Smart Cards in Business

By : |June 9, 1999 0

The scene

On her way to office, Shivani stops by at the florist to pick up flowers for her boss,
drops in at the bakery for a refreshing cup of coffee, and pays her phone bill. She does
this at one go without reaching for her cash. Welcome to the world of smart cards.

What makes it smart?

The smart card is very much like an ATM card with a microchip embedded in it. It will find
its takers in the banking, transportation, and telecommunications industries. With such a
wide variety of applications, the smart card competes with hitherto popular solutions like
bar coding, magnetic stripes, radio frequency identification, optical laser cards, and
paper cash. Smart cards offer the distinct advantage of incorporating high levels of
security in electronic transactions while keeping the cost of transacting business low.
This is possible due its resident memory and processing capability.

Taking on the issues

It’s no wonder then that the use of smart cards has sparked legal, economic,
philosophical, and political debates across the world. Enhanced security is the primary
driver for all e-commerce applications. In India, there is a collaborative effort by the
RBI, IIT (Mumbai), and the Institute for Development and Research in Banking Technology to
address issues relating to security, settlement, and inter-operability of these cards.
This study is designed to quantify the implications of e-money and define the required


Mr. Savant, Senior General Manager at Philips Semiconductors, feels that India is a
burgeoning market for smart card applications, especially in transport and banking.
Philips is actively developing systems and solutions for these areas. The market potential
explains presence of manufacturers and solution providers such as Philips, Aplab, Groupe
Bull (represented in India by PSI Data Systems Limited), Ascom, Gemplus, ORGA,
Schlumberger, and Verifone. However, the introduction of smart cards, and its subsequent
popularity, will be stunted by the many patents and royalties that govern its usage.

Smart card applications

Smart card initiatives in India have begun by focussing on closed user groups, standalone,
and non-banking applications. Solutions are being used in Mumbai’s BEST buses,
driving licenses in Gujrat, and Tata Teleservice’s payphones in Andhra Pradesh. BPCL
and Hewlett Packard are implementing smart card driven loyalty programs. The banking
industry has received good response from Federal Bank, IDBI, Escorts, and Dena Bank, few
of whom are currently awaiting RBI clearance. Application on anvil are access control,
octroi payments, access to Internet services. Smart cards are inter-operable; a single
card can be used across all available services.

The one-card solution

ATM cards, debit cards, SIM cards, and electronic ID cards will become redundant. Mr.
Savant assesses market dynamics aptly by commenting, "the success of any smart card
scheme depends on how well it is adapted to the consumer’s behavior pattern".

Based on its expertise on the global smart card markets, Frost & Sullivan believes
banking and prepayment applications will drive usage and acceptance of smart cards in
India. This is so because smart cards offer lower clearing and settling costs, inexpensive
anytime/anywhere banking, lower infrastructure requirements, and lower administrative
costs. Their estimate of the current market in India hovers at around 1.3 million cards,
predominantly as SIM cards in telecommunication applications. Only 8 percent of these
units are used in applications for transportation, loyalty programs, driving license, and
corporate access control. Mr. Changrani, Marketing Manager at Aplab, believes that
"the market is in developmental stage, and is likely to witness growth at an
exponential rate."

Banking on smart technology

Confirming this view, Frost & Sullivan expects non-banking applications to reach
around 3 million units by 2001. Banking applications are likely to exhibit faster growth
rates once regulatory authorities give the green signal. The focus will primarily rest on
individuals with savings accounts, which at present are around 600 million in India. Most
ATM and debit card applications are likely to shift to smart card based solutions by 2002.
Further, by 2006, a fourth of all savings account holders are likely to shift completely
to smart card-based personal banking.

Convenience backed by security is likely to be the
force behind the migration. The banking sector can certainly do with a solution like
easily trackable secure transactions. This is how smart cards will probably make their
debut. The lure of multi-application cards is also likely to propel large-scale adoption
of smart technology. While the price of terminals and the cost of card itself will be an
initial deterrent, rise in volumes resolve the problem. A likely solution is for the banks
and other nodal agencies to finance the initial installation of terminals. The payback
could be the reduced risk of fraudulent transactions.

With technology touching all aspects of an
individual’s life in the days to come, it would not be long before we all start using
smart cards the way Shivani did.

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