an isa – feedback document isa confidential 20091 an isa – feedback document

An ISA – FEEDBACK DocumentISA Confidential 2009 1An ISA – FEEDBACK Document

An ISA – FEEDBACK DocumentISA Confidential 2009 2

Objective and methodology of the document

• The ISA (Indian Semiconductor Association) has proposed a study to understand the smart card industry scenario in India from a semiconductor industry perspective

• The key objectives of the study include• Understanding the overall dynamics of the smart card industry• Current status of the Indian smart card industry• Key usage trends and application areas of smart cards• Global smart card industry practices• Smart card industry practices in India• Drivers for growth, new segments, emerging application areas, changes in

technology• Impact of smart cards on the semiconductor industry

• Around 25+ expert interviews across key stakeholders, including chip suppliers, card manufacturers, RFID suppliers, system integrators, issuing authority, planning commission, smart card association

• Desk research focusing on global and Indian market trends, existing and emerging applications, technology focus, new initiatives, e-governance projects

• Analysis based on primary interviews and desk research

Objective

Methodology


Smart cards and RFID tags – A brief ideology

• In the Indian context,• Contact based smart cards and RFID tags currently have moderate penetration, while

contactless cards are yet to see a significant application base• However in select cases, the smarts cards are built only with memory devices and the

reader re-programs the card when connected

Smart cards are plastic cards embedded with a microprocessor or memory chip

Contact based smart cardsContactless based smart

cardsRFID Tags

Identification and process based application

Identification based application


Smart card applications in India are currently nascent but have immense potential in the years to come

• A smart card is a combination of electronic modules embedded in a plastic card to

perform simple access applications to more complex applications, like monetary

computation and identity status. The core function of a smart card is to store and process

data based on the application it is programmed for

• The Indian smart card industry is characterized by popular applications like SIM cards,

access cards, vehicle registration, tolling, ticketing, loyalty cards, pay TV cards, financial

and health cards

• These cards are contact based or contactless, which can be either upgraded or can

function as use and throw cards

• RFID, a relatively new technology, is gaining popularity in some areas

• RFID tags are used for product tracking and identification application. Some of the

popular applications include vehicle tracking, retail goods tracking, LGP cylinder tracking,

library management, auto component tracking


Indian Telecom is the most successful application market for contact based smart cards

Success rate of smart card implementation – Global vs India scenario

Segment An India overview

Telecom India is one of the fast growing economies for high tele-density. Now CDMA phones also use SIM cards. As of end-August 2009, the subscriber base stood at 495 mn. Growth rate of subscriber base is at 15%

Transport Only select public transport in metros have implemented smart cards. Eg. Go Mumbai cards for rail and bus transport

Entertainment Availability of spectrum license for satellite television and conditional access has evolved the pay TV market in India. By the end of 2008, the subscriber base stood at 9 mn. Growth rate of subscriber base is at 30%

BFSI Select banks have introduced Chip and PIN cards, (EMV) which promise high security

Health care Largely a Government initiative to provide medical services to families below the poverty line

Retail Tagging of retail goods

Government Driving license, MNIC cards, e-passports are amongst select initiatives taken by Government

Education Select institutions have started issuing access cards to students

Hotel Predominantly access cards

Others Largely tagging application India Global best scenarioSource: ISA – Feedback Study, 2009


Status of applications for smart cards and RFID tags in the Indian market

Usage

Segment

Health & Pharma

Retail

Government

Education

Hotel

Others

Under evaluation

Nascent PilotAlready

prevalentDiscontinued

Banking

Entertainment

Transport

Telecom

• Majority of the pilot projects have been tested for RFID tagging• Ticketing, Toll collection and e–passports are the only applications tested for contactless smart cards

