The Migration to Smart Cards
Public transit agencies have been using stored value, pre-paid cards
for electronic ticketing since the 1970's. Through the 1990's this
market saw a transition from magnetic stripe technology
to contactless smart cards. Today, virtually all new transit fare
payment systems either in the delivery or procurement stages involve
the use of contactless cards as the primary ticket media. Already,
major deployments are up and operational in a variety of cities worldwide,
including Seoul, Pusan, Hong Kong, Washington D.C., and Shanghai.
Many of these transit deployments are also planning to use the same
contactless payment card across multiple modes of transportation
in a region and with retailers who could benefit from fast, convenient
contactless payment.
Retailers and financial institutions also have an opportunity to
partner with transit operators to provide the consumer with a payment
card that can be used to pay for goods and services such as snacks,
bridge tolls, parking fees, or food in restaurants or grocery stores
located near public transit stations. Pilot projects in the United
States and implementations of similar programs elsewhere indicate
that consumers welcome such multi-application payment cards, perceiving
them as convenient and cost-effective.
Among the other possible applications of smart cards, we mention
health and medical services, national ID cards, driver’s licenses,
student ID cards; logon to Internet sites and hack prevention, e-commerce
payment; parking fees; vending machines, cafeteria transactions;
partner credit cards, customer loyalty cards; customized applications
as in universities, hospitals, golf courses, franchise stores, restaurants,
kiosks, buildings, parking lots and on-street sites; vending machines,
electronic gift certificates, electronic ticketing, logistics, integrated
security systems, ID recognition solutions, and (whew) remote control
systems.
Industry Trends
According to DataMonitor, the market for transit-related
contactless smart cards will grow from $55 million in 2002 to $200
million by 2006. The market for contactless cards is growing at twice
the rate of contact cards.
The smart card industry is growing rapidly in the U.S., where it
is used for public transit, electronic toll collection, and payment
at gas stations, among other uses. American Express is conducting
its ExpressPay pilot program and MasterCard its PayPass, which are
contactless.
The industry has a trade group called the Smart Card Alliance. Their
white paper entitled, Contactless Payment and the Retail Point
of Sale: Applications, Technologies and Transaction Models, has
this to say about the market:
Contactless Payment Represents a Growing
Market
The latest trend in retail payment applications is contactless payment.
Contactless payment systems are used successfully in Asia, Europe
and North America and offer a number of advantages to issuers, retailers,
and consumers. Contactless payment allows issuers to penetrate the
cash payment market, enjoy increased customer transaction volume,
and improve customer retention and loyalty. Retailers realize benefits
due to faster transaction times, increased revenue, improved operational
efficiency, and lower operating costs. Consumers enjoy the convenience
of hands-free payment, the ability to pay for multiple services using
one device, and the security of not having to display a card for
payment.
Contactless payment applications are particularly attractive to
retail segments where speed and convenience of payment are essential
(for example, quick service restaurants, gas stations, convenience
stores, parking facilities, transit services, entertainment venues
and unstaffed vending locations).
Also, in a later section entitled Why Smart Cards? they have
this to say:
Security
Smart cards were originally developed to address security issues
and they continue to provide a highly secure solution for numerous
applications…. Security features include:
- Large memory size that can support the addition of software
providing enhanced security features or new applications.
- Extreme difficulty of replication. The difficulty of obtaining
a source for chips that have been manufactured with specific embedded
software, coupled with the difficulty of reading data encrypted in
chips, provide significant barriers to counterfeiting cards…
- Enhanced decision-making process with the card reader. Smart
cards support both online and offline card verification and the use
of strong encryption algorithms. Smart cards can therefore provide
better protection and security for transactions at unattended terminals.
- Strong identity verification features…. A smart card
can also include biometric data (such as a digitized photograph,
fingerprint, iris scan, or voice print) to enhance security….
- Ability to meet specific market requirements and evolve as
requirements change (for example, adding additional risk management
features that are needed for transaction processing in some markets)
Contactless cards passed the consumer test in MasterCard's cafeteria,
where the touch-and-go cards called PayPass have been used
since June. There, only 2% of employees had been paying with credit
cards, a transaction that typically took 14 seconds. But when given
the contactless cards that can charge a meal in one-fifth of a second,
card use went up to 28%.
Expansion of Functions
A bankcard can be accepted as a secure ID in many integrated applications.
Some examples include:
- Retail operations utilizing prepaid electronic money for convenience
and loyalty building
- Health and medical service business where smart cards store or
access medical examination data, diagnosis data, and medical insurance
data
- Administration services where the smart card can combine an ID
card, driver’s license, and student ID
- Telecommunication business where the smart card can be used for
membership authentication and automatic logon to an Internet site,
electronic commerce payment, and hacking prevention
- Parking systems
- Vending machines
Customized applications can be created where a large number of people
are managed: universities, hospitals, golf courses, franchise stores,
restaurants, kiosks, buildings, and parking structures or lots. By
installing modules in existing equipment such as vending machines,
buildings can easily adopt applications without replacing existing
equipment.
Mobile Phone Payment System
Using a mobile phone equipped with a smart card, users can easily
make micropayments such as subway/bus fares or vending machines.
All the functions of credit cards can be integrated into a cellular
phone.
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