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Presentations
CANADIAN PAYMENTS ASSOCIATION a presentation to the
EMERGING PAYMENTS TECHNOLOGY GROUP
This was the first of two presentations to
this workgroup. This presentation deals with
the challenges of rolling out smart bank
cards.
June 27, 2000
By Catherine Johnston,
President & CEO,
The Advanced Card
Technology Association
of Canada
To understand where
we are going I would
like you to think
back to 1980. Smart
cards
(also called chip
cards), which are
actually
PCs on pieces of
plastic, were 10
years old.
PCs were new but
didn't take off for
another
5 years, in fact
it wasn't PCs, but
PC applications
that became popular.
Without spreadsheets,
word-processing and
databases; businesses
would not have seen
value in these desktop
computers.
Within the next 5
years (1985 to 1990),
retail
stores emerged with
off the shelf applications
for both business
and personal use.
Consumers
started to buy PCs
for home use; again
both
business and personal.
By then smart cards
were smarter and
20 years
old. They were already
widely in use solving
business problems
in Europe, Pacific
Rim
countries and many
others.
Since then, the PC
has continued to
evolve
to support more sophisticated
applications,
as well as more sophisticated
consumers.
Well, it's another
10 years later and
a surprising
number of Canadians
are using smart cards.
The cards are definitely
smarter, but not
as sophisticated
as they will be soon.
Most
smart cards in use
in Canada are single
application,
although some are
now multi-function.
ACT Canada is often
asked when the cards
will "take -
off". It's like
PC's,
they are only a platform,
it is the applications
they support that
will gain popularity.
In Ontario and Quebec,
users don't think
of Bell's Quick Change
cards as smart cards.
They like them because
they're convenient.
Consumers are starting
to follow the same
path as they did
with PC's. With each
new
service, convenience
or product made available
to them on a smart
card, they will become
more aware of the
technology's capabilities.
They will start to
think about the other
things they would
like to do with the
card.
For example, why
couldn't I reload
value
on my Quick Change
card and store my
phone
book on it?
It won't take long
until consumers become
comfortable with
the platform and
view it
as a PC. They will
then want to choose
and
buy their own cards
and their own applications.
As with their PC's,
they will expect
to load
and maintain those
applications.
As of today, there
are already many
pieces
of that puzzle ready
to go. Personalization,
issuing, application
management, data
switching;
these and other new
products and services
are coming to market,
to say nothing of
a
myriad of new applications.
That isn't to say
there aren't obstacles,
but they may not
be the ones you would
normally
predict.
Much is said of the
need to build a national
infrastructure and
the debate has always
been whether it will
be a government or
financial
institution's initiative.
Long before either
reaches that goal,
consumers will be
in a
position to buy their
own piece of the
infrastructure.
PC's are already
coming equipped with
smart
card reader/writers,
in the same way that
CD-ROM's became part
of the PC bundle
years
ago. Companies such
as American Express
are
providing consumers
with a reason to
add
readers to their
existing PCs by offering
them a smart card
to be used for Internet
purchases. The Blue
Card, generating
15,000
applications per
month in the US is
about
to be launched in
England, and we believe
that Canada may be
the third country
to be
rolled out.
Wireless devices
such as cell phones,
pagers,
PDAs and others give
consumers another
opportunity,
with applications
emerging for those
devices.
Today there is technology
that can turn your
cell phone into your
personal ATM. In
Scandinavia,
you can "Dial
a Coke" from
a vending
machine, with payment
directed by your
phone.
It is important to
note that standards
must
be in place before
any major investments
are made in relationship
to infrastructures.
EMV (Europay/MasterCard/Visa)
has been chosen
for Canada. These
standards pertain
to financial
applications, but
are also being studied
by issuers of non-financial
applications.
In the wireless world
there are also rapidly
evolving standards.
Issuers are also
facing changes. New
partnerships
and distribution
channels are opening
up
due to the capabilities
of the technology.
I'll give you examples
of partnerships a
little later, but
as for channels,
Proton
World was here recently
and talked about
non-traditional issuers,
specifically transit
systems. If you think
about Toronto, GO
Transit
could issue cards
in the hundreds of
thousands
and those customers
represent accounts
with
virtually every financial
institution in
Canada. Suddenly
the transit authorities
have access not only
to your customers,
but
also to your competitor's.
They are in a
position to "rent
real estate"
on their card. It
opens interesting
possibilities.
Security has been
seen as an obstacle,
but
it really is not.
There has never been
a
stronger set of security
tools available
for portable technology
and this opens the
way for consumers
to be able to carry
cards
without concern.
Tightly linked to
security is Privacy.
The
public has a growing
concern about misuse
of their personal
information. Too
often,
companies believe
they have dealt with
privacy
when they designed
the security for
their
applications. Although
they are similar,
they are not the
same. The Information
and
Privacy Commissioner/Ontario
and ACT Canada
have designed a Privacy
Assessment Procedure
for advanced card
technology applications.
