Smarter Cards

Contrary to the general perception, smart cards have already

touched the lives of the common citizen in India, even though the market for

smart cards is yet to explode in the country:

• The Jaipur Dairy
  
  All-women Cooperative uses milkotesters integrated with a smart card reader
  
  to maintain accurate individual milk supply records, as well as secure
  
  payment transactions on the chip-based card.

• Panchayat
  
  officials at Chittoor, Vizag, Rajgarh and Raisinah districts use electronic
  
  data cardex or smart cards to record details of bore wells and tube wells in
  
  their regions–from the well structure, pump particulars, water level and
  
  quality updates to repair and maintenance log.

• For more than
  
  720,000 drivers in Gujrat, their driving license is a smart card that
  
  carries a digitized version of their fingerprint, their picture and a
  
  signature, as well as such information as name and address. The chip also
  
  contains a record of past violations.

Globally, millions of people, organizations and even

governments have been using smart cards for numerous applications–from

stored-value transactions to using it as an authentication tool and even as

portable records to store information and data.

Smart cards have found application in areas like transport,

social security, identification and health, usually to store information about

bonafide users. On the other hand, the cards being used in the financial sectors

are basically debit cards or e-purses.

Global trends

While the SIM card in the global system for mobile

communication (GSM) has for long been the prime driver of the smart card

movement across the world, the chip card industry has of late been pushing the

issue of replacing magnetic-stripe credit cards with this smarter version. The

adoption of smart cards in the transport industry has also just begun. What’s

more, they are becoming cheaper due to mass production and standardization. At

the same time, the smart card microprocessors are becoming more powerful,

enabling the rapid development of new applications with the benefit of a

standardized operating system and high-level development today. In fact, the new

processors can also handle multiple applications in one card: credit, debit,

e-purse, metro, parking, toll, payphone, frequent-flyer and library-card

functions.

Prime drivers

The pro-smart card lobby offers three basic arguments in

favor of the chip. First, reduced fraud because chips are harder to duplicate

than magnetic stripes and the chip can hold customer data thus providing added

security. Second, reduced processing costs as merchants reduce the frequency of

calls into a central database to check a cardholder’s credit. Third, new

features on smart cards to generate revenue and to retain customers.

In general, the countries adopting smart cards faster are

those facing growing fraud losses or high operating costs. This includes most of

Europe and parts of Africa and Latin America. In such markets as the US and

Australia, however, where the business point of view is secondary to revenue

generation, there has been little action. Experts feel there would be a

selective adoption of smart cards in the US as the country does not need to

focus on migrating to chips to solve a payment problem or for cutting cost.

Rather, banks in the US are looking at the chip technology as a tool to generate

new revenue.

Asia-Pacific: Huge potential

According to a Frost & Sullivan report, the Asia-Pacific

region is impressive not only in terms of the number of cards sold–approximately

150 million in 1998–but also the market share the region holds in terms of

revenue contribution. Indeed, Asia-Pacific generated over 17% of revenues in the

worldwide smart card market, coming in second after Europe (70%) and beating out

Latin America (7%). Frost & Sullivan estimates that by 2004, the region will

command at least 25% of the revenue worldwide, with China by itself commanding

nearly 33%.

Diverse regime

A quick look at the breakdown of the smart cards market

according to their application in the region also reveals a great diversity of

programs and projects. Though SIM cards still dominate in terms of units with

50% market share, subscriber identification applications like GSM handsets and

pay TV set-top boxes take the lion’s share with over 66% market share in

regional card sales. "Indeed, the GSM segment has been the honey in the

card manufacturer’s revenue pot since the early 1990s, and this segment will

continue to grow even sweeter," says the Frost & Sullivan report.

According to the report, up until this point, digital

cellular SIM card sales have been principally dependent on the growth of the GSM

market within Asia-Pacific, but in the future SIM cards will find their way into

dual-frequency phones if the universal mobile telecom system initiative has

anything to do with it. What this means is that smart cards will ride the

explosion not only of GSM handset technology, but also of the code division

multiple access (CDMA) handset technology. Having a SIM card serving a CDMA

handset is a key success factor when considering that cellular phone powerhouses

such as Japan and Korea already have or are moving towards the CDMA standard.

