Today the main driver in the migration from magnetic stripe to chip technology is the need to comply with EMV requirements. The card associations have defined dates by which card issuers in the various regions will need to have migrated to chip. This migration is aimed at arresting the increase in counterfeit and card-not-present fraud by the introduction of PIN at point of sale.
Until recently the main obstacle in the adoption of multi-application smart cards has been the time and cost involved in the creation and upgrading of current infrastructure, ie chip cards, POS terminals and ATMs, as well as upgrades of legacy systems and system integration.
The business value of the implementation of chip is far broader than fraud reduction and this is where multi-application cards will come into their own.
Multi-application smart cards have a significant role to play in improving the profitability of card issuance in a number of areas.
One area is risk management and bad debt reduction. By using a technique known as scripting, risk and usage parameters can be updated and credit limits amended for individual cards post issuance. This also allows banks to control how and where individual cards can be used.
Cards are starting to play a more significant role in consumers` day-to-day activities. Whereas in the past credit cards were primarily used for payment, in future they will be used for value-added applications such as loyalty, identity, healthcare, ticketing, mass transit, etc, which can co-reside together with payment applications on the same card. This can assist in the maintenance of brand value and provide opportunities for card issuers to compete for customers on services rather than just price. The market is still relatively immature in terms of developing concepts such as cross-selling of chip space to non-banking third-parties such as retail loyalty, and identifying the right mix of applications to offer to cardholders.
Innovative services and new delivery channels will also be key to establishing a successful customer value proposition. Card issuers will need to develop new business models in order to deliver card products that will ensure their brands maintain their competitive advantage.
Smart cards also offer enhanced data collection capabilities about cardholder behaviour. This will enable a move away from mass marketing towards micro, and even one-to-one marketing.
Innovative services and new delivery channels will also be key to establishing a successful customer value proposition.
Chris Steyn, director, NamITech
Security is a further important area. As smart cards can hold digital certificates, they can provide secure authenticated access to services such as e-banking, as well as secure card and cardholder verification for remote transactions in both virtual and physical channels. This will result in improved consumer confidence and encourage online buying.
Other area on which card issuers will need to focus and where multi-application smart cards will play a key role are cost and speed. Some card issuers compete for market share on price. The ability to introduce new products and services cost-effectively is therefore vital. In addition, competitive advantage can be gained by being first to market with new products and to respond quickly to changing market needs.
In summary, EMV is not only about technology nor is it an expensive evil forced upon banks by the card associations to counter fraud.
The implementation of multi-application smart cards is more about strategy and establishing an infrastructure that opens up many new business opportunities. This technology will introduce significant change in how business is conducted over the next few years, and as competition intensifies, can assist banks in defending their market share and attracting new customers.
* Chris Steyn is director of banking solutions at NamITech.
NamITech sponsors ITWeb`s smart cards industry portal. The digital economy and e-commerce initiatives continue to drive the implementation of smart card technology. This portal looks at the pros and cons.
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