When will the smartcard take off? Despite a few high-profile
failures, it may already have done so says Christopher Field, but
the multi-application holy grail has yet to be found
Smart technology is the political wing of the traditional
magnetic stripe card, employing guerrilla tactics to fight its way
into the minds and wallets of the UK public. And like most
guerrilla organisations, while it has created the odd explosion and
raised a few eyebrows, it has failed to take centre stage.
Smart's greatest failing is also the key to its greatest success
- ambition. Supporters have been saying for 15 years that one day
we will all have multi-function smartcards in our wallets that will
enable us to pay for goods and services, open doors, serve as
passports and ID, hold medical details that will help doctors save
our lives in the event of accidents, and will automate benefit
payments.
And of course, smart can do all this and more, but to date,
there are almost no multi-function cards in wide circulation. The
early trials were in electronic purses because it was felt that
this would be the easiest way into the consumer's wallet, if he
could pay for small value items such as parking, newspapers, milk
with a card rather than scrabbling around for change.
The best known of these trials was Mondex. Alan Liebert of Smart
Card Europe, a not-for-profit association dedicated to the
long-term volume roll-out of smartcards, says, "Mondex was
potentially a world beating concept that worked well from day one.
But it was ineptly presented and marketed, with the result today
that it will almost certainly be relegated to small niche
markets."
Dorothy Higginson at smart industry club, Smartex, argues,
"There was no strong business case for Mondex in Swindon and Visa
Cash in Leeds, so the best idea is to add new functions such as
smart credit and debit." Nigel Brammar, marketing and
communications manager for Oberthur, the largest card manufacturer,
adds, "If only Visa and Mondex had added their systems to a switch
card, then the normal debit functions would have kicked in above
£10 and customers would have had something worth holding on
to."
This is where the banks come in: and they are fast catching up,
even leaping ahead with the Common Electronic Purse Specifications
(Ceps) standard - which is not compatible with Mondex. This
standard was created in 1999 to govern e-purse programs. Ceps
requires compatibility with the Europay, MasterCard, and Visa (EMV)
specifications for smartcards and defines the requirements for an
interoperable card application, the card-to-terminal interface, the
terminal application for point-of-sale and load transactions, data
elements, and recommended message formats for transaction
processing.
The significance of Ceps is that the energy for its development
comes from the banks, blamed for years for holding smart back until
they could see a return, unable to persuade retailers to pay extra
to have smart funds cleared. There are four million smart bank
cards in circulation but they are used as traditional magnetic
stripe cards. Brammar warns, "Retailers need to wake up to smart
because after 2005, they will be liable for fraud if the card is
not smart."
And yet, Liebert adds, "The banks have been the greatest
inhibitor for the roll-out of smartcards, especially in the UK.
They have resisted all moves to smartcards since the smartcard
environment is one where they cannot control the entire value
chain. They have opted to stay with and promote their highly
profitable magnetic stripe cards, which they control. This action
has held smartcards back by three to five years and the banks are
only now becoming interested as new, upstart third parties appear
in the marketplace and the banks see themselves losing
customers."
This is true - up to a point. The banks are not likely to lose
business to other banks, but possibly to non-banks that have
successfully rolled out smartcards for niche applications and then
see the potential for adding other payment functions themselves or
partnering with third parties. Telephone cards and Sky TV access
cards are a success but most examples are from outside the UK -
transport cards in Hong Kong and Korea and French bank cards which
have been smart for years.
However, there are some interesting recent developments.
Financial institutions are expected to leverage smartcards to
extend traditional payment services in the virtual world - multiple
applications such as loyalty programs, digital identification, and
electronic money will be securely offered in the near future. And
in September 1999 American Express launched the Blue Card. It comes
with a chip, free smartcard reader and an Internet security
guarantee. Amex is spending $45m on marketing and hopes to acquire
more than two million new accounts. The card has a magnetic stripe
for credit card payments and smart for payments over the Net, when
the PIN number is also required.
Amex is ahead of the game in one important respect: fraud. This
is something that worries banks, because of the spiralling costs (a
117% rise in Net, phone and mail order credit card fraud in 1999
according to the clearing association Apacs) and also worries
consumers, particularly when they start paying for goods on the
Internet. In fact, the Home Office will soon insist that consumers
provide additional information when buying over the Net, such as a
PIN number, something Amex has already covered.
Meanwhile, experience in other industries has proved that true
multi-application cards are still some years off, except in closed
(controllable) environments such as universities. The largest smart
scheme by card volume in the UK is the Boots The Chemists Advantage
loyalty scheme. This was launched in September 1997 using smartcard
technology and offering a 4p in the pound benefit to cardholders.
There are now 12 million card holders, of whom 8.5 million are
regular users. New applications are running at a rate of 40,000
each week.
Boots has just announced that it has teamed up with the
Prudential's bank Egg to turn Advantage into a credit card, and
also that customers will be able to register with the NHS Organ
Donor scheme. A spokesperson says, "We could easily add medical
records to the cards for repeat prescriptions and to help doctors
diagnose unconscious patients."
