|Issue:||Asia-Pacific I 2002|
|Topic:||Securing the Future – Smart Card Activity in the Asia-Pacific|
|Organisation:||Asia Pacific Smart Card Association|
Smart cards are of growing importance in the telecommunications, finance, government, retail and e-commerce sectors for secure on-line transactions. Banks are basing payment card strategies on the EMV standard to reduce credit card cloning and fraud and facilitate advanced applications. Secure payments using card based mobile phone systems will become common. Subscriber TV set-top boxes with card readers will also permit interactive services and payments. Governments use smart cards for health, ID, benefits, automating immigration procedures and online government services.
Smart cards are playing an increasingly important role in the telecoms sector, as well as other sectors which can influence telecoms, including finance, government, retail and e-commerce. This article provides an overview of the impact of smart cards on the sectors in the Asia-Pacific. Telcos Telecommunications companies around the world are re-inventing themselves as e-commerce players and infrastructure providers. In doing so they are building on their card (in many cases smart card) issuing and management experience to deliver these new services to customers, often in partnerships with banks and organisations from other industry sectors. One such example in Australia involves Telstra Corporation (the principal Australian telecoms company); with ERG Group (the transit systems smart card integrator) and the ANZ Banking Group in a joint venture called ECard. The joint venture intends to provide management of smart card-related services and act as is a clearing house for smartcard transactions. It inherits a wide range of intellectual property, expertise and other resources from its stakeholders. ECard currently supports a smart card base of over one million cards, and plans to expand this through their strengths in the finance sector and the transport and telecommunications industries. The three organisations also believe that the rapid development of electronic commerce will significantly change traditional business practices, and that smart cards will play an important role in the facilitation of secure transactions in this environment. Many large telecommunications companies around the world have divisions which focus on systems integration and have been responsible for implementing large IT projects. Some of these telcos are now moving into the area of smart card systems integration. One such example, the Hong Kong government, recently awarded a tender (worth HK$163 million) for the territory’s new Smart Identity Card System (SMARTICS) to a consortium led by Pacific Century Cyber Works (PCCW), Hong Kong’s leading telecommunications company. PCCW had already implemented an earlier smart, multi-application, credit card together with HSBC, Hong Kong’s largest retail bank, and MasterCard. In Korea, SK Telecom together with Visa, Visa Cash, and several Korean banks launched the Moneta Mobile Card at the end of 2001. The Moneta Mobile Card is an EMV (chip card developed by credit card companies) credit card using Open Platform technology which supports several applications including EMV credit, Visa Cash e-purse, SK Telecom membership functions and the SK Telecom OK Cashbag loyalty application. The card also contains a separate Mifare chip which can be used for post payment of public transportation, including buses and subways, in Seoul. The initiative includes a mobile phone with a full-size smart card slot into which the cardholder can insert the Moneta card to make transactions over SK Telecom’s mobile network. Mobile Telephony SIM Cards There are now over 646.5 million subscribers connected to GSM digital wireless services [source: GSM Association, January 2002]. Despite the 10 percent drop in the global SIM card market last year, sales of SIM (Subscriber Identity Module) cards for mobile communication applications in the Asia-Pacific matched the European market in 2001, and are expected to outstrip other markets in the foreseeable future. This is due to large markets expanding and opening up in Asia – particularly China, Indonesia and India. The developed GSM markets have now reached a new phase where service development will be the key to success. Mobile operators face falling average revenue per user (ARPU) because of voice service price wars and these markets need a movement to data services to increase business opportunities. Operators in Asia, especially China, are expected to continue to expand at a fast pace. At the end of March 2002 the total number of mobile phone users in China reached 161.5 million and is now only 15% smaller than the fixed-line market [source: Ministry of Information Industry]. Apart from having more GSM subscribers than any other country, China also has the world’s largest potential subscriber base in a single market. Another key contributor to GSM’s success in China has been prepaid services, which are particularly easy to deliver to SIM based mobile telephony. The Yankee Group has predicted that the Asia-Pacific will be the largest mobile telecommunications market by 2005. As operators move to 3G mobile technology even non-GSM operators will begin to use smart cards in mobile phones, boosting the market dramatically. NTT DoCoMo launched their FOMA (Freedom of Mobile Multimedia Access) 3G network in October 2001, following a five-month evaluation period. FOMA is the world’s first W-CDMA network and is the first Japanese network to deploy smart cards. NTT DoCoMo has some interesting ideas for smart cards in their phones including credit and e-purse payments, loyalty and contactless ticketing. USIMs (Universal Subscriber Identity Modules) are mandatory in the 3G W-CDMA network standard deployed under the International Mobile Telecommunications 2000 (IMT-2000) standard. CDMA mobile telephony now has over 120 million subscribers worldwide. Some 50 million of these are in the Asia-Pacific region, the vast majority in South Korea. Recently the Removable User Identity Module (R-UIM), a SIM card for CDMA mobile telephony, has been developed to provide global roaming for CDMA subscribers. It will also enable operators to exploit opportunities for value-added services with current CDMA (IS-95A/B) or third-generation (3G) CDMA terminals. The commercial launch of the R-UIM was in Korea by KTF and other operators. They have since been followed by China Unicom in the China market. There are now a number of roaming agreements between Korean CDMA operators and GSM operators in other parts of the world. Mobile Value Added Services Mobile operators are experiencing significant growth, but also fierce competition, as tariffs are lowered to win more customers. The subsequent “churn” is reducing profit margins, despite the increase in customer volume, and customer retention is now a vital ingredient in a successful network. One strategy that operators employ to differentiate themselves from the competition, is to use SIM toolkits to develop unique, value-added, services for GSM subscribers. This has become a key strategy for many operators. Mobile banking is a particularly attractive service for consumers (convenience), GSM