Smart Card Reader Market Hunts For Elusive Killer Application

London, 17th September 2003-¦.Financial and identification applications are offering expansion opportunities for the card reader market. In particular, Europay/MasterCard/Visa (EMV)-compliant migration and government-sponsored ID projects are poised to spur the uptake of card readers across the world. However, the lack of a killer application is hampering smart card adoption, creating an immediate challenge for market participants. At present, manufacturers are unable to discern a clear business case for investment in a variety of smart card applications. This is attributed to the absence of killer applications that would provide significant ROI for card issuers and benefit the end-user.

However, ‘model’ multi-application undertakings such as the Malaysian Government initiated national ID project- ‘MyKad’- are expected to dispel such concerns. This 23 million-card project aims to equip Malaysian citizens with a single microprocessor-based smart card. It widens the boundaries of e-Governance and is expected to be extremely profitable for the government in the long run.

Such models are gradually underlining the business case for microprocessor cards and represent a positive development for hybrid and smart card reader manufacturers. At the same time, the use of student identity cards and hotel room access cards are poised to favourably impact the expansion of the magnetic stripe readers market.

A key defining trend in the market has been the convergence of card applications, especially in the chip card segment. The introduction of multi-application smart cards has enhanced the utility and value additions to the end-user. While the access control segment is benefiting from cards that can be used in both physical access control as well as network security, national ID projects are featuring multiple applications such as banking and telecom.

Spurred by security concerns, there has been a rush of government-sponsored national ID projects worldwide. In addition to directly stimulating sales, such projects are likely to boost market confidence in the ability of card systems to provide reliable means of digital identification and authentication.

“Cards are evolving to become a highly effective tool for digital authentication. The increasing number of national ID projects in Asia and Europe is proof of the same,” notes Frost & Sullivan ( Research Analyst Karthik Nagarajan. “If this trend spreads geographically, it seems possible to achieve global interoperability between similar systems in the very long term.”

According to Frost & Sullivan, the global smart card and magnetic stripe readers markets are projected to expand from $1.17 billion in 2002 to $1.66 billion in 2009.

Falling reader prices are likely to boost unit shipments but squeeze profit margins. Unit shipments of hybrid and smart card readers are expected to grow at a healthy CAGR of 18.4 and 23.1 percent, respectively. Revenue growth, however, will not be correspondingly high because of price declines. While the prices of magnetic stripe readers are anticipated to stabilise by 2005, the fall in the prices of smart card and hybrid readers is likely to continue even in the long term.

Warns Mr Nagarajan: “Maintaining profit margins amidst this price fall is one of the prominent challenges that card reader manufacturers will face in the next few years.”

EMV-compliant migration from magnetic stripe cards to smart cards is expected to be a key market driver across most payment applications. However, the process of migration is likely to take seven to eight years to complete. In the meantime, banks will be compelled to improve security for magnetic stripe cards with technologies such as high coercivity cards and Magneprint, which can be used with existing cards also.

The European market is projected to surge during the mid term due to the EMV deadlines. As the January 2005 deadline for EMV migration approaches, banking and other payment terminals in Europe are expected to move to a system, which can use magnetic stripe and smart cards. Consequently, unit shipments of card readers, especially hybrid readers, are forecast to grow at a CAGR of 23 percent in Europe over the period between 2002 and 2005.

Home banking represents another fast growing application area in Europe. With more than 20 million home bankers, Germany is the largest market in this segment. Though over 65 percent of them use PIN-based authentication, many banks are migrating to card-based authentication, due to escalating fears over internet security.

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