News

Multi-app cards offer multiple opportunities

Will financial institutions choose to leverage the capability to offer new applications to its customers via chip cards? Martin Macmillan of Level Four Software says it's a smart move for banks that want to differentiate themselves.  

September 15, 2003

EMV is the standard for a chip-card based payment network driven by Visa and the recently merged MasterCard and Europay (thus Europay/MasterCard/Visa, or EMV) that will go live in Europe in January 2005. In most European countries, banks are in the process of rolling out chip cards, ATMs and host switches that support the EMV standards.

The main business driver for introducing EMV smart cards in the UK is to combat the rising level of plastic card fraud, which according to the UK's Association of Payment Clearing Services (APACS), accounted for nearly £430m (about $682 million U.S.) in 2002. (See related story Less angst over ATM regs in the UK)

Martin Macmillan

A secondary business driver -- albeit a primary one for many European countries that don't have the same fraud issues as the UK -- is the multi-application capabilities and opportunities that EMV smart cards bring.

That's why they call them 'smart' cards

Chip cards have an intelligent processor, memory, logic and different slots, like a filing cabinet for applications. But like desktop computers, the cards come in various degrees of processing power and capacity.

EMV cards have already been issued by many of the UK's banks in anticipation of the January 2005 deadline for compliance. But so far these have been low-spec cards without the processing or storage capacity to handle multiple applications.

This was a decision driven by cost. But as the cost difference between the simple and more complex chips used for the cards narrows, it will increasingly make sense for UK banks to embrace cards that can host multiple applications.

In European countries where interest in the potential of EMV is driven from a marketing point of view, many banks are already making the extra investment to issue cards that are ready to handle multiple applications.

The first application is the payments, the cash and accounts part, which is obviously run by the bank. But subsequent applications on the card can be much more diverse, and will likely involve joint ventures with third parties.

The use of multiple applications might be limited at first -- perhaps to trial groups of high net-worth individuals -- but eventually the case for banks to exploit this opportunity will become overwhelming.

Adding new apps

Banks increasingly have to differentiate themselves through innovation and new services rather than price. Banks are in a good position to leverage their relationships with large customer populations, in conjunction with existing infrastructure such as ATM and point-of-sale networks, to use EMV smart cards in innovative ways.

One of the main advantages for banks is the possibility of distributing products quickly and dynamically without having to incur the cost of issuing new plastic. Because banks can write new applications to cards that are already in circulation, it becomes relatively easy to deliver all kinds of new applications and promotions that may be linked to particular geographic areas or timeframes.

The cost of these new promotions is low, and the chip card opens up many different areas that banks may not have been able to consider in the past. These may include loyalty schemes, mobile phone prepay top-up services, and the distribution of special offers or coupons directly to the card. 

For example, banks often sell travel insurance, either their own or that of third-party partners. If a bank has ATMs at a port of departure such as an airport, ferry terminal or train station, they could advertise a promotion for travel insurance that customers could sign up for via the ATM. Because the bank network is trusted, and the bank already has a lot of information about the customer, it would be relatively simple to add an insurance account to the multi-application chip card.

Chip cards issued by banks are likely to become a popular delivery conduit for third party offerings. Because banks' cards have pride of place in their customers' wallets and purses, third parties stand to gain credibility by association if they allow their applications to be run on a bank's multi-application chip card.

The potential of chip cards has been known since their introduction in the 1980s, but a lot of the crystal ball gazing has assumed that card readers will become standard in consumer devices such as PCs, TVs and even mobile phones. This vision is still some way off.

For banks, the next logical step from the introduction of EMV is to leverage existing infrastructure such as ATM networks to offer innovative products and services using the multi-application capabilities of the chip card.

Tried and tested

The future challenge will be how to deploy these applications quickly and cost effectively onto customers' cards after they have been issued by the bank. A logical method of distribution would be via the trusted and secure ATM channel.

IT departments will need to be able to keep pace with the marketing department and other parts of the bank by being able to create and test new applications in a very rapid deployment cycle. Lowering the cost and timing hurdle to banks will be a key challenge in ensuring the potential of multi-application cards is achieved.

Testing is an important part of deploying any channel for the bank. Traditionally the testing of ATM software, hardware and networks has been conducted manually with real people, cards and machines. But the smartest financial institutions have realized that an automated testing regime is a more efficient use of resources. This will become increasingly important as EMV becomes established.

Banks have estimated that with the introduction of an EMV-compliant network, the number of tests required will multiply tenfold. Introducing the new chip card adds complexity to the dialogue between the card, the ATM, the rest of the network and also third-party organizations - so much so that it will be almost impossible to test on a purely manual basis.

For this reason, banks that aim to get a jump on the competition are starting planning and testing programs now so that they can be among the first to make use of the multi-application capabilities of EMV.

The author, Martin Macmillan, is chief executive officer of Level Four Software Ltd., based in the UK. He has substantial experience in launching and managing technology businesses in the global financial services industry, having served as a director of UBS Warburg in both London and New York from 1994 to 2000. There, he participated in the development, launch and operation of multiple Web sites enabling commerce between UBS Warburg and its clients.

His company provides best-of-breed ATM test and development software to retail banks and ATM manufacturers. Level Four's key offering is the ATM Channel Development Suite, a suite of integrated modules that enable rapid development of new ATM applications and full end-to-end testing of ATM networks.

Level Four's clients include The Royal Bank of Scotland, Lloyds TSB and Abbey National. Level Four has offices in Dunfermline, Scotland and in London, England.