Smart Cards
MD823
October 6, 2003
The Smart Card Value
Proposition
• Secure storage for sensitive data and monetary
value
• Decreases fraud rates compared to magnetic stripe
cards
• Supports local transactions (no network
connection required)
• Handles cash, micropayments, and debit as well as
credit
• Convenient, familiar form factor
Smart Card Trends
• Larger memory and faster transaction speed of
new chips (from 32K to 64K)
• New Java smart cards support multiple
applications
• Integration with biometric data increases
authentication and reduces theft issues
• Contactless cards never have to leave the pocket
or purse to function at turnstiles or to open doors
Issues for Smart Card Adoption
• Cost of chip cards vs. magnetic strip cards
• Complex and expensive infrastructure
requirements (card readers, optical scanners, local
terminals, etc.)
• Lack of compelling applications or features to
motivate consumer interest and use
• Lack of support by merchants and reluctance to
subsidize infrastructure costs by card issuers
• Some concern about privacy and protection of
data on the chip
Drivers for New Smart Card
Programs Worldwide
• Government mandates
– Citizen ID cards, electronic passports, military ID cards
• Increased security concerns
– Access cards
• Regulatory requirements
– Health system cards
• Transportation systems
– Contactless fare cards
Government Drivers
• US Common Access Card (CAC) smart card program
– Department of Defense initiative launched in 2000
– Target is to issue 4 million cards to military and
government employees by April 2004
– 2.8 million CAC cards issued to date
• Had revitalized dormant US smart card market,
especially since combined with Homeland Security
measures
– Transportation Worker Identification program
– Biometric passport with embedded contactless smart card
chip and stored biometrics slated for 2004
MyKad Smart Cards in Malaysia
• Multipurpose smart card issued by
Malaysian government to all citizens
– 2 million cards issued to date
– Designed to host both government and
commercial applications on one card
• National identification, passport, health card and
drivers license
• Stored value card for ecash and purchases
A Tale of Two Cities:
New York and Hong Kong
• Manhattan Smart Card Pilot Project
– Fall 1997 to Fall 1998
– Sponsored by Citibank and Chase Manhattan
Bank, with Visa and Mastercard
– Most ambitious smart card rollout in the US up
to that date
– Results widely viewed as the “kiss of death” for
US smart card adoption for the foreseeable
future
New York Pilot (cont)
• Free smart cards sent to Citibank and Chase credit
card holders in Manhattan
• Cards served as stored value (debit) cards
• 600 merchants on upper West Side recruited to
install special terminals to accept smart card
payment
• Users could also add value from bank accounts to
their cards through connecting secure card readers
to their home PCs
Results of New York Pilot
• Frequent failure at point of sale due to technical
problems with terminals and lack of staff training
– More than half of the participating merchants dropped
out before the end of the pilot because of problems or
lack of customer demand
• Complexity and unfamiliarity of adding value via
home readers made this a little-used option
– Few of the customers who received the smart cards
ended up using them regularly
• Conclusions
– Multiple factors have to come together to support a
successful smart card program; the New York pilot
lacked most of these factors
Lessons Learned
• Smart Card Success Factors
– Need a critical mass of regular users to justify
the investment in infrastructure
– Smart card use must be more convenient or
more cost effective than currently available
systems
– Users and merchants need initial education in
how the system works
– Technology must be robust and reliable
Hong Kong’s Octopus Card
• Launched in 1997, same year as Manhattan
pilot
• Focused on contactless card for urban
transportation system with multiple Hong
Kong transport companies agreeing to
accept single fare card and to install readers
in all busses, trains, ferries, etc. as well as
kiosks to buy and top up cards
Results in Hong Kong
• By 2003 more than 95% of Hong Kong’s 6.7
million residents regularly use the Octopus card
• Card use has spread to encompass debit payments
at convenience stores, parking lots, supermarkets,
Starbucks, etc.
• Many apartments complexes adopting Octopus
card as a security device
• Nokia has created special Octopus-enabled mobile
phone
• Octopus is a commercial and popular success
Smart Cards in Your Country:
Group Discussion
• Discuss all the factors you can think of that
influenced the results of the New York smart card
pilot in NY in 1997 and the launch of the Octopus
smart card in Hong Kong that same year
– What were the most important contributors to success
and failure in each case?
• Consider the situation in each of your assigned
countries relevant to these success factors
• Discuss whether each country would be a
promising place to launch a commercial (nongovernment) smart card program today (give
reasons why or why not)