The Yawning Gap Between Smart Cards And Personal Computers

Quick Read
PC Makers offer smart card readers as an option on many laptop and desktop machines, and in some cases it's standard equipment on PCs geared for large companies and government agencies. Shipments of standalone and built-in smart card readers are growing, but it still represents a small portion of the PC market. Some hold out hope that a new wireless technology will bridge the gap between chip cards and home PCs.

When the U.S. Department of the Interior buys updated computers, their keyboards come embedded with smart card readers. It's a move that can increase efficiency-no additional parts to plug in, no wires to worry about. And it saves money, since the built-in readers come at no extra charge, whereas standalone readers can cost between $40 and $60 each, says Bob Donelson, a senior property specialist who helps oversee computer purchasing for the agency, which maintains national parks.

"There's no additional cost when you buy them as part of a tech refresh," he says, adding that he's experienced few problems with the readers besides normal wear-and-tear.

A big customer like the Department of Interior can get built-in smart card readers free with its PCs because the cost to PC manufacturers of embedded readers has dropped to less than $10, according to some observers. That is low enough that some PC manufacturers will throw in the reader for orders of thousands of units.

This drop in reader cost bodes well for built-in smart card readers, a PC add-on that, according to analysts, has yet to meet expectations. Though the smart card industry-and some industry heavyweights such as Microsoft-have been urging PC manufacturers for years to build in smart card readers to desktops and laptops, the number of computers with embedded readers remains relatively low, according to Tim Gower, an analyst with UK-based consulting firm Datamonitor. Neither he nor other analysts could estimate the number of computers in use with smart card readers, however.

More Cards, More Readers
As more projects roll out that require the use of smart cards with computers there appears to be some growth in the demand for equipping computers with chip card readers. Certainly, smart card project managers are much in favor of more PCs coming with built-in readers.

"If all new PCs are equipped with embedded card readers, it will give a real kick to smart card usage," says JĂĽri Voore, project manager for Estonia-based AS Sertifitseerimiskeskus, a company involved in that country's national ID program.

From today's perspective, that is wishful thinking. But the distribution of smart cards is growing, as more governments, health care systems and corporations, driven largely by security concerns, move toward chip-based ID cards. The demand for built-in readers could grow along with it.

Enterprises bought about 67 million such cards in 2003, according to Datamonitor, with the number expected to increase to 141 million in 2006. Also, some financial institutions worried about fraud are encouraging online banking through smart cards (Card Technology, March 2005).

Big Growth Ahead?
The market for smart card readers, though small, is swelling, with an estimated 35.5 million units expected to ship in 2008, up from 9.4 million in 2003, according to U.S.-based research firm Frost & Sullivan.

France-based Gemplus remains the top shipper of readers, according to Frost & Sullivan. U.S.-based SCM Microsystems and Germany-based Omnikey are other major suppliers. Vendors say most readers being shipped are standalone units that connect to the USB ports of personal computers, with a smaller number being embedded in PCs.

Numbers for embedded readers have not been broken out by firms such as Datamonitor. For his part, Gower says he plans to split embedded readers from plug-ins when he does his next report on the market.

PC manufacturers are reluctant to comment on the features they offer because of the fierce competition they face. But major companies do offer embedded readers. Taiwan-based Acer Group, for instance, has built readers into TravelMate laptops. Germany-based Fujistu-Siemens has readers as both standard and optional equipment on laptops and desktops. U.S.-based Hewlett-Packard has integrated readers on its nc4200 notebook PC.

Security Concerns
Dell has put readers onto OptiPlex desktops, Precision workstations and Latitude notebooks as a standard feature.

Dell, which began offering readers as a standard feature in Latitude laptops in the spring 2003, is optimistic about the market, especially as the U.S government continues to develop common, large-scale smart card systems. A major factor in that growth is the directive signed by President George Bush in August that is expected to result in some 7 million U.S. government employees and contractors carrying a standard smart card ID within a few years.

