Govt, service sector drive smart card growth

If you thought that flashing a plastic card was the privilege of only the educated urban elite, think again. Smart cards have made inroads into the heart of rural India. And surprisingly, it is the Centre and the state governments that are taking the lead in bringing technology to the masses. Srikanth R P and Stanley Glancy tell us more about the status of smart card implementations across India

How would you like to carry your driving licence, passport identification, insurance policies, health records, ration card information and other relevant documentation all on one card? How would you react if you were told that all your provident fund claims could be settled in a matter of days by just flashing a card? Want to change your address on your passport? Just use your card.

Girish Rangan believes that EMV II compliance will drive the growth of the smart card segment

If this sounds like a scenario from the US or Singapore, think again. For India too is witnessing the start of a revolution—although on a smaller scale—in the area of smart cards. And unlike other sectors, it is the traditional laggard—the government—which is driving this growth.

Look at some of the projects being undertaken using smart cards. The Employees Provident Fund Organisation (EPFO) plans to issue smart cards for its 2.6 crore subscribers; these cards can be accessed through its 267 offices. The key advantage is that each member of the EPFO will be able to access his account irrespective of the place he is currently employed. Settlement (which now takes ages) can be done in a matter of days. Two states, Gujarat and Madhya Pradesh (MP), have started adopting the concept of smart cards and are issuing smart card-based driving licences. The smart card can not only hold details about the driving licence but also store a variety of data like an individual’s signature, fingerprint and even his photograph. The traffic police would also be able to enter data about traffic violations in the smart card. Automobile owners benefit because they do not have to bother about carrying their ragged and torn paper licences wherever they travel.

In Kerala, the state government is issuing smart card-based ration cards for monitoring the distribution of supplies through the public distribution system. In a country that is ravaged by pilferage of resources at various points in the system, the use of smart cards can cut down on fraud.

In a small village called Naila in the Jaipur district of Rajasthan, rural women are using smart cards to improve milk collection methods. The smart cards are used in recording the amount, quality and fat content of milk sold to milk distributors. The smart card includes a picture identification, and serves as a non-transferable bank book. This project has eliminated middlemen and increased profits.

The use of smart cards can also bring down India’s high corruption levels. Says Pradeep Kumar, country director, ST MicroElectronics India, "Take the banking segment. We have lots of customers in rural India who are not educated, and may be cheated by touts and corrupt officials. But with smart cards, all transactions are digitally recorded and tamperproof."

Indian scenario

Though smart card use in India still lags behind other Asian giants like China, the potential is great since a range of applications can be incorporated into a smart card. Unlike normal plastic credit cards, smart cards are embedded with a small microchip, which can be programmed to perform specific functions for the end-user. Smart cards can also store up to a thousand times more data than other traditional media (like the magnetic strip) used on credit cards. What’s more, each application can have its own logical space on the card, and can be read or written onto thousands of times. It is not surprising therefore that smart cards have now begun to proliferate in almost every sector.

Comments R D Grover, managing director, CMS, "The main advantage smart cards have for a country like India is that unlike magnetic cards they are not dependent on an online infrastructure. Also, unlike magnetic cards, one can deploy multiple applications—like a ration card, passport, driving licence, access authorisation or registration certificate—on a single smart card." Additionally, the processing power of a smart card makes it ideal to mix and match multiple functions. For example, government benefit cards can be used to provide users access to other benefits such as healthcare clinics or job training programmes. Similarly, a college identification card can be used to pay for food, phone calls or even to access the Internet in the campus cyber cafe.

Market research firm Frost & Sullivan (F&S) puts the value of the smart card market in India at $5.1 billion, and a compounded annual growth rate of 39.8 percent. India’s fast-growing cellular market is a key driver of this usage as it alone accounts for over 95 percent of smart card usage by way of SIM cards in mobile phones. This potential would be much more if the same cards were to be upgraded to support more applications.

Says Girish Rangan, managing director, Venture Infotek Global, "Smart cards were introduced in India only 3-4 years ago, but since then the number have grown steadily. From approximately 30 lakh in 2000, we have grown to about 68 lakh smart cards today." Adds Anil Gupta, managing director, BGS Smartcard Systems India, "The future is definitely bright for the smart card industry in India, with growth being driven by ID projects, driving licences and the financial services industry. However, like any new technology, it will take some time before gaining mass acceptance."