Access Control

SIM cardsNFC – Near Feed Communication

Access control & Attendance

Vehicle tracking & parking solutionsTicketing and toll

Pay TV cards

Access control & Attendance

Asset tracking Credit cards

Access Control

Asset Tracking

Raw material & goods tracking

Library management Attendance

Access control, Loyalty cards

Electronic passports

Toll receiptsIdentity cards

Defense plane tracking

Personnel & Ammunitions tracking, LGP cylinder, laptop tracking

MNIC cards Driving licenseVehicle Registration

Source: ISA – Feedback Study, 2009


Bulk of the applications are supported by contact based cards

Segment Applications in India Global applications

Telecom SIM cards SIM cards

Transport Registration License Tolling and ticketing

Vehicle tracking

Registration

License cards

Tolling E-ticketing

Vehicle tracking

Entertainment

PAY TV cards

PAY TV cards

Banking and Finance

Credit card Debit card Credit card Debit card

Healthcare Patient card Insurance Patient card

Insurance

Retail Cash transaction

Loyalty cards SKU tracking

Cash transaction

Loyalty cards

Discount cards

SKU tracking

Government License National ID Security cards

License National ID Security Cards

Passport

Education Campus cards

Library cards Library management

Campus cards

Library cards

Library management

Hotel Hotel cards Hotel cards Frequency cards

Discount cards

Key Cards

Employee access

Others LPG tracking Inventory management

Animal tagging

Animal tagging

Inventory management

Segment arrangement is based on popularity of usagePredominantly contact based Predominantly contactless RFID taggingSource: ISA – Feedback Study, 2009


India is now moving towards contactless cards; however RFID yet to gain popularity

• Shift from the simple application of identification, to more complex applications, like data

processing from smart cards

• Technology orientation and scope to integrate futuristic applications, have led to the usage

of 16 bit processors

• Need for an all in one card - national acceptance for multiple applications

Processing type

System (excludes SIM cards)

Type

Application

8 bit card

Contact based

Memory card

Access control

Historic Current Future

Majority 8 bit, but 16 bit finding

acceptance

Around 80% contact based, 20%

contactless

Select cards are memory based,

while others are microcontroller

based

Access control, identification,

driving, tolling, license

16 bit & 32 bit to find

maximum applications

Majority of cards being

contactless

Only microcontroller based

cards

Integrated application cards,

likely to be the key

Indian Smart Card Industry Evolution



Government initiatives – potential applications specific to India for smart cards

Projects Description Number of people enrolled with the scheme

Possibility of a smart card conversion and activeness of the project

RSBY Rashtriya Swastya Bima Yojana – Health insurance service for families below poverty line

• 6.2 mn families enrolled till date and have been issued a smart card

• Highly active project for issuance of smart cards

• Target of 15 mn families in FY’ 10

NREGA National Rural Employment Guarantee Act – Employment to the rural poor for a minimum 100 days in a year

• Employment provided to 100 mn households till date

• Highly active project for issuance of biometric based smart cards

• Target of 10 – 15 mn in FY’ 10

Voter ID Photo identification card issued to people to authenticate identity for voting

• 586 mn voter ID cards in India

• Unlikely to convert into smart cards

Ration card Identity document for public distribution system classified using the monthly household income of a family

• 222 mn families with ration cards in India

• Kerala government plans to issue smart card based ration cards

PAN card Permanent Account Number for Income tax

• 84 mn PAN cards issued

• Unlikely to convert into smart cards


Chip suppliers and card manufacturers are technology drivers, while market is driven by governing bodies

• Manufacturers of smart cards

• Integrate SOC with the plastic cards

• Design the system based on the key objectives of usage

• Integrate technology with infrastructure for optimum usage and maximized operations

• Policy makers• Regulatory authority

– set out guidelines for all needs of card users from design, integration to supply

• Key entity to roll out national level projects

• Third party evaluators to verify the sanity of the system

• Technology standardization• NIC, CRIS

• End users have limited influence in driving the need for smart cards

• Majority of the smart cards and components are imported; Chip sets, SIM cards, readers, etc.


Market dynamics of smart cards have time and again posed operational challenges for stakeholders in the Indian market Chip suppliers Hitachi Infineon MosChip NXP ST Micro

Reader suppliers CMS Data Net Systems

Ltd. Gemalto M -Tech

Reader suppliers CMS Data Net Systems

Ltd. Gemalto M -Tech

Card suppliers Bartronics ERG Gemalto IRIS Kedia M -Tech Orga Siepmanns VCT

System integrators

AFTEK

CMS

EFFKON

Explore Infotech

iSmart International

M -Tech

Score Infotech

SISL

Smart Chip

Wipro

Xident

System integrators

AFTEK

CMS

EFFKON

Explore Infotech

iSmart International

M -Tech

Score Infotech

SISL

Smart Chip

Wipro

Xident

Active consortiums CEPS NIC (National Informatics

Centre) SCAFI (Smart Card Forum of

India) SMARS (Smart Rupee System) Zero Mass

Active consortiums CEPS NIC (National Informatics

Centre) SCAFI (Smart Card Forum of

India) SMARS (Smart Rupee System) Zero Mass

Promote smart card based transactions in payment and identification areas

Refer standards and specifications

User segments: Government Sector Telecom Non – Telecom

User segments: Government Sector Telecom Non – Telecom

Note: This is only an indicative list, established through market interaction. The listing is done on alphabetical order

