ISA Confidential 2009 1

• The ISA (Indian Semiconductor Association) has proposed a study to understand the smart card industry scenario in India from a semiconductor industry perspective
• The key objectives of the study include
• Understanding the overall dynamics of the smart card industry
• Current status of the Indian smart card industry
• Key usage trends and application areas of smart cards
• Global smart card industry practices
• Smart card industry practices in India
• Drivers for growth, new segments, emerging application areas, changes in technology
• Impact of smart cards on the semiconductor industry
• Around 25+ expert interviews across key stakeholders, including chip suppliers, card manufacturers, RFID suppliers, system integrators, issuing authority, planning commission, smart card association
• Desk research focusing on global and Indian market trends, existing and emerging applications, technology focus, new initiatives, e-governance projects
• Analysis based on primary interviews and desk research
ISA Confidential 2009 An ISA – FEEDBACK Document 2

Smart cards are plastic cards embedded with a microprocessor or memory chip
Contact based smart cards
Contactless based smart cards
Identification and process based application
RFID Tags
Identification based application
• In the Indian context,
• Contact based smart cards and RFID tags currently have moderate penetration, while contactless cards are yet to see a significant application base
• However in select cases, the smarts cards are built only with memory devices and the reader re-programs the card when connected
ISA Confidential 2009 An ISA – FEEDBACK Document 3

• A smart card is a combination of electronic modules embedded in a plastic card to perform simple access applications to more complex applications, like monetary computation and identity status. The core function of a smart card is to store and process data based on the application it is programmed for
• The Indian smart card industry is characterized by popular applications like SIM cards, access cards, vehicle registration, tolling, ticketing, loyalty cards, pay TV cards, financial and health cards
• These cards are contact based or contactless, which can be either upgraded or can function as use and throw cards
• RFID, a relatively new technology, is gaining popularity in some areas
• RFID tags are used for product tracking and identification application. Some of the popular applications include vehicle tracking, retail goods tracking, LGP cylinder tracking, library management, auto component tracking
ISA Confidential 2009 An ISA – FEEDBACK Document 4

Success rate of smart card implementation
– Global vs India scenario
Segment An India overview
Telecom
Transport
India is one of the fast growing economies for high tele-density. Now CDMA phones also use SIM cards.
As of end-August 2009, the subscriber base stood at
495 mn. Growth rate of subscriber base is at 15%
Only select public transport in metros have implemented smart cards. Eg. Go Mumbai cards for rail and bus transport
Entertainment Availability of spectrum license for satellite television and conditional access has evolved the pay TV market in India. By the end of 2008, the subscriber base stood at 9 mn. Growth rate of subscriber base is at 30%
BFSI
Health care
Select banks have introduced Chip and PIN cards,
(EMV) which promise high security
Largely a Government initiative to provide medical services to families below the poverty line
Retail Tagging of retail goods
Government
Education
Hotel
Driving license, MNIC cards, e-passports are amongst select initiatives taken by Government
Select institutions have started issuing access cards to students
Predominantly access cards
India Global best scenario Others
ISA Confidential 2009 An ISA – FEEDBACK Document 5

Segment
Telecom
Transport
Access
Control
Access control
& Attendance
NFC – Near Feed
Communication
Vehicle tracking & parking solutions
Ticketing and toll
Entertainment
SIM cards
Pay TV cards
Banking Access control &
Attendance
Asset tracking Credit cards
Health &
Pharma
Access
Control
Asset
Tracking
Retail Raw material & goods tracking
Government
MNIC cards Electronic passports
Identity cards
Toll receipts
Driving license
Vehicle Registration
Education
Library management
Attendance
Hotel
Access control,
Loyalty cards
Others Defense plane tracking
Personnel &
Ammunitions tracking,
LGP cylinder, laptop tracking
Usage
Discontinued
Under evaluation
Nascent
• Majority of the pilot projects have been tested for RFID tagging
Pilot
Already prevalent
Source: ISA – Feedback Study, 2009
• Ticketing, Toll collection and e–passports are the only applications tested for contactless smart cards
ISA Confidential 2009 An ISA – FEEDBACK Document 6