Pramod Rao says that innovative applications like smart cards integrated with biometric technologies will drive smart card growth

Pioneering projects

Apart from e-governance initiatives, there have been a couple of projects by organisations like BPCL. The corporation launched a smart card known as the PetroCard, with a loyalty programme branded PetroBonus. PetroCard is a loyalty card whereby customers get additional mileage points or ‘petromiles’ for using the card. The points are stored directly on the card, with loyalty statements printed out with each transaction. The project has turned out to be a phenomenal success, and now there are more than ten lakh customers using the card.

Also much talked about is the BEST project in Mumbai where smart cards were proposed to be used on its public transport buses. The project began in August 1998, and the idea of smart cards was mooted for solving the problem of issuing loose change, and for increasing overall efficiency. Explains Amit Phatak, industry analyst, IT practice, F&S, "About 51 percent of BEST’s total expenses are costs incurred due to salary. If the entire bus fleet was equipped to handle smart cards, there would be around 22-25 percent reduction in staff costs. The biggest advantage for BEST would be that all its passengers could have a smooth and hassle-free ride." It was a significant moment for the smart card industry, since it was for the first time in India that a mass transport organisation had decided to go in for smart cards. The project was well-received, and over 6,000 smart cards were issued in about four months. Going by the initial reaction, BEST officials were optimistic that the entire fleet would be equipped for validating smart cards. The concept was good as it not only allowed bus conductors to be less burdened with cash handling and ticket issuing, but also addressed issues like coin shortages, counting cash and daily accounting. Since all transactions were recorded on a memory pack in the smart card validator, the data could be used in different ways, from identifying non-profitable routes to maintaining punctuality. Though BEST did not face any technical glitches, the project failed to take off as BEST did not have the required funds (close to
Rs 60 crore) for installing the smart card validating equipment on all its buses. If this pilot project had taken off, the use of smart cards would have risen to a new level in the country."

Another important milestone in the history of the smart card market in India was a project sponsored by the Reserve Bank of India (RBI), and named SMARS (Smart Rupee System). The pilot project aimed to make the IIT-Bombay campus a cashless one. Since IIT-Bombay is like a self contained unit, the project was seen as a kind of testbed to evaluate the potential of smart cards. The SMARS project was also significant as it involved many partners. IIT-Bombay and the Institute of Development and Research in Banking Technology jointly coordinated the project. State Bank of India, Canara Bank and Citibank were the banking partners, while representatives from Aplab, Ascom, EximSoft, CMS Computers, Schlumberger, VeriFone, Gemplus, SGS Thomson and HCL Deluxe were involved in providing the terminals, cards, software and settlement systems. Unfortunately, even this venture slowly slipped off the radar screen.

Recalls P NKaranth, director of marketing at EximSoft, "Residents and merchants around the campus participated, and the aim was to develop common technical infrastructure to promote interoperability of competing card schemes and find ways to encourage wider acceptability for this sophisticated retail payment mode. By May 1999, final specifications of the smart card system’s interface standards for payment system applications were submitted to the RBI for adoption at the national level. However, due to various technical reasons, RBI could not make use of the specifications, and the struggle is still on in another form for the acceptance of smart card e-cash transactions in India." A great project thus remained a pilot project, and today no player is too sure about its status.

But despite the small number of failures, smart card players are optimistic about the few successful projects which could inspire others. Take the example of MP, which launched a project for issuing driving licences and vehicle registration certificates based on smart cards. MP currently has around 30 lakh driving licences and registration certificates for commercial and non-commercial vehicles. Every year about 1,84,000 new driving licences and 2,50,000 registration certificates are issued manually. Think of the potential if all these licences are digitised; it would lead to a paperless administration, less corruption, and would be easy to monitor. The terms of the agreement signed between the vendor and the government is also a case study for future government projects. Since Smart Chip (the vendor implementing the project) invests money in the technology, the government does not incur any additional expenditure for issuing smart card-based licences and certificates. Smart Chip recovers its cost as it gets a pre-determined rate per licence/certificate
issued. This could be the way forward for cash-strapped state
governments.