The second version,
for multi-application
cards, will be available
this summer.
Branding has long
been a heated topic.
This
is definitely an
elephant trap. Card
issuance
and smart cards have
three stages. We
are
currently in the
first, where the
issuer
owns the card and
there is a single
application
on each card. Stage
two starts when issuers
have the capability
to put more than
one
application on the
card. This requires
a
second technology
such as chip or optical.
During this stage,
the issuer still
owns
the card.
We will quickly move
through that stage.
It will end when
consumers recognize
smart
cards as portable
PCs. They will then
want
to follow that model,
buying their own
cards,
having determined
the computing power
and
operating system
required to support
the
applications they
want to run. They
will
also expect to load
those applications
and
manage their own
data. At that point
branding
is no longer an issue
of what sits on the
face of the card.
It becomes an issue
of
how you notify people
at a point of sale
that your application
is being used.
I should point out
that we don't foresee
all applications
being consumer chosen.
We
expect that there
will always be applications,
and by default, cards
that are issued by
traditional issuers.
We also believe that
there will always
be more than one
card carried
by each individual.
Consumers seek to
reduce
the number of cards
they carry, but research
shows that carrying
a single card is
not
appealing.
Consumer acceptance
of new card technologies
has been viewed with
some apprehension,
but
Canadians have demonstrated
a passionate
love affair with
plastic payment mechanisms
that offer convenience.
We need to look no
further than debit
cards to realize
the potential
for new applications
of a similar nature.
On the other hand
a five-dollar coin
looms
on the horizon, adding
one more incentive
to carry electronic
cash.
As we move toward
that electronic cash
and
other electronic
payment mechanisms,
we think
in terms of global
implementations.
Admittedly
you would want to
use a new payment
product
anywhere you go,
but we don't have
that luxury
today. Canadian cash
can only be used
elsewhere
after a conversion
procedure and our
debit
cards don't work
abroad. That has
not stopped
us from using them
in Canada with great
enthusiasm.
Global should be
the goal, but not
the gatekeeper.
I wouldn't say that
there aren't significant
challenges, but some
of the drivers are
forcing
us to move forward,
as the amount of
lead
time required to
bring about a national
roll-out
of new products is
significant. We can't
look at issues such
as fraud and measure
the problem by last
year's figures. We
must,
as other have done,
look at the growth
over
the past five years
and determine how
big
the problem will
be five years from
now.
One cannot deny that
cost is a real factor
for any national
rollout of a new
and chip
based payment product.
Terminals are required
not only at traditional
point of sale locations,
but also at unattended
point of sale (called
UPOS). These include
gas pumps, vending
machines,
photocopiers, laundry
and other machines.
ATM's also need upgrading.
Ironically it
is the cost of cards
that everyone talks
about.
I often hear that
a mag stripe card
costs
twenty-five cents,
compared to a three-dollar
chip card. When you
are issuing a million
cards that appears
to be a significant
difference.
Unfortunately, this
is an incomplete
analysis.
One must look at
the cost of issuing
the
card and the card
life span. If, for
example,
it costs $35.00 to
complete all the
steps
necessary to issue
a card to an existing
approved customer,
it won't be effected
by
the technology platform.
If the shelf life
of a chip card is
twice that of a mag
stripe
card because the
technology is more
robust,
the overall cost
of putting the card
in the
consumer's wallet
changes dramatically.
The chip card costs
$38.00, $3 for the
card
and $35 to issue
it. Over the same
time frame
the mag stripe would
cost $70.50, because
you have to issue
two cards. This is
a case
where comparing apples
to apples doesn't
work, it's the fruit
salad you have to
cost
out.
While we are still
looking at obstacles
there
is one that I consider
to be a serious threat
to the emergence
of the technology
and a
threat to the success
of your plans. That
is a lack of trained
resources to design,
build and implement
applications. Again,
look back to 1980.
We see that in this
case
the model does not
follow PCs. They
were
introduced around
the world at roughly
the
same time. With advanced
cards there are
many other countries
that have considerably
more experience with
the technology, and
in this global economy,
we may not be able
to catch up and develop
a competitive edge.
This would be a pity
as we are moving
more
aggressively than
our neighbours to
the south
and really do have
an opportunity to
build
a successful industry
if we move quickly.
To help deal with
this problem, ACT
Canada
has established a
Professional Development
Program. Our first
two courses are on
the
Business and Technical
aspects of EMV and
will be held later
this month. At the
end
of August we have
our annual conference,
CardTech/SecurTech
Canada 2000, Catch
the
Wave. I would be
pleased to provide
information
on both events after
this session.
Having talked about
obstacles, let's
look
at the drivers. Two
of the major drivers
are e-commerce and
data security. There
are
300 million Internet
users today with
an
estimated billion
by 2005.
