A partnership between MasterCard and Citibank on smart cards signals a possible upturn in the rate of adoption of chip card technology in North America.
Last year, Citibank added two chip-based products: Citi Smart, a revolving credit card, and Citi.You, a combination charge and revolving credit card. Both are MasterCard-branded cards featuring magnetic stripes and embedded smart chips.
The goal was "to prepare for the infrastructure evolving in the market," said Parris Hall, business manager at Citibank's Citi Cards unit. "U.S. smart card deployment is lagging, but this prepares our customers as more acceptance comes down the pipeline."
The failure of smart cards to catch on so far is due to "various risk management techniques and programs U.S. banks utilize to control fraud in an efficient way," said Dr. Toni Merschen, senior vice president, Chip and Mobile Commerce Centre of Excellence, MasterCard International. "Some of these programs are not available outside the U.S."
Telecommunications costs associated with conducting transactions online versus offline are less expensive in the U.S. than in other regions, he added.
But that hasn't deterred Citibank. "As an organization, we want to be prepared for what the financial environment may provide, and put products in our customers' hands that will meet their purchasing needs here and abroad," said Hall.
Citibank's cards are programmed with the global EMV (Europay-MasterCard-Visa) standard, which allows global interoperability of cards and terminals; PIN management which establishes security; an electronic wallet that stores URLs, card numbers and addresses, and a loyalty application that enables cardholders to use the card in chip-enabled frequent-shopper programs.
Citibank also provides a free card reader to clients.
"A USB Universal Serial Bus port connects the reader to the PC and cardholders can enact all card functionality including loading the electronic wallet," Hall said.
To date, EMV, PIN management and electronic wallet functionality are the most-used features.
"PIN management and electronic wallet functionality is being used by card members at varying levels, with EMV use in international markets where chip-based point-of-sale has been deployed," Hall said.
While Citibank's deployment is one of MasterCard's newest smart card installations, the association's first large-scale smart card deployment was in France in the 1990s.
"Fraud was growing at a pace that local banking associations in France could not contain MasterCard helped them fight back with smart card technology," said Merschen.
From that point on, MasterCard began showcasing smart cards as the next-generation payment technology that could fight fraud on a global level.
"Smart cards take the versatility of a magnetic stripe card and secure it with a chip that can be programmed to store multiple applications," said Merschen.
MasterCard is striving to be "the best business partner to our member financial institutions who decide to leverage smart cards as a payment vehicle," says Merschen. "We also want to ensure that we add value to the cards through multi-application capabilities," he said.
A GLOBAL PUSH
MasterCard is also creating strategic alliances with companies that will further push the global penetration of smart cards.
For example, Dulles, Va.-based Cigital, a software risk analysis provider, is testing MasterCard's platforms and applications, and at times, lines of software code. The testing, which covers cards, applications, Web servers and security, will ensure that smart cards are as reliable as traditional magnetic stripe credit cards.
"All of our partnerships are necessary for us to feature a quality product," Merschen said. "Without entering into these alliances we cannot move the product into the marketplace as quickly as we do today.
"To date, more than 125 million of the company's MasterCard-, Maestro-, Mondex-, and Clip-branded smart cards have been issued worldwide, with the strongest penetration in Europe. All of France's MasterCard-branded cards are smart cards, and the United Kingdom is currently converting all general purpose cards to smart cards. Further, Europe is in the midst of a Continent-wide migration to the EMV standard, states Merschen.
More than 6 million MasterCard-branded smart cards have been issued in Asia Pacific, a 65 percent increase in six months. Approximately 4 million of the cards operate the Multos platform and feature EMV payment applications. Additional smart card projects are planned throughout Europe and in Latin America, though Merschen declined to reveal a timeframe.
EXTENDING THE PLATFORM
To foster the development of value-added applications, MasterCard recently published MasterCard Open Data Storage (MODS), an application programming interface (API) for storing and retrieving data. MODS allows consumers to store a variety of information on their smart card, including ship to/bill to addresses, phone numbers, passwords or log-ins, membership numbers, store discounts, receipts, etc.
MODS gives cardholders more control over personal information and greater privacy. "MODS provides cardholders the ability to determine how 'smart' their card is," explained Merschen.
More than 62 million MasterCard-issued smart cards already carry value-added applications like loyalty, digital identification, electronic ticketing, electronic coupons or personal data storage.
MasterCard hopes its value-added multi-application cards will spark smart card interest among North American banks and their merchants.
"We are working with our key U.S. members, discussing our end-to-end services that will help them move into chip technology," Merschen said.
MODS also shows promise in the virtual world, as MasterCard is launching an authentication application for Web retailers to verify a cardholder.
"When entering a card number online, the retailer has no way to prove the
cardholder didn't steal the card, or if the card was even present at the time of the transaction," said Merschen. "Now cardholders will enter a PIN to authenticate their ownership."
Banks can customize their card investments, depending on the card's functionality. A basic EMV card, for example, costs between $1 and $1.50 per card.
"As you add more applications and cryptography for extra security, or if you require more power and memory capability, the card can range between $2.50 to $3," Merschen said.
Moving to further strengthen its smart card services, MasterCard in June merged with Europay International, the Belgium-based association that serves European banks. The merger created a global payments company, MasterCard Europe, that will blend Europay's strengths in m-commerce (mobile commerce), smart cards and debit cards.
Following the acquisition, MasterCard established Centres of Excellence within Belgium and the U.S., to "leverage knowledge and expertise of smart cards as we replicate the process across the globe," said Merschen.
The Chip and Mobile Commerce Centres of Excellence in Waterloo, Belgium, and Purchase, N.Y., focus on mobile communications. The e-commerce Centre of Excellence is in Purchase, and the Debit Centre of Excellence, which combines expertise of both companies' debit successes, is in Brussels.
The Europay merger followed MasterCard's 2001 acquisition of Mondex, a London-based smart card firm that provides stored value functionality for the MasterCard chip, MasterCard, which already owned more than half of the company, now controls all Mondex operations and management, including all research and development (R&D) and security.