Frost & Sullivan telecommunications research says the combined CDMA and GSM

handset market will be over 200 million handsets in 2002.

Growing institutional sales

A vertical market of immense interest for the region is the

institutional card market, which encompasses card issuance for government,

university and health identification. Another pleasant surprise is Malaysia’s

continued efforts in the multimedia super corridor project with the intended

issuance of a citizen’s multi-application card. Taiwan and Singapore are also

key governments pushing nation-wide smart cards. On the other hand, the

University of Hong Kong is running a project whereby students are using their

multi-functional combi-cards to do everything from withdrawing cash to accessing

campus buildings.

In the health segment, an interesting project is Thailand’s

SynergyNet, which aims to convert its magnetic stripe medical card network into

a smart card one, resulting in a potential market of five million cards in 2002.

Given such a high level of activity in the institutional smart card markets for

Asia, it is not a surprise that Frost & Sullivan expects this vertical

market to earn 30% of revenues from the region in 2004.

Network authentication: major push

According to experts, though a major part of the network

authentication market will belong to North America and Europe, the Asia-Pacific

network security markets nevertheless are likely to do well. From being a market

with less than 1% unit market share regionally, this vertical market is expected

to achieve nearly 10% unit market share in the next five years. Though other

two-way authentication hardware methods such as USB tokens are likely to provide

stiff competition, smart cards are expected to dominate the hardware token

market for Asia-Pacific. The key target customers in this arena will be the

plethora of large electronics and IT firms located across the region. These

corporations will not only want to increase security levels in the face of

increasing global electronic terrorism and espionage, but also use smart cards

to take advantage of electronic B2B commerce based on intricate and complex

intranet, extranet and Internet models. As a result, the smart cards currently

used for network authentication will tomorrow be a dynamic multi-functional card

carrying the necessary programs to enable company workers to engage in onsite

secured e-commerce.

India: New areas of usage

So, how will the smart card change the scenario in India? As

in Asia-Pacific and the rest of the world, smart cards in India have

traditionally been driven by the SIM card market. However, what seems to be

really driving the smart card business in the near future is the transport

sector–the Gujrat government driving license project leading the way.

Since December 1998, the state has been issuing one of the

most sophisticated driver’s licenses in the world. With more than 720,000

chip-based licenses issued and 50,000 more being issued each month, the state is

on its way toward converting all licenses to smart cards by 2002. In fact, not

only did the program attract the attention of other state governments, the

central government also convened a meeting of transportation officials in July

this year to discuss replicating the project in other states. The government has

also constituted a committee of state transportation officials to ensure

compatibility between chip-based licenses in different states. According to

available reports, Uttar Pradesh is set to follow Gujrat. Once implemented, the

project will involve approximately eight million smart cards.

Meanwhile, encouraged by its initial success, the Gujarat

government is now planning to expand the use of chip cards by issuing 50,000

stored-value smart cards to truck drivers, enabling them to pay local levies and

toll taxes electronically. Add to this the recent decision by the Calcutta and

Delhi Metro authorities to issue smart card-based tickets, as also the

intentions of the respective authorities of the Noida toll bridge and the Mumbai—Pune

highway and one can well visualize the growing number of smart cards. Not to

miss the fact that the Brihanmumbai Electric Supply and Transport (BEST) has

already completed its project with smart cards for its passengers.

Opportunities galore

The smart card technology that originated in the heart of

affluent Europe has traditionally found usage for the elite around the world,

bringing conveniences such as mobile telephony, loyalty systems across

international airlines and hotel chains, Internet and mobile banking. However,

India has been trying to re-invent the smart card usage to tackle various

socio-economic issues. Today, the country has many unique success stories in

terms of usage of the smart cards–down to the grass-root level, from the

Jaipur Dairy project and the village-level drinking water management project to

the Smart Rupee System (SMARS) project at IIT Mumbai.

