Smart card trends and expectations: what 2001 holds (from Schlumberger)

Citation

(2001), "Smart card trends and expectations: what 2001 holds (from Schlumberger)", International Journal of Retail & Distribution Management, Vol. 29 No. 7. https://doi.org/10.1108/ijrdm.2001.08929gab.001

Smart card trends and expectations: what 2001 holds (from Schlumberger)

Smart card trends and expectations: what 2001 holds (from Schlumberger)

The smart card industry came of age in 2000, with open platform cards achieving significant volumes for the first time, notes Schlumberger in its annual market review and forecast. Despite substantial silicon shortages, card shipments still grew 27 per cent to reach 1,790 million – confirmation of the pivotal role in portable, personal security that the smart card is playing across the spectrum of end-users.

Among the forecasts Schlumberger makes for 2001 is continued double-digit growth in demand, driven largely by wireless applications – with the beginnings of m-commerce adding a new dimension to this segment. Also of note, this year will see the first volume roll outs of USB (universal serial bus) compatible cards, and substantial growth in the emerging US market.

Looking back over 2000

For the first time, the most significant industry event was not related to any development in card applications or technology, but to a shortage of silicon. Booming demand for semiconductors led to restricted allocations of silicon to manufacturers, and as many as 30 per cent of chip orders may have gone unfulfilled. This situation led some end-users to over-order and build up inventory, partly explaining the healthy shipment figures. This trend will probably continue until the expected increases in semiconductor capacity come on-stream at the end of 2001.

The star application sector for smart cards was, as expected, SIM (subscriber identity module) cards for mobile phones, which expanded by more than 70 per cent. This surge was due to the strong demand from consumers for mobile phones and – in the high-end of the market – the intensive drive by operators to roll out value-added services based on SIM Toolkit (STK). The high-end segment of the market has effectively standardised on Java cards, and was the major contributor to an astonishing year-on-year growth of 700 per cent in open platform technology. Java cards now account for some 15 per cent of all shipments of microprocessor-based smart cards.

"Java technology has had a radical impact on the SIM card market, and more than two-thirds of those operators deploying STK services today actively prefer to base them on Java SIMs" notes Xavier Chanay, vice president, Schlumberger Mobile Communication Products. "The latest SIM card standards – which stabilised in mid-2000 – complete the chain to ensure that the process of creation and deletion of STK applets is fully standardised."

Banking cards – the next largest market sector for microprocessor smart cards – achieved healthy, double-digit growth, although not as high as in 1999. This slow-down occurred for a number of reasons: the massive GeldKarte roll out had passed its peak, some countries extended their card life cycles by an extra year, and silicon was in short supply.

Among other microprocessor card applications, pay-TV and ID cards grew strongly, with the continued rise of digital TV and the emergent need for PC, intranet and Internet security. The specialist application segment of health cards remained fairly static, because of its cyclical nature and reliance on large projects, of which two of the most pre-eminent – the French and German schemes – have been more or less completed.

Payphone cards, the major application category for memory chip-based cards, accounted for well over half of the industry's total card shipments: over a billion units in terms of volume, but only one-sixth of the industry's revenue. This market remained stable, predictable and very much a commodity market, now dominated by the two major suppliers.

2001: major new opportunities

This year will witness a double-digit growth of over 20 per cent in overall smart card shipments, forecasts Schlumberger (see Table I).

Mobile communications – which represents close to 70 per cent of microprocessor-based card shipments – remains the key focus for the larger players because it is such a strong driver of both technology and revenue. In technology terms, mobile communications has created the first mass market for interoperable open platform cards, and customers continue to demand ever-higher levels of memory. The revenue derives from the high-end nature of the cards – at least for those used to provide subscriber services – and the additional services that accompany such sales in terms of SIM Toolkit application programming and turnkey systems deployment.

Table I World smart card consumption and forecast for 2000-2003

Last year's growth in this segment is unlikely to be repeated, as the market has matured. Nevertheless, there are many bright spots to look forward to in 2001.

For one, the SIM card concept should be exported to non-GSM areas of the telecommunications world. Schlumberger expects to see CDMA (Code Division Multiple Access) operators starting to implement the benefits of the Removable UIM (User Identity Module) standard, which will initially be used to facilitate roaming.

However, a more interesting trend is likely to start as CDMA operators begin to adopt a more flexible approach to value-added services offered by the portable identity module, in contrast to the current firmware-based approach. This general shift might even migrate into the North American TDMA (Time Division Multiple Access) market where operators – who are increasingly becoming part of world-scale alliances – may exploit the shift to 2.5G and 3G technologies to adopt the flexible SIM concept.

The next major boost to the mobile communications market is likely to come later in the year. The first introduction of GPRS (General Packet Radio Service) high-speed digital networks will provide the data communication speed to make WAP (Wireless Application Protocol) a commercial success and create demand for the WiM (WAP Identity Module) that will secure m-commerce applications.

Schlumberger also expects to see the first trials of 3G networks, again leading to fresh demand for SIMs in the shape of the new Universal SIM device. With Japan a key player in this market, the latter half of the year could see the first high-volume shipments of mobile communications smart cards to that country. However, mass volumes of USIMs are not anticipated until 2002.

The market for financial cards is expected to grow strongly at around 25 per cent, driven primarily by a number of national programs to replace existing magnetic stripe bank cards with secure smart cards built on the EMV (Europay Mastercard Visa) standard. Affected markets this year include the UK – with its current EMV replacement program – Mexico, which is starting to see the first volumes of Proton cards, and Brazil and China. Although most smart card programs are driven primarily by the desire of banks to reduce fraud, the strong commercial success of the American Express Blue smart card program in the USA and Canada is viewed as likely to stimulate competition to release new chip-based cards.

A high spot for the industry will occur this year with the rapid rise of corporate and lT security smart card applications, which is expected to more than double. The growth will be stimulated by the general need for intranet and Internet network security, and the particular support for smart card security tokens which is built into the Windows 2000 operating system. By 2003, Schlumberger estimates that nearly half of online transactions will be secured by smart cards, creating continued growth rates of over 40 per cent in this market.

One geographic region that stands out for 2001 is the USA, with its promise of a significant increase in smart card sales. To date, the US marketplace has always lagged the rest of the world but, for the first time, this year brings with it three separate major forces for change: the demand for IT security, the stimulus to the bank card market following the American Express Blue initiative, and the partial adoption of SIM cards by TDMA operators. Combined, these forces could result in sustained growth rates of over 50 per cent for the next three years.

"2001 could be a breakthrough year in the US market for smart cards", says Olivier Piou, president, Schlumberger Smart Cards. "With three major drivers stimulating change, we may at last see significant activity in this huge potential market".

Technologically, the major event for 2001 is likely to be the widespread availability of USB-compatible smart cards, which allow PCs and similar devices to interface with smart cards without a conventional reader.

As regards open platform cards, Java card technology has now reached true mass market maturity, while the other contenders of MULTOS and Smart Cards for Windows remain in their infancy. Whether these systems can catch up – particularly MULTOS, which has suffered from its focus on banking cards – is questionable. Both MULTOS and Smart Cards for Windows are looking to the mobile communications market, and one critical test is almost certain to be the extent of take-up there.