Segment
Telecom
Transport
Entertainmen t
Banking and
Finance
Healthcare
Applications in India
SIM cards
Registration License Tolling and ticketing
PAY TV cards
Credit card
Patient card
Debit card
Insurance
Vehicle tracking
Retail Cash transaction
Loyalty cards SKU tracking
Global applications
SIM cards
Registratio n
PAY TV cards
Credit card
License cards
Debit card
Tolling Eticketing
Vehicle tracking
Patient card
Cash transaction
Insurance
Loyalty cards
Discoun t cards
SKU tracking
Government
Education
Hotel
Others
License
Campus cards
Hotel cards
LPG tracking
Predominantly contact based
National ID Security cards
Library cards Library manageme nt
Inventory management
Animal tagging
Predominantly contactless RFID tagging
License
Campus cards
National ID
Library cards
Securit y Cards
Library manage ment
Discoun t cards
Passport
Key
Cards
Employee access
Hotel cards Frequency cards
Animal tagging
Inventory managemen t
Source: ISA – Feedback Study, 2009
Segment arrangement is based on popularity of usage
ISA Confidential 2009 An ISA – FEEDBACK Document 7

Processing type
System
(excludes
SIM cards)
Type
Application
8 bit card
Contact based
Memory card
Access control
 Majority 8 bit, but 16 bit finding acceptance
 Around 80% contact based, 20% contactless
 Select cards are memory based, while others are microcontroller based
 Access control, identification, driving, tolling, license
 16 bit & 32 bit to find maximum applications
 Majority of cards being contactless
 Only microcontroller based cards
 Integrated application cards, likely to be the key
Historic Current Future
Source: ISA – Feedback Study, 2009
• Shift from the simple application of identification, to more complex applications, like data processing from smart cards
• Technology orientation and scope to integrate futuristic applications, have led to the usage of 16 bit processors
• Need for an all in one card - national acceptance for multiple applications
ISA Confidential 2009 An ISA – FEEDBACK Document 8

Projects
RSBY
Description
Rashtriya Swastya Bima Yojana –
Health insurance service for families below poverty line
Number of people enrolled with the scheme
• 6.2 mn families enrolled till date and have been issued a smart card
Possibility of a smart card conversion and activeness of the project
• Highly active project for issuance of smart cards
• Target of 15 mn families in FY’ 10
NREGA National Rural Employment
Guarantee Act – Employment to the rural poor for a minimum 100 days in a year
• Employment provided to 100 mn households till date
• Highly active project for issuance of biometric based smart cards
• Target of 10 – 15 mn in
FY’ 10
• Unlikely to convert into smart cards
Voter ID Photo identification card issued to people to authenticate identity for voting
Ration card Identity document for public distribution system classified using the monthly household income of a family
PAN card Permanent Account Number for
Income tax
• 586 mn voter ID cards in India
• 222 mn families with ration cards in
India
• 84 mn PAN cards issued
•
•
Kerala government plans to issue smart card based ration cards
Unlikely to convert into smart cards
ISA Confidential 2009 An ISA – FEEDBACK Document 9

Chip suppliers
• Third party evaluators to verify the sanity of the system
Evaluators
Smart card manufacturers
• Manufacturers of smart cards
• Integrate SOC with the plastic cards
•
• Policy makers
• Regulatory authority
– set out guidelines for all needs of card users from design, integration to supply
Key entity to roll out national level projects
Government agencies
System
Integrators
• Design the system based on the key objectives of usage
• Integrate technology with infrastructure for optimum usage and maximized operations
•
• Technology standardization
NIC, CRIS
Standardization
Software/
Application developers
• End users have limited influence in driving the need for smart cards
• Majority of the smart cards and components are imported; Chip sets, SIM cards, readers, etc.
ISA Confidential 2009 An ISA – FEEDBACK Document 10

Chip suppliers
 Hitachi
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Infineon
MosChip
NXP
ST Micro
Card suppliers
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Bartronics
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ERG
Gemalto
IRIS
Kedia
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M -Tech
Orga
Siepmanns
VCT
System integrators

