NEW YORK-Smart cards must overcome a chicken-and-egg problem before they can expand their use in wireless devices beyond their established role as subscriber identification modules in Global System for Mobile communications products.
The vision for smart cards is that they will become the tiny pocket computers that supplant magnetic stripe cards as a secure identifier of individuals to facilitate electronic check and cash transactions. In this role, a smart card would be tied to an individual consumer, who could transfer it from device to device and use it for commerce and financial transactions on various networks.
The reality today is that consumers and businesses, especially in the United States, have a variety of established alternatives for conducting such transactions in both wireline and wireless environments. In order for the competing technology of smart cards to gain a foothold, a critical mass of supporting infrastructure must be put in place.
The next step
Nevertheless, boosters and skeptics agree that smart cards could well become the next-generation credit card in mobile and stationary applications. Furthermore, they concurred, interest in their possibilities is growing.
“A good gauge is that, in the early days of smart cards, we’d have to go out and convince people, but now they’re coming to us,” said Leo Legaspi, director of wireless telecommunications marketing for Gemplus Next Generation Networks, Emerson, N.J.
“There is a lot of behind-the-scenes maneuvering. A lot of (telecommunications) operators and banks are talking to each other about (transactions like) trading in securities, gaming applications. It’s on the Q.T. because they don’t want to lose competitive advantage. We’re playing almost a brokering role.”
However, supporters and doubters alike said they believe smart cards are not likely to be an overnight sensation, and that the United States likely will follow the lead set in Europe and Asia.
“The United States has low-cost, high-quality telecommunications, and it is very entrenched with mag-stripe technology,” said Joseph L. Choinard, vice president of new delivery channels for Visa International, San Francisco.
“(Magnetic stripe technology) has less expensive risk control measures in place. Addresses are standardized, so if you know your ZIP code, chances are good you are who you say you are.”
Visa, MasterCard “and other key players” joined forces to develop Secure Electronic Transaction specifications, first published in 1997, for “full chip card implementation,” Choinard said. These include public key infrastructure, message formats and encryption, so that the smart card becomes “very much a locked box.”
At present, Visa International is involved in discussions with “various pieces of the puzzle: operators, server and browser providers, handset makers,” he said.
Critical mass
However, commercially viable deployment of the smart card alternative will require “cards with chips, (supporting) infrastructure and point-of-sale terminals with chip readers,” Choinard added.
Joshua P. Kiem, marketing director of the personal communications sector for Motorola Inc., Libertyville, Ill., and Luis Pineda, director of product marketing for Qualcomm CDMA Technologies, San Diego, voiced similar appraisals.
Kiem called it “an accumulation of a solution.” As people’s comfort level grows with smart cards for transactions like paying mass transit fares and car tolls, a critical mass could develop that provides the catalyst for wider deployment. Motorola is testing a variety of fixed and mobile wireless venues for smart card use, he said.
Whether transportation, communications or some other sector “will be the driver is very difficult to predict because all these industries are in flux,” Kiem said.
“We’ve been talking to people in the States, but I can’t identify the sectors because that might give away the companies and we are under confidentiality agreements,” he added.
In recent years, Motorola introduced in Europe a GSM phone with two slots for smart cards, one for the SIM, the other for commerce transactions. Besides being a GSM stronghold, Europe’s magnetic stripe card infrastructure is less pervasive than the United States’. Furthermore, smart cards are adept at compensating for inefficiencies posed by the Continent’s varied currencies. Nevertheless, so far, Motorola’s dual-slot phone is for sale only in France, “and we are working on a deal in the [United Kingdom],” Kiem said.
However, Kiem said he has noted of late an uptick in conversation about smart cards in wireless devices.
“There was a lot of discussion several years ago, then it went dormant, but it’s become more prevalent,” he said.
Qualcomm’s Pineda, who works in the division developing chips for software solutions, said the company is not presently participating in any discussions with smart-card makers, carriers or other players about smart-card deployment.
“We are not developing products today because, for the most part, our customers are not asking for them,” he said.
“We haven’t seen smart cards emerging yet to replace credit cards, although we are open to bringing [smart cards] into the phone.”
If smart cards come into widespread use in other applications, like paying car tolls or mass transit fares, consumer preference for a single, multiple-purpose SIM financial transaction card could drive deployment within wireless handsets, Pineda said.
“Once that’s all online, the smart card will definitely be a feature for the cell phone of the future,” he said.
