind the move

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EMV Migration. The Pros and Cons..cont’d

• Timescales are long, for the banking community costs are high. In many countries, banks do not view sufficient business case for change. Currently fraud levels are not high enough

• Currently no examples of true multi-application. No examples of applications other than loyalty which will increase customer retention

• Staff training costs for all parties involved• For mid-tier retailers who do not rent terminals, no business case. Major

retailers see ROI, and small retailers renting equipment are less affected. • Poor adoption equals low card shipments in the short term.• Banking community must incentivise retailers by offering POS equipment• EMVCo standards hard to apply. Hardware and software must be compliant

with each other, and must be accredited.

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Recommendations

• Retailers need to plan well ahead to make the transition as smooth as possible. Retailers also need to bear in mind the timescales involved when planning.

• Banks and retailers alike must look to EMV migration as an opportunity rather than a necessary evil. Both stand to benefit in terms of customer retention and increasing customer base if offering multi-application

• Retailers should consider conversion from store card schemes to chip based credit card and loyalty schemes in order to improve customer offerings.

• Card vendors should be actively working with the banking and retail community to develop new applications which would secure customer retention and gain new custom, therefore improving the EMV business case.

• Banks should look at contactless card schemes within the transit sector and consider ways in which they can become involved in major transit schemes.