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AFTEK
CMS
EFFKON
Explore Infotech iSmart International
M -Tech
Score Infotech
SISL

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Active consortiums

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CEPS
NIC (National Informatics
Centre)
SCAFI (Smart Card Forum of
India)
SMARS (Smart Rupee System)
Zero Mass
Promote smart card based transactions in payment and identification areas
Refer standards and specifications
 Smart Chip
Reader suppliers

CMS
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
Data Net Systems
Ltd.
Gemalto
M -Tech

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Wipro
Xident
User segments:
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Government Sector
Telecom
Non – Telecom
• Industry evolution started with chip suppliers followed by consortiums, system integrators, card and reader suppliers
Note: This is only an indicative list, established through market interaction. The listing is done on alphabetical order
ISA Confidential 2009 An ISA – FEEDBACK Document 11

• Need to ensure conformance to standards and guidelines
• Policy framework should warrant that all the applications and software is developed/ tested by the department of IT (NIC), specially for government projects
• Promote collaborative working across departments various systems
• Build a wider network of semiconductor companies for authorising and certifying smart cards for the varied applications
• Ensure faster implementation of projects
• Build capabilities for implementation of large scale projects – addressing mass market volumes for smart card application
• Synchronizing cards usage across multiple applications – integrating geographic usage to common user pool
ISA Confidential 2009 An ISA – FEEDBACK Document 12

Overall size of the smart card industry
2008 - 09
Market estimates for smart cards and RFID tags
Services
11%
Infrastructure
+ software
25%
Smart cards
64%
Value: INR 6,500 mn (USD 130 mn) Value: USD 84 mn Volume: 158 mn
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
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Conversion norm: USD 1 = INR 50 Source: ISA – Feedback Study, 2009
Of the 140 mn contact based cards, SIM cards account for125 mn
Chip sets account for 40 – 50% of the total project cost, while the balance is made up by card, OS and integration costs
Smart cards chips are primarily imported from China, Taiwan, United States and European
Union
Penetration of smart cards has been driven by the acceptance of Governing bodies or nodal agencies, despite higher cost of cards
ISA Confidential 2009 An ISA – FEEDBACK Document 13

Smart cards –18 mn cards (excludes SIM cards) RFID Tags – 15 mn tags
Source: ISA – Feedback Study, 2009
• Contactless is a superior technology, but is yet to find strong foothold, due to cost economics; is likely to gain prominence in the coming years
• New technology phones like Nokia 6212C with NFC driver, capable of acting as smart cards and also as reader terminal (NFC project implemented in Bangalore on a pilot basis)
ISA Confidential 2009 An ISA – FEEDBACK Document 14

INR per card
• Smart cards are typically of the following sizes
• 2.5 cm x 1.5 cm (SIM cards)
• 8.5 cm x 5.5 cm (Others)
Source: ISA – Feedback Study, 2009
• Contactless cards gaining popularity over contact based cards – The ratio likely to change to 50% share for contactless, from the present 20% for non-SIM card applications
• Life of contactless is higher (8 – 10 years) than contact based (3 – 4 years)
• RFID tags with a reading range of 5 – 10 cm are the most common; strong challenge against barcode labels valued at 20 paise per label
• Minimal changes in infrastructure for contact based solution and contactless solution; variation in cost of solution is primarily driven by cost of card
ISA Confidential 2009 An ISA – FEEDBACK Document 15

• Build allied infrastructure (like reader terminals) and improve its penetration across cities
E
S
L
E
N
G
A
L
C
H
K
E
Y
• Work towards educating customers on the extent of application of smart cards across user segments and governing bodies
• Streamline procedures in Government funded projects (approvals, standardization)
• Database generation, integration into one system and authentication - major challenge for UID project
• Integration of existing non smart card users to smart card user pool for existing applications (e.g: e-passports: existing book form passport holders to convert to e-passport)
• Increasing cost pressures from substitute products like magnetic cards (for smart cards) and bar code readers (for RFID tags)
ISA Confidential 2009 An ISA – FEEDBACK Document 16

