GBM Horizons Issue 22 Summer 2005

GBM recently partnered with Visa, MasterCard and GemPlus (makers of ‘smart cards’) in a virtual roundtable as part of the launch of the smartcard issue of e-Strategies Middle East, a magazine dedicated to tracking technology solutions specifically for the region where e-Government and IT in general are developing most rapidly, which coincided with its debut launch in the Middle East. The magazine is published by British Publishers Ltd.
      Speakers from all participating companies talked about the role smart cards have and continue to play in the region.
      Jim Massey, Director of Professional Services at GBM and the driving force behind GBM’s smart card initiative was present at the round table event and gave a broad overview of the offerings GBM has in the area. With multiple ongoing projects throughout the GCC, GBM was in a good position to speak about the regions plans.
      “We are pleased to be playing a major role in providing the means necessary to move the numerous e-Government, Banking and EMV initiatives forward in the region. ‘e- Strategies Middle East’ will help keep the public up-to-date on the various happenings in the industry, and we are happy to be associated with it. With a broad range of ongoing projects dealing with the subject of smart cards and e-government initiatives, we expect to have much to say in the coming months,” he said.
      The event took place on 13 June, 2005 at the British Embassy in Dubai, UAE.
      Excerpts from Jim Massey’s participation in the roundtable:

Q. Egypt has just, in the last week, passed a law which will enable the use of electronic signatures in the country. Many other nations in the Middle East already have such legislation in place. Will the applications that such legislation will enable act as a market driver?

A. Definitely, legislation and technology are enabling components but they seldom act as the driver, it is the practical economic needs of government, business and the public which will drive the market. In countries where there is a mature economy and very stable market institutions the e-commerce infrastructure tends to be strong and such tools find broad acceptance. In that case all the elements of ecommerce infrastructure, like PKI, unified standards, and certificate issuing will develop much faster.

Q. The move to multi-application cards and EMV is a major regional trend. How will it affect market evolution?

A. As the number of applications that can benefit from smartcard technology increases, and they gain acceptance, then the number of cards in our wallets will increase. Currently the average urban dweller carries more than 5, whether they are for payment, loyalty, transport, government or access, the number will soon become unmanageable so the multi application card will be the key. Then the next issue becomes standardisation, EMV, being driven by international payment organizations provides that framework and the standards needed for multi application cards. However the real benefit will realised by m-commerce applications because of the much higher levels of security and this will see an exponential growth of smart card based applications.

Q. Is the cost of the smart card or the cost of a reader still an obstacle to market development?

A. I think that it is more appropriate to talk about the overall EMV infrastructure cost. Both EMV card and terminal prices are going down according to the Moore’s Law: the power of microchip doubles every 18 months while the price halves. However, for financial institutions the cost of implementing EMV is much higher as it includes terminal network upgrade, card production upgrade, communication upgrade, personnel and consumer training, etc. The EMV migration project itself could be split in about 20 micro-projects on upgrading of various parts of card processing infrastructure. Companies that look at this as a pure technology driven process will miss out on the market opportunities for more efficient and secure transactions for their existing business and the new business opportunities that the smartcard will bring. GBM is one of the only companies in the region that has the understanding of the three elements of change; people, process and technology, and the practical experience with its business partners to deliver the whole EMV solution and not just the technology.

Q. Does the need to develop an adequate business model for 24/7 services still affect the growth of the smart card market in the region? Does such a model not require significant back office reorganisation for many companies and public administrations?

A. It’s a very interesting question. EMV technology, especially multiapplication EMV cards, requires significant back-office and overall business environment restructuring. The financial institutions and other public and government organisations which will be involved in the EMV application issuing and processing will need to develop or significantly rebuild their operational environment. On the other hand, EMV as a technology offers an off-line processing functionality – which I believe can reduce the on-line load on the processing solutions and thus lighten the problem of 24/7 operations for banks.

Q. How will the overall market evolve over the next two years? What are the significant trends we should expect?

A. Commercially we will see broader partnerships between the banks and m-commerce companies and generally closer inter-industry cooperation as the battle for share of the chip space on popular cards develops. Technically there will be much higher specialisation in the technology firms. Both trends will support much stronger demand for effective system integrators such as GBM whose core competency will be the overall solution design, business modeling and project management.

Q. What other standardisation and interoperability issues remain to be resolved? What useful moves are being made for international interoperability?

A. Lots of efforts have been undertaken worldwide to reach international interoperability, this is especially true for retail banking. In 1996 the first EMV specifications were introduced, the major processing features were unified and common ground was found. Historically Visa and MasterCard designed chip card processing documents in the framework of EMV standards, but a lot of noticeable differences appeared. Recently, EMVco announced the unified approach for payment card processing – Common Core Definition (CCD) and Common Payment Application (CPA). The same trends can be seen in loyalty applications as the loyalty application vendors try to learn from mutual experience and expertise to unify processing approaches and specifications. For the payment card platform interoperability, open standards are key and the Java card platform should be mentioned. Most of the known chip card vendors organized the Global Platform consortium to develop unified card platform specifications, based on a Java open platform approach. This step gave sufficient benefits to all market participants: EMV founders received identical relations with vendors, vendors got universal standards to be complied with and for customers it became easier to run the vendor selection process, analysing only competitive and business issues, but not technical ones.

Q. What particular aspects of fraud prevention affect the market?

A. The smartcard has many advantages over the traditional with magnetic stripe card to help combat fraud such as:
- Online and Offline card authentication. According to the EMV specification, using online authentication, processing devices can identify whether the card was issued by an authorised issuer or not. Issuer processing host and card could verify if the message for recipient is genuine or not. These features are not applicable for magnetic stripe cards.

- Trustworthy cardholder offline authentication. Cardholder verification procedures using magnetic stripe techniques are available for online transactions only. One of the major EMV benefits is that cardholder authentication can be performed for offline transactions using the offline PIN verification algorithm. The PIN is obtained from a pinpad and is transmitted into the smart card and securely verified.

These technological advantages increase security and significantly reduce the frauds done with lost and stolen cards, never received cards, counterfeited cards and MO/TO transactions. This reduces the public’s fear of “e” and “m” commerce which will increase volumes and values of such transactions and give the financial institutions more protection.
However the criminal fraternity is one of the most industrious and innovative when it comes to circumventing
security and the personal element is always the weakest link.