The banking industry will definitely embrace smart cards from mid-2003 onwards, thanks to the arrival of the much-awaited EMV smart card standard, said Pierre Kotze, Financial Services Executive, Integrated Card Technology (ICT), sister company of IT group, NamITech Ltd.
What is a smart card? Possibly your first contact with one, is the subscriber identity module "SIM" card in a mobile phone. A smart card, also referred to as a chip card or integrated circuit card (ICC), is a plastic card with a small computer chip embedded in it. Usually the same size as the familiar plastic credit card, it looks no different, except for the small metal-coated chip.
Today it is taken for granted that the majority of magstripe payment cards are accepted at most point-of-sale terminals. This is no coincidence, but the result of close co-operation between major payment providers to establish global standards and specifications for magstripe technology.
In late 1993, recognising the importance of chip technology to the future of the plastic payments industry, Europay International, MasterCard International and Visa International joined forces to facilitate the migration to chip technology. The result was the integrated circuit card - ICC - specification for payment systems, known as the EMV ICC specification for payment systems. With these specifications in place, the three card associations have paved the way for universal acceptance of chip-based transactions for credit, debit or ATM cards.
Thanks to these new specifications, the doors are now open for the wider and easier adoption of smart cards in the banking sector. "In fact," said Kotze, "an EMV-launch will have commenced by the major banks by the end of the third quarter next year. That`s how close we are to seeing smart cards becoming more commonplace in the banking sector."
He did point out, however, that banking terminals, including in-built smart card readers and the EMV-compliant application, have not yet been fully deployed.
"It is very much a chicken and egg situation, but EMV will certainly drive us inexorably towards the adoption of smart cards in banking. The chip card has the potential to dramatically change how the payments industry will do business worldwide - it offers more than an alternative storage media to the magnetic stripe card. It also provides processing capability, thus making it possible for the card issuer to be 'logically present` at the point of interaction whether the transaction is performs online or offline. It opens the way to increased data capacity, greater security and more powerful capabilities at the point of transaction."
EMV Credit/Debit provides for the authentication of the card, verification of the cardholder, and authorisation of the payment transaction in both online and offline modes. These processes are performed jointly by the smart card and the point-of-sale terminal. This is a dramatic contrast to a magnetic stripe card that offers little more than a passive vehicle for providing certain cardholder account information.
The EMV standard only allows for the universal acceptance of chip-based transactions for credit, debit or ATM cards, but Kotze said this is a "major step forward".
The electronic purse
"The EMV standard, however, does not address the much-talked-of electronic purse. In fact, some pundits are starting to wonder if the electronic purse will ever really take off as widely as originally predicted. Locally there are two possible business drivers that might see them change their minds, however. The first driver is the taxi recapitalisation programme and the second is the government`s ambitious national ID project, both of which intend using smart cards that could potentially have the ability to act as electronic purses to make payments.
"If one of these projects is a success, it might lead to the further galvanisation of the electronic purse." The belief is that electronic purse will provide convenience to customers by offering them an alternative to small, everyday cash payments, where credit or debit cards would not normally be used.
At the moment, however, it looks like the electronic purse will only be used in closed loop environments, such as on a university campus or within a large corporate.
There is also the technical logistics of introducing electronic purse - the lack of acceptance points. Electronic purse are subject to so-called network externalities; that is, the utility of an electronic purse increases with the size of its network (ie, the number of acceptance points).
"How does the issuer of the electronic purse make a return on investment? Even in Europe, with a more sophisticated market, there is an increasing notion of doubt about the level of adoption the electronic purse will really enjoy - retailer acceptance and consumer uptake invariably fall short of expectations. The road to adoption might just be a longer one. But certainly," said Kotze, "the use of smart cards in SA is not just a pipe dream. We will see it happening over the next few years."
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