operators (airtime) and financial institutions (reduced transaction costs). The size of these SIM applications will mean that the industry benchmark will move from 32K to 64K SIM cards. Some Asian GSM operators are already working on the next generation of Java-based SIM cards which will allow over-the-air (OTA) downloading of new applications to SIM cards without requiring subscribers to change their SIM cards. CDMA operators are also moving towards value-added services which are not tied to the phone. The new R-UIM/UIM Toolkit (UTK) announced by QUALCOMM in March 2002 supports easy roaming between GSM and CDMA networks and was implemented by China Unicom, in the recent launch of their CDMA network. The use of Java Cards makes it possible to re-load and change applets on these R-UIM cards in the field. The UTK approach greatly simplifies VAS development for CDMA operators compared with producing dedicated application firmware for the embedded processor inside the phone. Moreover, the new card opens up a migration path for CDMA operators to use of identity modules as they evolve to 3G for CDMA terminals, providing the benefits of smart card-based security for mobile commerce. Within GSM, SMS (short message service) will continue to be the de facto “killer application” across the Asia-Pacific region. The number of mobile data subscribers in the region is expected to exceed 400 million, or 64% of mobile subscribers, by 2006, according to the Yankee Group. If this is correct this would mean that about 11 percent of the entire Asia-Pacific population would have wireless data access. Digital Television In Europe, digital television is developing rapidly. Satellite and cable are expected to gain penetration at the expense of terrestrial television. Digital TV is developing more slowly in the Asia-Pacific region but television networks are still likely to be important channels for service delivery and payment transactions. Set-top boxes for digital satellite and cable television usually contain two smart cards slots. One for conditional access and the second for other applications, aimed at interactive services. This second smart card slot can be used to make payments with EMV cards as well as for loyalty or identity cards. Financial Institutions Migration to EMV infrastructures It is now clear that the future of global bank payment card strategies will be based on the EMV standard. In particular, bank card strategies for combined services and applications will be based on EMV smart, multi-application, cards. The EMV specification, named after its originators Europay, MasterCard and Visa, was developed as a solution to the problems of forged payment cards and credit card fraud, as well as providing real multiple application opportunities for financial institutions. Other international and national credit card associations have now also accepted EMV as the global standard for smart bank payment cards. MasterCard and Visa have now set dates for the migration to EMV, and have proposed dates for liability shift, which will create a catalyst for migration to a widespread chip acceptance infrastructure. As a result of this, the EMV standard is sooner or later going to impact everybody who deals with card payments – from retailers to acquirers, payment schemes to card issuers and payment processors to card and terminal suppliers. This is the reason Dataquest is predicting that there will be 459M smart bank payment cards in circulation by 2004. The first EMV migration was launched in the UK in 1998 but there are now EMV migration projects underway in Europe, Asia Pacific and the Americas. The adoption of smart cards by the banking industry will enable banks to secure digital transactions (value and identity) over networks. This will provide business opportunities for network providers to partner with financial institutions. Government In many countries around the world, governments and other public sector bodies are planning or implementing nationwide smart card schemes including for health, ID, benefits and other public and private sector applications. This trend is particularly apparent in Asia. Governments have seen the benefits of smart card technology for automating immigration procedures and clearance, and for implementing public key infrastructures (PKI) for delivery of online government services. Their aim is to streamline public sector services and make government more accessible to citizens. In many cases identity schemes are being upgraded to smart card technology, sometimes incorporating biometrics as the means of cardholder verification. A clear objective of this strategy is to provide e-government services to citizens over networks in order to improve public sector service delivery and reduce costs. This will provide considerable business potential for the telecommunications sector. E-Commerce Securing On-Line Transactions Despite the growth in Internet usage, few people realise the part smart cards will play in the future of e-commerce. Organisations in all of the above-mentioned sectors that are issuing, or plan to issue, smart cards, will eventually want to deliver services to, and receive payment and identity transactions from, the holders of their smart cards. Currently, consumer payments over the Internet are, for the most part, credit card transactions which require cardholders to enter the credit card data from their magnetic stripe cards and send it over the Internet. These “card-not-present” transactions are a huge problem. According to Gartner Dataquest, card-issuing financial institutions earn approximately 2% of their revenues from online transactions. Unfortunately this 2% causes 50% of disputes and chargebacks. Smart cards are the best way to secure on-line transactions and to provide, via the PKI (public key infrastructure), real authentication over networks and the Internet. This will rapidly become obvious as the mobile phone becomes an important access device for the Internet. The growth of smart card secured e-commerce on PCs will be slowed until cost effective PC-based smart card readers become widely available. This might come about by integrating a smart card reader in every consumer’s PC – but this will be a long, perhaps impossible, process.. Providing corporate cardholders with smart card readers for their PCs, though, might be workable. Alternative possibilities include using mobile phones as secure payment terminals (even while surfing from a PC), and the use of public service kiosks although this only makes sense when every consumer and citizen carries a smart card. Conclusion The convergence of sectors and technology trends provides increasing opportunities for the telecoms market. Mobile telephony and e-commerce will converge, as the mobile phone becomes the access device for Internet services. Banks will continue to hold the franchise on payments although mobile telephony, e-commerce and the financial sector will converge, as the mobile phone increasingly becomes every user’s personal portable payment terminal. Financial institutions will launch payment instruments, either in or accessed by SIM cards, or on full size EMV bank payment cards which can be used with dual-slot phones, to provide mobile payment solutions.