
Ask anybody in the Smartcard business and they will tell you that ‘The Cartes Show’ is the event to mark in the diary. In its 22nd year welcomed 20,000 visitors from over 130 counties to come and sample fresh, innovative smartcard and identification technology.
The exhibition boasted 500 companies on show, a 16% increase of vendor population in 2006, confirming the increasing popularity and stature of the programme. This year the latest smartcard ideas and machinery was piloted to researchers, buyers and the top directors and managers of the industry.
The guest of honour was Japan, forerunners in contactless applications and established economic game plans, which are widely believed to be the future of the smartcard sector. Japans presence was not only prevalent through the scores of Asian companies on show, Fujitsu, JBC, and Athena to name a few, but also the numerous Japanese gardens and sculptures on display, which enhanced the diverse atmosphere within the 35,000 sq ft area. I wasn’t the only new face either; several businesses were attending for the first time, including the first ever Indian manufacturer, Aseptics. The Aseptics director Hitch Murada said, “We are confident of our ability to serve highly competitive products to our customers.”
His enthusiasm although refreshing seems unlikely to bear fruit in an increasing cut throat smartcard market. In truth, Aseptics are one of many small fish in a big pond, dominated by sharks such as Oberthur, Gemalto and other well-established corporations.
Oberthur, now the world’s second biggest smartcard provider announced third quarter sales of 148 million euro’s. (Perhaps they should have invested more in their ‘free’ shuttle bus service from Charles de Gaulle airport to the exhibition centre, as the laid-on transport was curiously absent!) Not so hard to miss was their shopping mall-esque stall complete with bar, which alongside Gemalto overshadowed (some literally!) other displays and stands. So why would the huge brands take so much time and effort to be in attendance at this event?
IT executive Jorge Krug believes it is because, “Cartes is the premium trade show in Europe for smartcard business, with new applications and technologies on display those working within the industry cannot afford to miss it.”
It certainly cannot be denied that this year’s event underlined forecasted changes and clear transitions in the smartcard market. ‘NFC’ or near field communications was an application that
many were touting as the latest potential success described by Inside Contactless’ Remy De Tonnac as “the first intuitive application” NFC has taken the smartcard world by storm. The application which is complementary to Wi-Fi and blue tooth standards has been predicted to be adopted by 52 million consumers before 2015.
The technology focuses upon mobile phones and is stored within the SIM. Its intention is to increase the speed and simplicity of ‘contactless’ transactions and will allow the user to purchase tickets, food and drink from their mobile. Many experts are sceptical, and even NFC’s disciples are forced to admit that there are considerable boundaries it must overcome before introduction into the mainstream. Simon Pugh, head of advanced payments at MasterCard said “How do you make money out of it? There are costs involved for all parties but where does the money come in?
Claims that NFC will end up a damp squib much like Bluetooth are refuted by Sophie Tacchi, an industry expert. “Bluetooth requires a pin number where as NFC doesn’t. NFC is currently being implemented successfully in various countries, for example it is being used in fast food restaurants such as McDonalds in the USA and petrol stations and taxis in Japan.”
However, phones with NFC capabilities are rare and the current implementations are only pilot projects. Service providers will surely have no desire to sell them if there is not a sufficient consumer demand?
Ken Warren, Cryptography research manager agrees, “The NFC business case is just not lucrative for investors. It requires critical mass but the delayed deployment may lead to suppliers not being prepared to wait for standards.” The general consensus seemed that NFC modification would go ahead, but the timescales are uncertain. Bruno Moreau, CEO of ‘ASK’ admitted NFC was, “Still a long way from implantation on a market scale.” Worryingly, consumer demands aren’t the only issue with NFC; the hardware itself has come into question after concerns that a low battery source would prevent a transaction. The battery provides another headache for manufacturers in that its position in relation to the antenna can obstruct the receiving signal.
This became evident in a Visa ‘pay wave’ demonstration when the SIM struggled to complete the transaction. Visa was quick to assure us it was an anomaly as the pay wave machines were fully commercialised in Cardiff car parks. Let’s hope it is running more efficiently in the welsh capital or we can expect some very frustrated motorists!
Whether NFC is a success remains to be seen, it is certainly a revolutionary idea that could reduce the number of cards a user needs to carry, although an Inteligensa spokesman said “NFC needs to prove itself consistently to be taken seriously.”
NFC is just another attempt by smartcard industry to develop the SIM, or become multi-functional. Experts and lecturers at the Cartes show all spoke of how the smartcard must adapt to new requirements and develop into a more ‘profit friendly’ product. But what does this exploration into unknown waters mean for the industry, and how will the business cope with this transition?
