Research: Standards Would Help Contactless Smart Cards Industry

PALO ALTO, Calif. - Merely convenience and speed of transaction are not likely to suffice to expand the scope and adoption of contactless smart cards. Most applications for these smart cards require compatible standards, if they are to obtain international acceptance as well as promote payment and government ID markets.

New analysis from Frost & Sullivan, World Contactless Smart Cards Markets, reveals that the market shipped 121.7 million units in 2004. This expects to reach 847.3 million in 2009.

A profusion of standards in the contactless smart cards market, significantly restrains market growth. Even the ISO 14443, the most prominent standard, has Type A and Type B varieties and hence, there is very little cohesion in operation.

"International standards have to be worked out to enable terminals to accept payment through contactless mode, irrespective of its issuers," say Frost & Sullivan analysts Vihar Bhagwat and Karthik Nagarajan. "There has to be an understanding in this regard between major industry participants since higher shipments for application segments such as e-passports will be possible only if an international standard is agreed up on."

After the standardization issue is sorted out, contactless smart cards market participants will have to focus on ridding users of their apprehensions about integrating new applications with the existing technology. The installed base of contact and other technologies is not likely to be easy to dislodge.

The hindrance to widespread adoption attributes to users' tendency to persist with current systems, even if they are faulty or inadequate, due to cost considerations or misgivings about new technologies.

"This reluctance is a concern in Europe for contactless payment," notes Bhagwat. "The payment application has some operational, performance, and attitudinal issues to be managed prior to its acceptance. More over with the January, 2005 EMV deadline for Europe, much of the infrastructure has been recently upgraded or is in the process of being done so, further reducing the contactless payment potential there."

In spite of hurdles, existing transit systems of certain European countries are being readied for upgrades. Many projects plan to substitute the existing system of smart cards and magnetic stripes in Taiwan, France, and other parts of the world with contactless smart cards. Since these are mass segment projects, the shipment requirements are likely to be optimistic for the industry.

"Market participants would also have learnt from experience of promoting smart cards in various end-user markets," observes Nagarajan. "For instance, the Japanese citizen ID card program has not yielded the desired results due to concerns of security and privacy, which are vital for the success of such a huge deployment."

Since they conduct a lot of business with governments, contactless smart cards companies will have to prepare themselves for regulations framed by governments around the world. This situation is especially pertinent to market participants in Asia Pacific, where cost considerations and politics affects even established frameworks.

Regions that are most likely to benefit from political decisions are western and central Europe, where the proposed International Civil Aviation Organization (ICAO) e-passport guidelines hold a lot of potential for the contactless smart cards markets.

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