• Government schemes like NRGEA,
RSBY, ESIC and e–Governance projects
• Government participation and strong policy framework
• Growth in telecom subscriber base
– key driver for contact based smart cards (SIM cards)
• Government –
• Employee's Provident Fund to issue smart cards for its 26 mn subscribers
• Smart Cards for Government employees & laborers in Goa
• The Kerala government to issue smart card based ration cards
• 6 mn cards under RSBY scheme; 10 mn ESIC cards
• Banking and Financial Sector –
• ICICI Bank: Smart cards for facilitating transactions, payments to utilities and services etc.
• Reserve Bank of India (RBI): SMARS (Smart Rupee) project
Mumbai Campus Scheme for 150 merchants
• Increasing awareness on applications of smart cards and reduced prices, likely to see greater acceptance of smart cards in private organizations
• Technology integration and multiple applications of smart cards, expected to drive growth
• Transport –
• Driving license : Gujarat State & Delhi Traffic Police.
• Ticketing: Metro railway, Kolkata & (BEST) Mumbai
• Loyalty card –
• Promoted by BPCL, HPCL, Snowhite, Homesaaz
• Library Management –
• Used for stock taking, to determine the location of the books at DFRL Mysore, Kerala State Central Library
ISA Confidential 2009 An ISA – FEEDBACK Document 17

UID can be used for applications which demand background checks
• Need for UID number is primarily governed by security requirements of the Indian economy and access to opportunity for the poor, which is identity governed
Identity
PE, ESI,
Pension
Bank account
• Around USD 20 mn planned under UID project for FY’
10. The authorities will work in close coordination with Home Ministry’s National Population register through the Registrar General of the census, in accordance with the Indian Citizen Act
• National Rural Employment Guarantee Act, Sarva
Shiksha Abhiyan, National Rural Health Mission,
Bharat Nirma are government schemes covered under UID
Police complaints
Property transaction
Unique
Identificati on number to every resident of
India
Driving license
Telemedicine
• Karnataka has been chosen as the pilot state to implement the project; potential of around 50 mn
Employment schemes
Passport
Voting
Institutional admissions
Tax
• Phase 1, which is database collection, is estimated to complete in around 2 years
• Authenticity and safeguard of information through government nominated data collection centers
• First set of UID numbers expected to be rolled out by
2010-11
• Biometric information like fingerprint and photograph to be used for identification and authentication of a particular UID number
ISA Confidential 2009 An ISA – FEEDBACK Document 18

• Scope to feed the UID number onto a smart card
• Ease of carrying the card and use in applications which require UID number
• Individuals do not have to remember 16 digit UID number
• Large number of issuing authorities like Banks, Insurance companies, Mobile phone operators, Schools, Government bodies, Corporate firms can incorporate the UID number in the smart cards for their respective users
• Easier and faster background checks
• Since UID will be accepted nationwide, the migrating population will be hooked onto the existing services
• Eliminates the possibility of re-allotment based on location
• Scope to converge multiple applications onto the UID based smart cards to make the system future proof
• Passports
• Vehicle registration and Driving license
• Ration cards
• Banking and insurance, etc
• Likelihood of an all in one card in the years to come
ISA Confidential 2009 An ISA – FEEDBACK Document 19

e-passport
Health
• Increase in immigrant population mix of students and working professionals seeking overseas opportunity; around
8 - 10 mn passports issued every year
• Initiative to provide free health check up and treatment for the rural population has given rise to the need for health cards; an estimated 800,000 is the rural population of India
• ESIC – provides health services card to 40 mn people at government subsidized rates Pointers defining potential for smart cards
Transport and
Ticketing
• Government focus on metro rail projects across major cities like Delhi, Mumbai, Bangalore, Chennai, Hyderabad; scope for integration by using common card across public transport
Banking
RFID Tags
• Huge potential, replacing existing magnetic cards with smart cards; smart cards offer scope for multiple applications using a single card
• Growth in the retail sector and need for tracking the goods helps in efficient stocking
• Growth in segments like transport (vehicle tracking), logistics (container tracking); fuelling demand for RFID Tags
ISA Confidential 2009 An ISA – FEEDBACK Document 20