According to a recent
Angus Reid survey,
the US is leading
in computer ownership
with
107 million users,
internet usage -
108 million,
and internet knowledge
at 60%. Canada is
second in ownership,
knowledge and users.
Canadians desire
global access to
products
and information,
but by our very nature
expect
safety. Smart cards
will be used to provide
a key part of that
safety.
The cards support
biometrics and cryptography
and as I said earlier,
have the richest
security
toolbox in existence
for consumer carried
products. MasterCard
employees carry smart
cards with biometrics
to grant them access
to their offices
worldwide. Smart
cards are
the obvious carrier
for digital certificates
as they not only
provide sufficient
security
for the task, but
also provide the
portability
needed to facilitate
e-commerce and the
new
m-commerce (mobile
commerce).
How soon will Canadians
carry smart cards,
and by default, how
soon will they start
to think about other
applications? In
other
words, how soon do
you need to be ready?
ACT Canada has monitored
this marketplace
for twelve years
and I am pleased,
even relieved,
to say that we have
finally turned the
corner.
Today Canadians use
smart cards for transit,
telecommunications,
loyalty and other
retail
applications, data
security, physical
access,
stored value and
electronic cash,
time and
attendance, parking
payment, golf, and
health
care among others.
Canadians will never
be
large volume users
of these technologies,
but we are very innovative
in our development
of both applications
and devices and have
been responsible
for many world firsts.
All add up to consumer
use and acceptance.
Several new initiatives
will change the way
we approach our own
applications.
Two months ago, Industry
Canada briefed our
members on their
new CAP program.
This Community
Access Program allows
Canadians who do
not
have their own PCs
to have access to
the
Internet through
publicly accessible
venues
such as libraries
and communities centers.
There will be 10,000
sites across Canada
by 2004 and each
will have a minimum
of five
PCs. Today, more
than 50% of Canadians
are
Internet disabled
because of limited
vision,
arthritis or hand/arm
disabilities, and
illiteracy,
cultural or language
issues.
There are software
and hardware solutions
to these issues,
but in a public setting
how do you activate
different options
for
each user? CAP will
use smart cards to
store
each user's profile.
When inserted in
the
smart card reader/writer
attached to the
PC, the required
software will be
activated.
Using smart cards
for this purpose
is commendable,
but what is remarkable
is the choice of
cards
on which the application
will be piloted
this summer.
These will not be
new government cards,
they
won't even be on
a government card,
but will
instead sit on two,
competitive, branded
financial application
cards, issued by
financial
institutions. In
Barrie, Scotiabank's
VisaCash
card will be used
and in Sherbrooke
it will
be Mondex, issued
by the Royal Bank.
Imagine
a partnership between
the federal government
and financial institutions.
This technology
opens the door for
alliances that would
have
been unheard of previously.
Last October, the
Province of Ontario
announced
in the Throne Speech
that they would be
moving
to smart card technology
to enhance efficiency
and combat fraud.
SmartCardeSolutions.com
are the integrators
of the new Skills
Data Card Initiative,
an
ID authentication
and certification
application.
Designed to be carried
by construction workers,
the card carries
applications that
will be
used by labourers,
unions, contractors,
buyers
of construction,
safety and training
agencies
and provincial governments.
Again, this is
a case of technology
bringing to the table
groups that have
not typically aligned
themselves.
These are just a
few of the Canadian
initiatives
moving forward. In
the United States
there
is more movement
from the federal
government,
but less by financial
institutions. Credit
card fraud is not
nearly as prevalent
as
cheque fraud and
so is less of a driver.
In addition they
have a far greater
challenge
in the regional nature
of their clearance
process. Added to
that is the sheer
number
of fi's that would
have to reach agreement
on new payment mechanisms.
All this will
take a great deal
of time to resolve,
but
for Canadians it
is good news. We
have watched
as smart bank cards
were put in place
in
other countries.
Fraud always dropped
significantly
in those countries,
but moved to the
nearest
geographically unprotected
countries. It
is imperative that
we move to chip ahead
of the States.
In closing I would
say that the challenge
for you is to look
beyond the traditional
products, partnerships
and delivery channels.
Think about what
you would want as
a consumer
and get ready to
deliver what other
consumers
believe they both
need and want.
We have become comfortable
with hardware
and software. Your
challenge is to embrace
CardWare.
Catherine Johnston
President & CEO
ACT Canada
905 426-6360
ACT Canada is an international non-profit
association for the advancement of card technologies.
We work on behalf of our members to promote
the awareness, understanding and use of all
advanced card technologies; including optical,
smart, capacitive and emerging technologies.
If you would like to learn more about ACT
Canada membership please visit the membership section of our web site or contact our office at
(905) 426-6360.
Please forward any comments, suggestions,
or questions to info(AT)actcda.com
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