Smart card sector on brink of a boom

South Africa is expecting three major smart card roll-outs this year - chip-based bank cards, the new national identification system and the issuing of more prepaid and SIM cards by the telecommunications network operators. Other projects are also in the pipeline.

The bank cards - referred to as "EMV-compliant" because they conform to a standard agreed upon by Europay (subsequently bought by MasterCard), MasterCard and Visa - have received much press recently, but the other projects will affect many more people. While at least 12 million EMV cards are expected to be issued in SA in the next five years, the Home Affairs National Identification System (Hanis) will see smart cards replace about 30 million identity books. The telecommunications network operators are expected to issue another 20 million cards this year.

Labat Card Technologies MD Alexander Georgiev says most banks in Africa intend to move to EMV only in 2007. "Naturally so. Most of them are either subsidiaries of large international banks like Barclays or Standard & Chartered, or they are local banks like Kenya Commercial Bank. It`s too expensive for them to be the first in the world, so they would rather see their parents going through the establishment phase and then they will follow."

But while the rest of Africa is behind on EMV compliance, various countries have begun rolling out other sizeable projects. In addition to the well-documented explosion of GSM cards in Africa`s telecommunications market, many states are now implementing identification and other programmes. Nigeria has established a smart card-based voter registration programme and is planning a national identification card. Georgiev says other countries implementing such systems include Burundi, the Democratic Republic of Congo, Angola and Kenya.

The smart card offers several benefits over older technology, including capability for multi-applications and data storage, but the chief boon at present is the security aspect.

"Fraud is the old chestnut everybody has attached smart cards to," says Gary Byrne, MasterCard Southern Africa VP for payment solutions. "In SA, fraud from skimming cards exists, but it`s not a business case driver on its own. But fraud can move around pretty quickly. My view is that banks in SA have agreed to adopt EMV more as a fraud prevention programme than is the case in the UK.

"There are many initiatives with smart cards going on, and the whole thing is built around the security of the smart card versus anything else. There is nothing that can match it at the moment," adds Byrne.

Smart card technology is an excellent vehicle for political players to help along Africa`s coming of age.

George Theron, director, Xantium Digital Card Services

Erik Gibson, technical manager at Xantium Digital Card Solutions, agrees that security is the most obvious benefit of smart cards. While data storage is another, the card has a long way to go before this becomes a major driver. Memory capacity is still limited, although it is increasing rapidly.

"I wouldn`t consider smart cards the be-all and end-all storage device yet, but obviously it`s a benefit of the cards that they can store a fair amount of data, and in an offline way," he adds.

Africa is particularly fertile ground for smart card applications, mainly because of a poor telecommunications infrastructure. In some ways, lack of infrastructure works to the continent`s advantage, allowing it to leapfrog older technology that has not been viable here.

Georgiev says in Africa smart cards have been the medium to take products to remote areas where there are no telecommunications and connectivity. "Really that`s been the benefit of the smart card - closing that gap between the first and emerging market worlds."

Says George Stander, executive manager at arivia.kom`s Face Group of Companies: "It is fair to say Africa must present a major opportunity for smart card technology; not because it is Africa, but because internationally smart cards offer more than the financial aspect. It has to do with identification and so on.

"Bank notes in Africa have deteriorated over the years and are costly to replace. This, combined with the prevalence of fraud, makes it an important driver. Politically, smart card technology is an excellent vehicle for political players to help along Africa`s coming of age."

The cellphone is set to become the most common payment device after cash.

Chris Dewe, consumer device channel director, Prism Holdings

Xantium Digital Card Services director George Theron also sees smart cards as ideally suited to Africa and SA. "You don`t need a telecommunications network to be able to obtain secure information that is authenticated. In regions like America and Europe they have broadband and can do online verifications very easily from a central database, while here we don`t have that benefit.

"Another thing is that in SA, and also in Africa, we have a very large section of our population that isn`t literate. And if one looks at the Hanis card proposed by the Department of Home Affairs, it will contain the personal details of a citizen, including who they are, where they come from, what their address is, and the like. Once they present the card to whoever they would like to do business dealings with, the information can be readily accessible."

The undisputed leader in smart card adoption is the telecommunications industry, followed by financial services and social welfare (pension payments and the like). In addition to standard cellular voice communication, the SIM card, essentially a smart card, is now being used for other purposes, including identification and payments. In fact, says Prism Holdings consumer device channel director Chris Dewe, the cellphone is set to become the most common payment device after cash.

