Introduction
This report focuses on the rollout of Smart Cards in the US with an emphasis
on the cost drivers for the major industry players. First patented thirty years
ago, the technology can hardly be called new. Similarly, it' s inaccurate to
describe the technology as marginal with 1.78 billion cards shipped in 2002.
Mass proliferation of smart cards in the global community has been linked to the
technology resolving problems and for most of these it has been a case of a
tipping point being reached where the benefits of moving to smart cards would
outweigh the cost of the transition. In the field of consumer payments within
the US, smart cards have yet to gather this critical mass, but their significant
advantages over magnetic stripe cards are making them greatly compelling.
International
acceptance of smart cards has come in waves. The first of these was a desire to
control the level of vandalism of public telephone kiosks, and led to a
significant rollout of smart cards in Europe in the 1980' s. Cellphones led to
another wave of smart card adoption, this time for the SIM cards in GSM handsets
as a means of identifying a subscriber to a cellular network. Telecommunications
has been very closely tied to the smart card industry and still accounts for by
far the majority of smart card units shipped1.
Telecoms are tangentially
related to the next big wave of smart card rollout; the cost of online
transaction authorization is prohibitively expensive in Europe, leading to
offline, batch processing at the end of day. This loophole has been exploited by
fraudsters who have been able to pay for goods using counterfeit or stolen
cards, knowing that at the time of purchase the card status would not be checked
below a certain floor limit. This had led to transactional changes at the POS,
where cardholders are verified by entering a PIN which is matched to data stored
on a smart credit / debit card. An EMV (Europay, MasterCard & Visa) mandated
liability shift to go into place by January 1st, 2005, making merchants liable
for fraudulent transactions if they have not upgraded their Point-of-Sale card
readers for eChip and PIN' transactions. Card issuers will also be
liable if they have not upgraded all issued magnetic stripe cards to smart cards
by the same deadline. Further details on the evolution of smart cards can be
found in Mercator Advisory Group research 'Micropayments Get Smart...Online
Debit & Chip, A Winning Combination' '
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