“People will use their smart card for all their transactions.”
Technology questions
Chris Pearson, vice president of marketing for the Universal Wireless Communications Consortium, said the Time Division Multiple Access association’s Technical Forum Group has not yet addressed smart cards.
“We understand the issue is out there, and it’s something we will have to look at in terms of both positives and negatives,” he said.
“It raises a lot of questions in terms of the need for standards support by network operators, handset makers and infrastructure vendors.”
The UWCC is working with the international GSM Association to achieve voice interoperability, and both groups endorse EDGE, which can deliver up to 384 kilobits of data per second. However, TDMA operators generally operate under “a fundamentally different philosophy” from that of their GSM counterparts, Pearson noted.
“We want the intelligence to be in the network and move out to the handset, while GSM puts the intelligence in a SIM card. What would the ramifications of smart cards be?”
For security reasons, TDMA and CDMA customer identification information is tied to the phone, not a removable computer chip. That way, if the phone is stolen, the carrier can deactivate it, said Danny McGuire, vice president of CDMA sales for Audiovox Communications Corp., Hauppauge, N.Y.
McGuire also said he does not believe smart cards for commerce transactions offer any particular advantage over simply using the handset’s keypad to type in a credit card number. However, Audiovox is taking a look at the use of smart cards as memory enhancement chips that could provide wireless phones with the capacity to download video feeds, he said.
Independent solutions
Notwithstanding the wait-and-see attitude of the handset manufacturer executives interviewed, Visa’s Choinard and executives of two major smart-card manufacturers said they believe device manufacturers will drive demand for smart cards.
“The model of personal mobility across terminals, which enable devices to be independent from wireless carriers, is becoming more and more pronounced,” said Sami Nassar, business director of Wireless*Link for Schlumberger North America, San Jose, Calif.
“It will be seen pretty soon in personal computers and [personal digital assistants]. Electronics (manufacturing) companies don’t want to link
to one particular carrier, so the subscription will reside in a different device.”
The push for standardization by handheld device manufacturers that have customers in many countries is abetted by momentum from carriers outside the United States. Asia, especially China, represents one notable example.
“Revenues for digital wireless telecommunications cards, both for GSM and CDMA, will increase dramatically over the forecast period of 1997-2005,” Alyxia T. Do, principal smart card analyst for Frost & Sullivan, San Jose, Calif., said in a new report about smart cards in Asia.
“Though SIM card prices are expected to remain highly competitive, a trend toward upward migration by telecom operators is present-either through the addition of value-added services or increased security levels,” she said.
It is reasonable to anticipate that Asia would lead the way, as it has before, Qualcomm’s Pineda said.
“It is very common for advanced features to originate in Asian markets because of the large presence there of electronics companies,” he said.
Just as smart-card makers contend their chips will enable wireless device manufacturers to sell standardized products across borders, the chip makers also are practicing what they preach. Smart-card makers are moving away from proprietary operating systems, which Do of Frost & Sullivan believes eventually will be replaced by Sun Microsystems’ MultOS Java or Microsoft Windows.
“As a result, manufacturers should fit the `chip embedder’ role, which emulates strategies in mass-production industries, or transform to a systems-software house, which entails aligning strategies toward [Information Technology] models.”
Nassar of Schlumberger, which has chosen Java, said standards for smart-card interoperability in GSM and TDMA environments “are fully aligned and available.” However, more work needs to be done “on the level of the application development platform on top of it.”
WAP connection
Europe has an open development platform for applications, and iMode “accomplishes the same thing in the Far East. However the [Wireless Application Protocol] is not as open as it could be,” Nassar said.
Gemplus, which chairs the Smart Card Expert Group within the WAP Forum, sees smart cards and WAP as “absolutely complementary,” Legaspi said. He noted there is a Wireless Identity Module within WAP.
Choinard of Visa International said further work needs to be done at the air interface level.
“It is proving difficult for TDMA, CDMA and GSM to coalesce around a security framework for payment-enhanced services (that are) secondary to primary (telecommunications) services,” he said.
As telecommunications carriers in the United States complete their network buildouts and upgrades, they will begin to concentrate more on value-added services, Nassar said.
“Year 2000 in North America will be extremely interesting to watch because operators are getting into the value-added service focus and want to compete on this level,” he said.
“Their networks are practically ready, and they are beginning to appreciate what smart cards offer. The launch in the United States will be about three-to-four years later than in Europe.”