Many smartcards are now third generation yet still only a small proportion offer multiple applications or share applications between organisations and sectors. To compete with growth in the Asian markets, Christian Religion CEO of Thales said, “We are forced to look for more solutions”. The question is whether these companies, many established for a great number of years, are capable of modifying their product to suit new demands.
Michael Kummerle, an executive at Giesecke and Devriant said, “Classic smartcard manufacturers are in a perfect position to develop, as many have contracts with major banks and transport facilitators.” It is not as if the industry has much of a choice, Lauri Pesonon announced at the world card summit during the Cartes exhibition that, “Multi-purpose technology is the only way the smartcard business will survive.”
These strong words are echoed by his counterparts across the smartcard sector such as Jan Valcke, the chairman of Vasco who “recognises smartcard must keep up with the times.” Electronic banking in particular has been pin pointed as a lucrative area of development, plainly because the majority of transactions require a financial payment. The industry seems to be moving into a new era where convergence of SIM applications and contactless cards rule the roost.
Michel Cainitrot, the chairman of the SIM alliance acknowledges in Paris that smartcard were “changing dramatically.” He attributed this change to an “increasing commodity market” and suggested the SIM’s future was in “payment and transportation applications or securing new commutations channels.”
For profits to be generated the changes required are vast, providers have to adjust but also to invest large sums of cash. Because of this some areas of smartcard manufacturing are teetering dangerously at the brink of an unbalanced market. Douglas Bergeon CEO of Verifone said, “In 2000 we had 15 competitors but today we have just 4. I am convinced that this will become two very soon.” Bergeon is of course referring to his own company Verifone and smartcard manufacturing giants Ingenico.
It is doubtful that providers will politely endorse new changes, which leads me to ask is the market really ready for multipurpose technology?
Another development of the smartcard which was discussed considerably throughout the Cartes Show was the ‘Contactless Card’. The contactless card is not a new idea, but it seems as if more impetus is now being placed upon this method of smartcard. Phillipe Tartavell of Hypercom described contactless card as the “future of the card industry.”
The contactless card is faster than cash, and faster processes will inevitably result in increased consumer use. The simplicity of expression is helping to drive the technology market, but do consumers actually want them? Surveys have shown that consumers generally prefer human contact, a concept Matthew Trowbridge, CEO of Renesas denies. “There is a fundamental distrust in technology and critics only focus on the negatives. Contactless technology is fast and secure and will leave staff more time to deal with complex enquiries”
While smartcard businesses strive to hit new targets and to produce profitable NFC, contactless and multi-functional applications, the market becomes an increasingly dangerous place. Gerard De Moura, the director of Gallitt spoke at an exhibit conference saying, “There is increased conflict or competition between providers, and an aggressive market has technical and financial implications.”
De Moura is likely to be referring to friction between service providers and system integrators. Unclear partnerships as well as differing targets and standards mean the opportunity for interoperability seem hopeless and business share fully continue to promote their own agendas at the expense of others. Gil Bernaben, Technical director of Global platform emphasised this when he surprised his audience announcing, “As a system integrator we don’t care about the card, we care about the Solution!”
Mike Hendry, a payment systems consultant noted that “smartcard development creates new battlefields, for instance mobile companies versus banks. Although corporate relationships are strained we must find ways to overcome this.”
One such strained relationship which became evident during the Cartes event was that between Visa and Cryptography D.P.A. Visa, previously a non-profit organisation now intends to float on the stock exchange. However the company, who are currently undergoing an IPO assessment, will not be pleased to learn that Benjamin Jun the vice president of Cryptography has made public on ongoing dispute between the two businesses.
“Visa pulled out of a contract after already committing themselves to it. We are filing a litigation complaint for breach of contract.” This comes just two weeks after the European commission imposed a 14 million fine on Visa for ‘anti-competitive’ practises against Morgan Stanley.
This situation of two smartcard companies at loggerheads is sure to cause a stir in the trade. It is entirely possible that this predicament will be one of many in future years for the smartcard industry, should the market continue to remain unstable and present a conflict of interest to those involved.
The Cartes show 2007 provided us with an insight into the future of the industry. Smartcards look to be facing a battle to survive, while the industry must adapt to prevent itself from remaining a commodity, and instead become a necessity. Multi-purpose cards and NFC are eager to establish themselves in the mainstream market, but will face some form of adversity.
One thing is for sure, the technology on display in Paris was at times awe-inspiring and we can look forward to another busy and eventful exhibition next year, preferably without the rail strikes please Mr Sarkozy!
(Smartcard News Ltd, 2007)