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SWOT: Will you please get smart

SWOT: Will you please get smart

Where have all the smart cards gone? For more than half a decade, smart cards were espoused as an emerging technology that would take the world by storm, rendering cash obsolete and transactions secure and pervasive. Alas, it hasn't happened.

Like the paperless office, the cashless society has yet to eventuate; indeed, it may never do so. While smart cards gain increasing acceptance across Europe and Asia, the Australian market - normally among the first to jump on the new-technology bandwagon - remains remarkably reticent to embrace the comprehensive functionality that smart cards are said to offer.

That's not to say Australian companies don't have their fingers well and truly stuck in the smart card pie - they feature prominently in the global smart card arena - but they are yet to make an impression in the home market.

"Australia was an early smart card adopter in reality," explains Richard Cusson, director of smart card technology at Keycorp. "Some of the earliest projects with the technology were conducted here, and it might have been too early for the market. IT managers then got busy preparing for Y2K and getting onto the e-commerce wagon, and this has occupied the market from around 1996 to 2000."

Cusson admits it is "quite unusual" for a company to prosper overseas while doing very little business in its home country. "But it hasn't been a hindrance to us. That we don't deliver smart cards at home is not seen as a weak point."

Ironically, the smart card's biggest advantage has also proved its greatest drawback in Australia. In overseas markets, security has driven smart card take-up. The problem here is that Australians are just too honest, and the great expense of changing IT infrastructure compared to merely controlling fraud has relegated smart cards to the technology waiting list.

"As a nation of consumers, Australia has adopted credit cards," says Iris Brinkman, principal consultant of industry analyst group Techno Marketing. "One of the major barriers to the adoption of smart cards is the extensive use of magnetic stripe cards. The supporting infrastructure for magnetic stripe cards is widely available and the EFTPOS networks are quite extensive. To upgrade the existing credit card infrastructure so that it can also accept smart cards is no small undertaking."

There are plenty of organisations willing to put their hands up to bring the technology to market, but consumer confidence is still an unknown factor. American Express has just introduced its Blue Credit Card, which promises increased fraud protection and store discounts "as the technology evolves" but its success in the market is yet to be proven. ANZ is also keen to be associated with the technology, promising Cisco's virtual private network and iPass remote access will be incorporated with digital certificate technology in its smart card offerings. Despite the talk the smart card has yet to be released.

Although most EFTPOS terminals already contain smart card readers, the issue is further complicated by the maturing smart card market and upcoming standards. The development of the Europay, MasterCard and Visa global payment standard (EMV) could legitimise technology, which in the past has been very piecemeal in its application. However, this in turn could pose a problem for take-up in Australia, since a new generation of EFTPOS terminals incorporating this standard would be needed.

The way to get around this, according to automated fare collection company ERG, is to offer consumers an application they cannot refuse. "Smart cards have been around for 17 years, but no one except ERG has found their killer application," says ERG's chief financial officer, Ian Allen.

"When the banks think about smart cards, they think in terms of an electronic purse. But that has failed: why would you put money onto a smart card to find you can't use it at 95 per cent of outlets?"

ERG is betting that the smart card "killer app" will lie in the public transport sector. The trick is coercion. In an era when sexy technology can often play as important a role as functionality, consumers sometimes just have to have technology forced upon them.

"We win a [ticketing] contract and within a short time of implementing a system, we can force people to carry a smart card, withdrawing all other forms of ticketing. Then we make the smart card interoperable," Allen says.

He cites ERG's success in Hong Kong, where the system first went live in 1997. The same smart cards that residents use on the eight different transportation modes throughout the city can now also be used for payment in Starbucks, 7-Eleven, pay phones and Wilson Parking. Additional applications such as security passes for buildings and loyalty schemes are constantly being added. Similar implementations are being rolled out in Singapore, Rome, San Francisco and Manchester.

On the back of a public transport infrastructure, ERG then works on alliances for value-added services such as those provided by banks, telcos and post offices.

However, this strategy is yet to work in ERG's home country. Characterised by wide open spaces and a relatively sparse population, along with a public transport sector that only recently upgraded its ticketing system, Australia doesn't easily lend itself to the rapid uptake of the technology.

"It comes down to economies of scale." Allen says. "Here, it is really only Sydney and Melbourne that can afford to have smart cards integrated easily into their systems. Our strategy is once we have Sydney and Melbourne on board we can then offer to integrate other parts of Australia on a marginal pricing basis."

With that in mind, ERG's joint venture with Motorola - Integrated Transit Solutions - has just been named preferred supplier for Sydney's Integrated Ticketing System (ITS) project, which aims to combine private and public transport networks under the one smart card payment system. The contract, which is still only in draft form, would see ITS supply equipment and software for the system with management outsourced to the company for ten years.

The jury is still out on whether companies such as Keycorp and ERG will find success in their own country. Mark Pullen, a business development manager with RSA Security, believes it may take another two years, but the adoption of smart cards incorporating multiple applications in Australia will certainly happen. "Purely looking at the European and Asian markets, something is definitely going to happen with smart cards in Australia," he says.

But the price of the cards will need to halve and the power increase before they are widely adopted. Organisations are increasingly looking at using smart cards as an authentication and access device. Rather than plugging them into a PC or laptop, the cards come with authentication built in. "The applications on the card is where the money will be," Pullen says.

Techno Marketing's Brinkman agrees that uptake will depend on smart cards offering a cheaper solution. "A few years ago, smart cards were a very cheap alternative, now I am not quite sure that is the case. It could go either way - Australia may never really adopt smart card applications, or the technology will continue to develop and converge with other devices such as mobile phones and PDAs," she says.

"The definition of smart cards will become more blurred. It is likely that the large base of mobile phones in Australia and the increasing sophistication of mobile infrastructure will influence future development of smart card technology in Australia."

According to Brinkman, opportunities for using smart card technology in Australia are more likely to be focused on small applications such as health records. The card could be used as a memory bank of medical records for an individual, which is then portable across a variety of medical service providers. But this requires collaboration of more complex applications.

"It may be that Australia will miss out on the benefits of smart cards now, but this could change if smart card features converge or if they are used for smart applications," Brinkman said.


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