DUBAI, 4 May 2004 — Security is the keyword of the moment. Any technology that enhances security is much in demand and so it is that smart cards will soon be replacing many of the magnetic strip cards currently in our wallets. One of the leaders internationally in smart card technologies is Giesecke & Devrient (G&D), based in Munich, Germany. Founded in Leipzig in 1852 as a printer of securities, G&D soon specialized in banknote production. In 1970 the company began developing solutions and complete systems for automatic currency processing.
In the last decade, G&D became prominent in smart card production and Moustafa Samaha, managing director, for Giesecke & Devrient Egypt, has started a campaign to promote awareness of the importance of smart cards to Middle East economies. Samaha is an engineer by training who has returned to the region after two decades in Europe with the hope of transferring his knowledge to local companies and governments for the benefit of Middle East consumers.
“The smart card, also called the chip card, is one of the few IT technologies that did not come from the US or Japan,” said Samaha. “This technology was created in Europe, with Germany and France developing and investing the most in this technology. Even today, the major players in this business are from these two countries. Later, the technology was introduced in different applications. We see a type of smart card in the mobile telephone. We see a kind of smart card in the banking and payments sector — in credit cards and debit cards. We find smart cards in other aspects of life such as insurance cards, health care cards, the driver’s license, public telephone cards, identity cards and electronic passports. Their use is exploding because of their security and functionality.”
Samaha explained that the smart card is no longer simply a technology. Smart cards are spreading throughout modern life and modern societies and influencing the culture of people. We are going from societies that had less need for IT, to societies with greater requirements for IT.
“Today we are moving toward cashless societies, where credit and debit cards replace paper money. Credit and debit cards enabled with chip technologies reduce transaction fraud and encourage card use,” Samaha commented. “Right now there is an intensive awareness process at both governmental and non-governmental levels to discuss the benefits of a cashless society. Take for instance Egypt, where many people still receive their pensions in cash. This is very inconvenient. It is much more reasonable to have that money directly deposited to bank accounts. Because people don’t have the cash in hand, they tend to rationalize their spending. Individuals can invest short term when their money is in the bank, which they can’t do when their money is at home. The funds left in the banks benefit the banks and national economy rather than sitting idle under the mattress.
“Cashless societies have greater transparency in the flow of cash,” he continued. “Everything is traceable. I lived in Germany for 20 years and now I’ve lived in Egypt again for the last three years. I know both systems and I have seen that there is a benefit for myself to have everything traceable. When you receive a statement from a credit card or debit card company it’s easy to watch monthly cash flow. I can see where my money was spent. As a law-abiding individual, I can rarely think of a time where it was against my interest to know where my money went. Such culture changes take time. I know that awareness of the benefits of smart cards won’t happen overnight, but unfortunately in the Middle East, some countries are moving painfully slow in the integration of these new, essential technologies.”
However, whether Middle Eastern nations like it or not, forces outside their borders are compelling them to move toward the use of smart cards. Take for example the EMV Global standard. The EMV standard ensures worldwide secure interoperability between smart cards, also called Integrated Circuit (IC) Cards, and terminals in payment transactions. The EMV standard applies to all credit card issuers, credit card processors and terminal manufacturers. The EMV Integrated Circuit Card Specifications for Payment Systems standard was developed jointly by Europay International (now Mastercard Europe), Mastercard International and Visa International to enable interoperability across various payment systems. The global standard is managed and maintained by EMVCo, an organization formed by the three companies. Focused on smart card transactions, the EMV specification ensures that chip cards and terminals will work together seamlessly, regardless of the manufacturer, the financial institution or where the card is used. Additionally, the EMV standard has become the basis for various e-commerce-enabling IT solutions.
There are two major benefits for moving to EMV-based credit card payment systems: Improved security (with associated fraud reduction) and the possibility of finer control of “offline” credit card transaction approvals. EMV financial transactions are more secure against fraud than traditional credit card payments which use the magnetic strip data encoded on the back of a credit card. This is due to the use of asymmetric encryption algorithms to provide authentication of the card, the processing terminal and the transaction-processing center. The majority of implementations of EMV cards/terminals confirm the identity of the cardholder by requiring the entry of a PIN (Personal Identification Number) rather than signing a paper receipt.
“The EMV standard is now well understood by the Middle East’s financial institutions and I am urging them to move as fast as possible on the implementation of chip cards,” Samaha said. “In many other regions, banks are already issuing chip cards. There is a deadline of the end of 2005 that has been set by the major international financial institutions for migration from the magnetic strip cards to the chip-based cards. By 2006, if banks do not migrate to the smart cards they will bear 100 percent of the liability for fraudulent transactions carried out with magnetic strip credit and debit cards. This could be very damaging for local economies. In Saudi Arabia where most credit cards are not insured against fraud, and full damages for fraudulent use are sometimes already paid by the customer, bank clients should discuss the pending deadline with their financial institutions and urge the banks to move to the smart cards rapidly.”
Samaha found the delay in the local banks’ implementations puzzling. He pointed out that for two years many banks have been investigating the adoption of EMV, but as of yet few have moved to the next step which is the implementation. The implementation requires a lot of work to be done in the infrastructure, the smart cards and consumer and merchant awareness. For example, part of the infrastructure implementation includes updating the ATM machines and the Point of Sale equipment. That means that all the small merchants who accept credit and debit cards must change their equipment to accept smart cards. It takes time too before the system is up and running — about six months to one year to launch a normal chip-based program. Samaha believes that many banks, because they don’t have experience, are underestimating the amount of effort and time needed in order to launch a smart card program. He feels that there will be a last-minute rush, probably unsuccessful, in 2005 when the banks realize that they are behind in their implementations.
While security and fraud prevention are the primary reasons for financial institutions moving to smart cards, there can be other benefits from such a move.
“Banks can capitalize on the new chip cards through added value services,” Samaha said. “The cards can have second and third functionalities such as loyalty programs, which will cut down on the cost of the card per function. Having partners on the card distributes the cost and makes the cards more attractive. Marketing departments in the banks must consider the best way to utilize modern technologies to enhance the financial products they offer.”
Samaha definitely wanted to put out the message that the smart card is a tool, not a target. He has already seen that some countries are going in absolutely the wrong direction when considering this technology. Some Arab countries are setting up production facilities for smart cards, planning to flood the region with their chips. Samaha is of the opinion that these operations will only succeed if an ideal international partner has been chosen.
“You are not going to sell smart cards just because you have a production line,” he said. “You will only sell the smart cards if you have the applications for the smart cards. Many regional investors don’t understand this fact. Forget the production facility. It will not give birth to the application. This technology is in the hands of a few companies worldwide. As a regional or local player you have no chance to invest successfully unless you are cooperating with one of them. They have the technology and the know how — production know-how and application know-how, and take my advice, you need both for success.”
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