Agrees Vinay Sawarkar, executive director-eSolutions, Rolta India, "The government has been acting as a catalyst for various applications like driving licenses, national ID card, ration card, etc. Various state governments have been introducing smart card-based projects on a build, own, operate and transfer (BOOT) basis wherein complete investment is done upfront by the participating vendors. Once the deployment is successful in a few states, other states will follow suit."

Authentication & identification

Compared to traditional magnetic strip cards, smart cards offer enhanced security as they can incorporate encryption and authentication technologies. For example, smart cards can be combined with biometric authentication methods to control fraud and misuse. Says Pramod Rao of Zicom Secure, a specialist firm in the area of security, "One of the most recent innovative uses of smart cards integrated with biometric technologies has been in jails. We designed an application to ensure that the actual criminal is present in the jail, and not an impersonator. With smart card and biometric integration, all prisoners have to enrol themselves in the morning and evening to ensure that the prisoners are physically present."

P N Karanth feels that for a developing country like India it is imperative to stop the pilferage of resources at various nodes in distribution channels, which can be ensured by using smart cards

Another notable achievement in the field of secure smart cards has been implemented by Siemens Information Systems (SISL). Currently there is a shortage of cards which incorporate more than one biometric feature, since the task of packing more applications (like, say, facial recognition) is extremely difficult. But SISL has worked around this impediment with the introduction of the Intelligent Digital Passport (IDP). The technology allows three levels of biometrics to be incorporated on the card to provide maximum security—fingerprint identification, facial recognition and voice recognition. What’s significant is that the company has managed to compress all these features into data of just 6 KB in size, and which can be incorporated on a 32 KB chip, leaving enough space for other applications.

The Indian government now plans to issue multi-purpose identity smart cards to about 29 lakh people in selected areas of 13 border and coastal states by next year as part of an exercise to strengthen security. A smart card incorporating biometrics and a photograph would serve as proof of identity, and also would be tamperproof. This can go a long way in reducing terrorism-related activities.

Explains Karanth of EximSoft, "We think that this project is of vital importance to national security. With India’s long and porous border, and with a lot of unwanted elements moving freely across this border, monitoring the area is a tough task. Additionally, verifying the authenticity of ID papers can be time-consuming. Smart cards can definitely ease the situation, and are a step in the right direction." On the same lines, the Indian government is also thinking of a smart card-based national identification card for detecting illegal immigrants. If implemented, this project would create mega opportunities for Indian smart card players.

Challenges

While there are numerous instances in India where smart card projects were visualised, most of them didn’t progress beyond the pilot stage. The ability of various service providers and the government to convert vision into reality will be a pointer to the evolution of the smart card market in India. Additionally, there is a lack of standardisation across the Indian smart card industry, which is a hurdle to growth; smart card applications in different states may be incompatible if they are built using different standards.

Fortunately, the government quickly realised this could be a potential stumbling block, so it specified a standard for operating system specifications for transport applications in India. The system is called the Smart Card Operating System for Transport Applications (SCOSTA). Explains Grover of CMS, "SCOSTA is an important step in the right direction, and can help solve interoperability problems before they arise. All driving licences issued in the country will have to adhere to this standard. Once SCOSTA is implemented, it will be much easier for different states to implement projects and applications since the operating system is going to be the same across the country."

Future

With global financial institutions pushing for migrating their credit card and debit card transactions towards smart card-based transactions, the future of smart cards does seem bright. Says Rangan of Venture Infotek, "From year 2005 onwards, as per EMV II compliance (Europay, Mastercard, Visa), all new credit/debit cards will be issued only on chip (instead of magnetic strip) which will drive huge growth in this segment. Security concerns in financial transactions will also force banks to opt for smart cards sooner or later."

Also, India’s fast-growing cellular base will be another big contributor to this growth. If the government’s plan to set up a national ID system takes off, the growth of smart cards will be phenomenally high. Also, the emergence of contactless smart cards could be a key driver for smart card usage—the next time you drive on the Mumbai-Pune Expressway, a smart card reader at the toll bridge could just debit the toll from the smart card fixed on your car as you drive past the bridge.

Whichever way you look at it, the future of smart cards in India looks very bright.

Smart card market: Percent of unit shipment by application (India), 2001-05