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Smartcards
Smartcards will soon become omnipresent in our every day life. This article gives an overview of the field and considers: what the business case is for using them and: what are the main issues to be addressed in considering their use. 

Chip or smartcards were developed in the 70s and commercially introduced in the early 90s. Since then, their importance has grown across many different sectors.  Currently, the most common applications for the smartcard chips are SIM chips in mobile phones, followed by improved credit and debit cards issued by financial institutions.  These areas are just two of the many applications smartcards can be used for.  This article gives an overview of smartcards and what can be done with them.

Types of Smart Cards
Smartcards can hold a wide variety of data types including security access information, applications, and records.  There are two different card types: memory cards and microprocessor cards.

Memory cards can be split into three types:

• Straight memory cards: these cards provide pure data storage. The data access is not protected by any identification process and no data processing is possible.
• Protected/Segmented Memory Cards: these cards provide data storage, which can be partly or fully protected. The memory array can be segmented to be used for different applications with access to specific segments only for authorized parties.
• Stored Value Memory Cards: these cards are specific purpose cards used for storing a value and have little or no memory beyond the simple value information.  These cards can either be disposable or rechargeable and can incorporate security measures, such as password protection.

Microprocessor cards incorporate a computer chip allowing for on-card dynamic data processing. The chip runs a Card Operating System (COS), which manages the memory allocation and the file access and organisation. The memory of the card is split into independent sections used for specific functions or applications.  Microprocessor cards allow multi-functionality and applications can be added on, changed and updated throughout the lifetime of the card.

There are two primary types of chip card interfaces: contact and contactless.  Cards may offer both contact and contactless interfaces by using two separate chips (sometimes called hybrid cards) or by using a dual-interface chip (sometimes called “combi” cards).

Application areas
As mentioned above, smartcards present a variety of application areas. The following list gives an overview of the most typical areas.

• Banking/payment: The major card association’s (Europay, MasterCard and Visa) Credit/Debit Cards have adopted smartcard specification for payment application.  These specifications - EMV (Europay, MasterCard, Visa) - define the physical characteristics (size, shape, thickness, position of contacts), the electrical characteristics (signals to be fed to each contact), command set (how to access data and functions on the card), overall card security methodologies (static data authentication, dynamic data authentication) and the data to be stored on cards for payment systems.
• Loyalty and Promotions: Smartcards can hold information about loyalty programmes, such as the customer identification, point balances and purchasing behaviour information.  Additionally it is possible to integrate different loyalty programmes on the same card.
• Access Control: Smartcards can provide features for logical and physical access to systems and locations.  These provide a large amount of added features, such as authenticate individuals, authorize access, assign access privileges, track or audit accesses, manage visitor control, generate access reports.
• Stored Value: A stored value smartcard contains all the information necessary to identify the card and its value, making it unnecessary for the merchant to contact a bank or other database to authorize the transaction.  Depending on the type of card, a PIN number may or may not be required.  The card can either be used until the value is exhausted, and then is disposed of or can be reloaded either by link to a bank account (e.g. online, ATM machines) or reload machines.
• Identification: The smartcard can be used as an identity card, allowing a number of security features to authenticate the identity of the cardholder, such as printed identification on the card, digitised photo and digitised written signature on the card, and cardholder information and data (e.g., digitised photo, name) stored on the chip. The smartcard can also be used to maintain a biometric template, which can be used to authenticate the identity of the cardholder by matching a live scan of a biometric feature (such as a fingerprint or iris scan) to the template on the card.  Thus, the card can provide highly secure and portable authentication of the cardholder’s identity.
• Ticketing, Parking and Toll Collection: Traffic management and fare collection systems often impose heavy operating costs in public transit systems and toll highways.  Prepaid cards have proven to be very effective and popular in saving time and resources in managing traffic and passenger flows and improving services.  Contactless smartcards send data via radio frequency waves eliminating long lines.  The amount of information on smartcards also allows new types of services which are customized for specific groups of users, and the user data can be collected and analysed by a central server further improving services.  Such ticketing systems can also be used in sports arenas, concert halls, amusement parks and other venues processing admissions.

Looking at all these areas, we can imagine how smartcards will soon become omnipresent in our every day life. Considering that most people already carry a number of credit and debit cards plus several loyalty cards for different stores in their wallets, the idea of having a number of additional cards for these applications does not seem very appealing. Therefore the most interesting feature of the smart card is multi-functionality.  A large number of local authorities have started to introduce smartcard schemes with many useful applications, ranging from e-purse functionality over access to public services (libraries, leisure centres, etc.) and loyalty schemes with retailers to public transport ticketing.  But there are also many private initiatives such as membership cards for football clubs, which rely on smart card technology.

Conclusion
Following a research study, Business Advantage recently advised one of our clients on the feasibility of introducing smart cards in a variety of application areas, all of them including some type of loyalty application. In the course of the project we identified a number of issues, which must be considered when looking into the introduction of smart card technology. Some of these issues include:

• The major revenue source for a smartcard system relies on the holders using their cards in partner shops for loyalty applications. How likely are the users to use the cards and how can you encourage the use of them?
• There are a large number of loyalty programmes in the market.  How high is the interest of consumers to carry another card in their wallet?
• Smartcards in a loyalty context are used to build a customer/user profile, which then can be used to offer customised services. Privacy and data protection are both a major issue and users need to be convinced that the data is not being used beyond the stated cause.
• The introduction of smartcard infrastructure can be quite expensive. Therefore the cost benefit calculations are very important to ensure return on investment.
• The functionality of smartcards is very impressive but many of the functions can be fulfilled by less expensive bar code or magnetic strip card schemes. How complex is the application to justify the investment of a smartcard?

We believe that, in order to make smartcard schemes based on loyalty attractive to their users, it is very important to include a wide variety of applications.  The business case for introducing this type of smartcard scheme relies primarily on the development of user profiles.  There is not one unique answer to the issues covered above and they have to be considered on a case by case basis through a variety of options.  Focus groups are helpful in answering some of the questions and in understanding the expectations of the potential users.  A quantitative research study can add to that understanding and can then lead to a telemarketing campaign to recruit possible partners for the scheme.

Business Advantage can help you to develop the business case, supported by all the different means of Market research.

For Further Information on the services Business Advantage offer please call +44 (0)1689 873636 or email info@business-advantage.com.

Business Advantage has specialised in the provision of B2B research and business development services in the IT and telecommunications sectors since its inception in 1992. 

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