"Unlike in developed countries, smart cards hold out

immense possibilities of improving the lives of all one billion Indians if only

it could achieve cultural internalization by moving away from the center, to the

peripheries of the Indian societal manifold," remarks Sanjay Dharwadkar,

head, systems marketing, Smart Chip, a Delhi-based company that provides smart

card solutions. According to him, the country has taken two specific approaches

to initiate this approach. The first is to find appropriate smart card-oriented

solutions to augment grass-root development processes (see case study: Social

Welfare). The second is to find mass applications that transcend social

classifications, like that of a citizen identity card.

The smart card has immense potential of finding effective

large-scale use as a citizen ID card. Such an application requires handling of

large numbers under conditions prevalent in India such as inadequate

communication infrastructure and wide area networking. Dharwadkar says,

"The smart card-based driving license is one such successful application

and can be considered a live prototype of a full-fledged citizen ID card."

Such a smart card could easily be extended for use in election ID, ration card,

income tax, pension, land records and a host of other applications, including

disbursement of subsidies. Experts estimate that around Rs 1,000 crore can be

saved per year by implementing integrated citizen smart cards for the entire

nation, which could be done within five years. Citizen smart cards–as an

authentication medium at public Internet kiosks–could also be a gateway to the

Internet for millions.

E-purse for Indians

While Frost & Sullivan projections show the Indian smart

card market swelling to three million by 2005, it is ironic that there are only

3.5 million credit cards in the country. This, experts believe, has been due to

the lack of guidelines and standards. The issue, however, has been sorted out to

a certain extent by the RBI-sponsored SMARS project at IIT Mumbai. Experts

believe that SMARS was a right step towards standardizing smart card-based

payment systems. Unfortunately, the recommendations were marred by controversy

and the RBI has asked the Bureau of Indian standards (BIS) to review the report

of the working group constituted to study the recommendation.

However, experts believe that unlike credit cards, smart

cards in the form of e-purse can become all-pervasive if a killer application

can be found. According to Sanjeev Sharma, country business manager, service

automation division, Ascom India, "The killer application for India is

typically the payment of utility bills for electricity, water and gas. Every

household in a city is a consumer of electricity. Most of the consumers would be

happy to have an e-cash smart card and would welcome someone to come to their

house to acquire the bill amount from their smart card onto a smart card

terminal." Or at least, they should have the facility in the neighborhood,

say, at an STD kiosk, to accept the e-cash smart card and pay their utility

bills through the POS terminal at the kiosk. Experts believe that this

convenience is bound to extensively popularize the use of e-cash smart cards in

the country.

Small-value transactions are another application that can

really push smart cards’ growth. With the average credit card transaction in

India worth Rs 1,000 to Rs 1,200, the cost of such a transaction on the buyer

works out to Rs 15 to Rs 20. Thus, buying items like groceries does not work out

to the buyers’ advantage. This is where the smart card comes into effect.

Moreover, while obtaining a credit card requires a number of formalities and has

certain minimum eligible criterion, store-value smart cards do not have such

hassles.

The market for smart cards seems wide and deep. The first

potential users will be car owners, because they have to make regular fuel

purchases. The second-largest base would be of the public transport commuters

where the average purchase size is between Rs 5 to Rs 200. This is the area that

BEST and Bharat Petroleum (BPCL) are targeting. While BPCL has already netted

500,000 customers for its petro card, BEST has sold 13,000 cards on select

routes. Likewise, banks and financial institutions–Bank of Baroda and IDBI–have

been considering the use of the smart card as the "money of the

future". So, the transformation of the monetary system in the country is

inevitable.

Smart cards can also help reduce the amount of loose cash

lying with the public. This money can then be utilized effectively by the banks.

Also, electronic money allows one to transact without taking money out of the

banking system. Banks benefit because, by the time one actually spends money,

one can create credit by lending the money. Transactions are simpler. At the end

of the day the seller connects to the bank through a modem and withdraws money

from the various accounts into his account. This way the consumer keeps his

money safe and the vendors have low infrastructure costs.

An extrapolation done by Orga, Kartensysteme, GmbH, Germany,

shows that by 2015 India would have a base of about a billion card users. No

wonder, smart card players in the country are optimistic about India’s

potential. Experts believe that by 2005, the country will be amongst the two

biggest markets for smart cards in the world.

SHUBHENDU PARTH



in New Delhi