Segments
Source: ISA – Feedback Study, 2009
• Other applications like hotel cards, club cards, access cards are likely promising ones, along with the above listed key application segments
• The Indian market exhibits a huge limiting potential owing to the large population base
• Need for technology future proofing likely to be driven by the usage of 32 bit processors
Action points which would help achieve realistic volumes
• Regulations
– Need for a strong regulation which would govern and monitor smart card implementation on a pan
India basis
– A consortium could ideally drive smart card implementation
• Technology convergence
– Learnings from the global market and showcase integration with existing technology
• Inflection points for smart cards
– Faster implementation of pilot projects and converge to established applications
ISA Confidential 2009 An ISA – FEEDBACK Document 21

Learning from the global smart card market
• Suitability of new applications, which can be directly implemented in India
• Technology barriers overcome and converted into proven success, which could be replicated in India
Capabilities of Indian companies to address smart card demand
• Strong base of system integrators with exposure to complex system applications
• Import of select components like chip sets, high integrated application smart cards, readers, etc.
Emerging trends – application and segments
• NFC devices likely to be the next level technology products; doubly used as a smart card and reader terminal
• 16/32–bit cards expected to become more popular, governing the applications built on smart cards
• While India offers a huge potential for smart cards, the biggest challenge is timely implementation and existence of strong regulatory policies
• Different Government departments need to work as a consolidated unit for successful implementation of smart card based projects
ISA Confidential 2009 An ISA – FEEDBACK Document 22

Key challenges associated with smart card implementation
• Targeting mass population for smart card implementation likely to be a challenge as rural population is widespread
• Integration of services like authenticity of cards and processing specific applications from a remote location, likely to be a challenge
• Reaching out to the rural population and setting up a strongly networked infrastructure for smart cards
Way forward for the Indian semiconductor industry
• Import of semiconductor chips to address the potential; foundry set-up requires huge investments and rapid change in technology
• SC supplier needs to be a “solution provider” to reap higher benefits in the smart cards and identification business
• Associate strategically with key IT vendors who “ exercise” significant control over potential customers
• Proactive investments in pilots projects; unconditional supply of chipsets and RFID tags for developmental and pilot projects
• Leverage the experience of global markets to develop standardized solutions
ISA Confidential 2009 An ISA – FEEDBACK Document 23

• Government programs – Enlist various government programs which could potentially make use of smart cards. Showcase the benefits to individuals and Government by usage of smart cards for these programs
• Implementation and impact on economy - How will the use of smart cards impact the economy as a whole – learnings from the global market
• Government policy and regulations – Flexibility in operations, interoperability, use of local foundry
• UID to create opportunity for smart cards – Convince Government to include UID number onto smart cards, along with biometric and photo image of individuals
• Benefits to the ecosystem – Enlist the benefits for the stakeholders/ companies involved in the smart cards ecosystem from a semiconductor perspective
• Boost local manufacturing – Activities that could be locally managed (design, manufacturing of cards, readers, etc.) relate to employment generation with local interest
ISA Confidential 2009 An ISA – FEEDBACK Document 24

Terms
BEST
BPCL bn
DFRL
EMV
ESIC
HPCL
INR
LPG mn
NFC
Definition
Bombay Electric Supply and Transport Company
Bharat Petroleum Corporation Limited
Billion
Defense Food Research Laboratory
Europay Master Visa
Employee State Insurance Corporation
Hindustan Petroleum Corporation Limited
Indian National Rupee
Liquefied Petroleum Gas
Million
Near Feed Communication
ISA Confidential 2009 An ISA – FEEDBACK Document 25

Terms
NIC
NREGA
OS
RFID
RSBY
SIM
SMARS
UID
USD
Definition
National Informatics Centre
National Rural Employment Guarantee Act
Operating System
Radio Frequency Identification
Rashtriya Swasthya Bima Yojna
System Interface Module
Smart Rupees
Unique Identification
United States Dollar
ISA Confidential 2009 An ISA – FEEDBACK Document 26

ISA Confidential 2009 An ISA – FEEDBACK Document 27