"There's definitely potential," says Tim Gee, senior product planning manager for Dell's Latitude notebooks. "We do see security becoming" a greater issue. For now, that demand for security is coming from government and corporate clients, Gee says.

He says Dell computers with embedded readers have middleware and Trusted Platform Modules, which store passwords and digital certificates, providing extra security. Smart cards also store such digital credentials, but a card is portable, while a TPM is tied to a PC's motherboard and is designed to secure that machine.

Microsoft is a big backer of the tamper-resistant chips, which are attached to the motherboards of PCs, but not mainly to secure e-commerce. The chips can store cryptographic keys that help thwart hackers and software counterfeiters.

Smart card readers would seem to make particular sense for laptops, since they would allow traveling employees to log in with smart cards from the road. But one obstacle to wider use of embedded readers is the limited real-estate on laptops, especially as they have shrunk in recent years to gain mobility, say Jerome Denis, Axalto's project marketing manager for the Access product line.

Different applications, including cards used to connect the computer to networks, are competing for slots. Users can plug nonembedded readers into the slots or into USB ports. Nonembedded readers that fit into USB ports cost about $10 to $15 each when bought in bulk. Readers that slide into the PCMCIA slot, typically used for sound, memory and other cards, can cost twice as much.

Denis is optimistic that more enterprises will buy embedded readers as part of periodic hardware upgrades. So far, though, the market hasn't caught fire. "Despite the integration of readers into hardware, we've seen our revenue pretty much flat for readers," he says, declining to offer figures.

Beyond enterprise users, few observers report much consumer demand for embedded readers on PCs. That could change if banks start requiring consumers to use smart cards for Web site authentication. But some European banks that are rolling out smart cards are passing on smart card readers that plug into PCs and instead distributing small handheld readers that can generate a one-time password when the consumer inserts a chip card.

Other Devices
Instead, other projects could lead the way toward individual consumers using smart card readers embedded on devices other than personal computers. UK-based card issuer Barclaycard and British Sky Broadcasting have launched "SkyCard," a chip-based credit card that can be used on set-top digital television boxes that have a smart card slot. Users insert their cards and type in a personal identification number to pay for premium TV shows and to authenticate themselves for online banking.

Other observers say additional devices could reduce the need for readers built into PCs. Frederic Engel, a former marketing manager with U.S.-based smart card vendor ActivCard, points to USB tokens as an alternative.

Tokens are about as big as a house key and contain a chip similar to that on a smart card. The tokens plug directly into a computer's USB port, making installation relatively easy. Though the tokens don't require new hardware, they still need software drivers, like standalone smart card readers.

Engel says national ID projects, along with the push by banks-especially in the United Kingdom-for two-factor authentication online, will drive the need for readers. But he says they won't necessarily come embedded in PCs.

"I don't believe you will have on personal computers a reader for your national ID card," he says. Engel says it is more likely that cardholders will use their cards at kiosks in government buildings or insert the cards into terminals provided by government officials.

He predicts a push toward contactless readers to work with cards that need only be tapped on a reader, rather than inserted like a conventional contact smart card.

That will particularly be the case if more smart card functions, such as retail and transit-fare payments, are integrated into mobile phones carrying contactless smart card chips.

This is a big focus of backers of a technology called Near Field Communication, which uses a variant of the radio frequency system employed in contactless smart cards to allow PCs, mobile phones, television set-top boxes, payment terminals and other devices to communicate without wires. Embedding PCs with NFC chips is an important step for NFC, says Sour Chhor, general manager, identification infrastructure and services, for Netherlands-based Philips Semiconductors, one of NFC's main backers.

That would allow, for instance, a consumer to transfer a photo of her dog from her PC to her mobile phone just by holding the handset near the computer. However, among major PC manufacturers, only Sony and Samsung Electronics have joined the NFC Forum, which promotes the technology.

"There's a very big potential market" for NFC with PCs, Chhor says, especially as consumers become more used to wireless applications.

For now, though, it appears the main demand for embedded readers will come from big organizations buying new computers. Consumer demand for smart card readers, whether built-in to their PCs or plugged into USB ports, remains uncertain at best.