Petrol company Shell, the first to go smart in 1994, has five
million cards, although the smart element is irrelevant and the
many original retail partners are now reduced to Vision Express,
Victoria Wine, UCI and Superbowl. However, Shell spokesperson Kate
Hill says, "We have recorded a rise in market share year-on-year
ever since the card was introduced."
In utilities, pre-pay smartcards appeared until they were
outlawed by the Government. In transport, smart for tickets is
massive, but again, not in the UK. London Transport is expected to
launch a stored-value card for ticketing but several deadlines have
already been missed.
Hopes are now pinned on mobile phones. With 22 million in
circulation in the UK, supporters reason that the mini GSM card is
already a smartcard, although the phone manufacturers are providing
choice by adding smartcard slots or making connection for external
readers already available in most Tandy stores. And the
telecommunications companies are all signing up with banks to
provide shopping, banking, access and other services to make their
connection deals more compelling.
But the obvious question is, who needs smart in this equation,
when wireless application protocol (Wap) probably has all the
answers. Even Higginson accepts that Wap, because it is software,
can provide any level of security appropriate to each application.
Liebert says there is room for smart while Wap is device-dependent.
"The mobile becomes another smartcard terminal just as the set top
box, the payphone and the PC. The good thing about smartcards is
that they can be taken from device to device, reader to reader, one
network to another."
However, Liebert adds, "This is the biggest problem with
smartcards over the past 25 years, and mobile phone and Internet
technologies have left it way behind because smartcards have been
technology rather than user or market led."
So, what should IT directors be doing to keep up with smart
developments. Liebert says, "Why IT directors particularly? It
should be marketing departments, new product assessors and Web site
designers. Once an idea is born and a business case made, then the
IT department should get involved."
While this is clearly the ideal scenario, IT directors will need
to keep up with the trends and convergence is bound to make this
difficult as they try to decide which way to go. For the time being
it is likely that the switched-on consumer will be presented with
device-dependent solutions such as mobile-based SIM card rather
than a dedicated smartcard. But once smart credit cards reach
critical mass and the banks strike some compelling partnerships
with third-party service providers a new war to win loyalty between
credit card companies will begin.
The key to the future of smart lies in the willingness of
developers to create applications, for solutions providers to
create multi-function cards that consumers will want to use, and
for retailers to convert their card readers to smart. And to
achieve this, some understanding of platforms is critical. As yet
program loadable cards such as JavaCard, Multos card and Windows
card have not made an impact.
Processor power and memory availability are not yet available in
sufficient quantities to make these cards practical. They are also
too expensive. The market leader by capability is Multos but it
does not have the market presence of the other two. In addition
Java is a seamless development migration process, as indeed is the
Windows option. But Windows is the least developed - Liebert's bet
is on the JavaCard.
E is for euro not just electronic business
What factors make electronic purse schemes
successful?
- Consumer acceptance is not merely a question of ensuring that
there is a large number of cards and card-accepting terminals in a
particular town or region. Each consumer has a different pattern of
behaviour, and critical mass has to be achieved for each
consumer
- Alliances, rather than tensions, are needed between the
interests of the various participants
- The key sponsors of schemes are generally very large retailers,
financial institutions, and/or very large services organisations.
It is also feasible, but difficult, for a technology-provider to
act as the main driver
- Schemes are too complex to implement all at once. It is
essential that the first phase contain enough promise to interest
all relevant parties, but be sufficiently open-ended that
additional functions and additional parties can be added later,
with relative ease.
How to win support for smartcards
IT directors who feel that smart will become an important part
of their technology strategy could roll out a scheme within the
organisation, as the Halifax did to some extent when it encouraged
its employees to sign up to Mondex in Swindon. Cafe and restaurant
facilities within the Halifax campus were equipped with card
readers to accept payment and the local cash machine could be used
to download more credit.
If only things hadn't stopped there. Had the Halifax been able
to do joint marketing deals with a local Sainsbury's, cinemas,
sports clubs and buses, the bank might have had a product which it
could have called its own and cut loose from Mondex.
The smart IT director must keep a close eye on the Boots
Advantage scheme, which is fast becoming the first major
multi-application smartcard in general use in the UK.
Smart is in the detail
Smartcards continue to be popular for niche or one-off
applications. Retailers, Marks & Spencer, Debenhams and Next
are all investigating a card to deliver made-to-measure tailoring
to customers. The cards will act as passports for customers'
measurements which will made available to retailers over the
Internet. The measurements are taken in store using a 3D body
scanner, currently on trial at made-to-measure retailer Hout-Brox
in the Netherlands.
European smartcard growth
The growing interest in mobile commerce and network security is
fuelling the smartcard market in Europe where shipments are
expected to reach one billion by 2004, according to IDC. European
Smart Cards Market 1998-2005 states that about 284 million smart
cards were shipped in Europe in 1999, up 44% over the previous
year. Moreover, as the rest of the world continues to accept
smartcards, Europe's market share dominance will dwindle.
The race to achieve millennium compliance swallowed up much of
the IT director's time last year. And, as soon as that problem had
been dispatched, e-business began to make its unreasonable demands
on the department. Other issues have been sidelined out of
necessity. But they haven't gone away. This week we focus on two
bubbling issues, smartcards and the euro (see page 36), which have
been left on the back-burner, but can no longer be ignored.