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.