Dewe says there are several examples of successful proximity payment systems, enabling wireless electronic communications between a device and a reader. "Global experience to date clearly indicates that this type of payment mechanism is an ideal substitute for the cash transaction, as the solution is well suited for micro payments, particularly where speed is an issue, such as at fast food outlets, petrol stations, parking garages, road toll plazas, convenience stores, supermarkets and movie theatres."

Most proximity payment systems require a standalone card or tag. "So why not use the cellphone?" asks Dewe, adding that in developing countries like SA more people have cellphones than bank cards and, technologically, the cellphone has the capacity to handle proximity payments.

But Dewe says some technology issues relating to standards and security still have to be addressed.

Another major global development in the pipeline is the replacement of passports with smart cards. "Passports are going to move onto an embedded chip, based on requirements given by the International Civil Aviation Organisation (ICAO), and the European Union countries have already declared that anybody who wants to have a visa waiver programme with them has to implement this sort of passport," says Georgiev.

SA, he says, is moving in this direction. "We are all waiting for the Department of Home Affairs to issue a tender. SA cannot afford not to be on the front end, especially on the continent. And 2005, again, is the year when that project is going to be launched, because ICAO has given very short terms of implementation for countries that want to become part of the programme."

Face Technologies operational manager Hannes Koegelenberg says this will not be a smooth move. "We`ll still need paper because we won`t convert the whole world in one day. But people are talking about a contactless radio frequency (RF) tag. There will be problems. We`ll need backup systems because not all countries have good fingerprint records, for example. So we face false rejections and so on. We`ll put in RF tags, but we`ll still need paper."

Social welfare is one area where smart cards are proving invaluable. Koegelenberg says arivia.kom is using smart card technology in this field to identity welfare recipients. "We have two million in the market, and others also have two million, so there is a total of about four million. We`ve also expanded that technology into Botswana and Namibia."

Will the soon ubiquitous smart card ever have a common standard? If so, what forces will determine the "winning" technology and which technologies are discarded? The answers depend on whom you ask.

Georgiev says smart card development has shown that most applications or add-ons have been successful because they are not driven by the idea that they are nice to have, but because they are applicable.

But Georgiev says a common standard will be reached. "In banking, there is already an established standard. In GSM there is already an established standard. One notable area lacking a standard is biometrics. Another is healthcare, although the G8 nations are attempting to create a standard in that area."

Xantium`s Gibson says common standards are essential, but while they do exist now they are industry-specific. His colleague Theron says standards are particularly necessary where interoperability is a factor.

Most players believe the market will decide which smart card technology wins. But, in terms of government projects, Stander says a firm decision must be made because, at present, different technology providers sell incompatible technologies into different government departments, which means that sometimes a provincial health department`s system, for example, cannot communicate with the national health department`s network. "My view is that SA is bottom-up driven," he says. "Technology will dictate to people whether they need contactless or contact technology. But it needs to be top-down driven. We need a forum at the highest level of business and government to design a technology plan for 20 years for this country, a well-designed strategic initiative of where we are taking this country in terms of technology. We need a five-, 10- and 20-year plan from a policy perspective and then let technology deliver on that plan. What we need is a mindset change."

Given that an overall common standard will be reached at some stage, there is a popular perception that we will arrive at a point where the number of cards we carry will be reduced significantly.

Byrne says the ability to implement a single card is coming fast, but he adds that MasterCard research has found that people group certain things they believe should go together, for example identification, payment and a loyalty scheme. Other things, Byrne says, simply do not belong together, such as banking and passport applications. And if they lose their passports they can be expensive to replace.

"Many countries have tried to implement a single card and found that it is not so simple," says Stander. "There needs to be a change in people`s mindsets. The technology is there, and it presents us with enormous opportunities, but the prerequisite is a change in thinking on governance of the people."

Koegelenberg agrees. "Malaysia, China, the UK and others started quickly with pilot sites, but never went beyond that. Malaysia has now gone to two cards, not one. Hong Kong has a small area where such a card is in issue. But the projects don`t move forward. People hope their technology will get rid of the human issue, but they`re looking at the wrong thing."

The Hanis project is anticipated to start by the end of 2005, Theron says. "It will take at least five years to issue all South African citizens with cards, and when each citizen has a Hanis card, all the bank cards will also have been converted to EMV cards. The banking infrastructure will be ready and everyone will have a Hanis card. And only after five years will we be looking at the convergence between what the government`s doing and what the financial industry is doing. But I think there will always be two cards."

The smart card has been with us for some time, but in many ways it is still in its infancy. The main limiting factor now is memory capacity, but as that improves, allowing for more and more applications on one card, the possibilities, it seems, will be limited only by imagination.