• Industry evolution started with chip suppliers followed by consortiums, system integrators, card and reader suppliers


Regulations and policy framework need to be strengthened to advocate higher issuance of smart cards across segments

• Need to ensure conformance to standards and guidelines • Policy framework should warrant that all the applications and software is developed/

tested by the department of IT (NIC), specially for government projects• Promote collaborative working across departments various systems • Build a wider network of semiconductor companies for authorising and certifying smart

cards for the varied applications

• Ensure faster implementation of projects• Build capabilities for implementation of large scale projects – addressing mass market

volumes for smart card application• Synchronizing cards usage across multiple applications – integrating geographic usage to

common user pool

Issues to be addressed

Focus areas


Indian smart card industry estimated at USD 130 mn for FY’ 09 where cards account for 64%

2008 - 09

Value: INR 6,500 mn (USD 130 mn)

Smart cards64%

Infrastructure + software

25%

Services11%

Of the 140 mn contact based cards, SIM cards account for125 mn Chip sets account for 40 – 50% of the total project cost, while the balance is made up by

card, OS and integration costs Smart cards chips are primarily imported from China, Taiwan, United States and European

Union Penetration of smart cards has been driven by the acceptance of Governing bodies or nodal

agencies, despite higher cost of cards

Market estimates for smart cards and RFID tagsOverall size of the smart card industry

Conversion norm: USD 1 = INR 50

Value: USD 84 mn Volume: 158 mn



Contact based cards form bulk of the smart cards business in India

• Contactless is a superior technology, but is yet to find strong foothold, due to cost economics; is likely to gain prominence in the coming years

• New technology phones like Nokia 6212C with NFC driver, capable of acting as smart cards and also as reader terminal (NFC project implemented in Bangalore on a pilot basis)

Smart cards –18 mn cards (excludes SIM cards) RFID Tags – 15 mn tags



Contactless cards are likely to become more popular in future due to competitive costing and longer life of cards

• Smart cards are typically of the following sizes• 2.5 cm x 1.5 cm (SIM cards)• 8.5 cm x 5.5 cm (Others)

• Contactless cards gaining popularity over contact based cards – The ratio likely to change to 50% share for contactless, from the present 20% for non-SIM card applications

• Life of contactless is higher (8 – 10 years) than contact based (3 – 4 years)• RFID tags with a reading range of 5 – 10 cm are the most common; strong challenge

against barcode labels valued at 20 paise per label• Minimal changes in infrastructure for contact based solution and contactless solution;

variation in cost of solution is primarily driven by cost of card

INR per card



Large scale project implementation and technology upgradation amongst key challenges

Technology

Regulation

Awareness

Integration

• Build allied infrastructure (like reader terminals) and improve its penetration across cities

• Work towards educating customers on the extent of application of smart cards across user segments and governing bodies

• Streamline procedures in Government funded projects (approvals, standardization)

• Database generation, integration into one system and authentication - major challenge for UID project

• Integration of existing non smart card users to smart card user pool for existing applications (e.g: e-passports: existing book form passport holders to convert to e-passport)

Cost • Increasing cost pressures from substitute products like magnetic

cards (for smart cards) and bar code readers (for RFID tags)

KEY

CHALLENGES


Government projects likely to be the key growth driver for smart cards in India

• Government schemes like

NRGEA, RSBY, ESIC and e–

Governance projects

• Government participation and

strong policy framework

• Growth in telecom subscriber

base – key driver for contact

based smart cards (SIM cards)

• Increasing awareness on

applications of smart cards and

reduced prices, likely to see

greater acceptance of smart

cards in private organizations

• Technology integration and

multiple applications of smart

cards, expected to drive

growth

• Government – • Employee's Provident Fund to issue smart cards for its

26 mn subscribers• Smart Cards for Government employees & laborers in

Goa• The Kerala government to issue smart card based

ration cards• 6 mn cards under RSBY scheme; 10 mn ESIC cards

• Banking and Financial Sector –• ICICI Bank: Smart cards for facilitating transactions,

payments to utilities and services etc.• Reserve Bank of India (RBI): SMARS (Smart Rupee)

project Mumbai Campus Scheme for 150 merchants

• Transport – • Driving license : Gujarat State & Delhi Traffic Police.• Ticketing: Metro railway, Kolkata & (BEST) Mumbai

• Loyalty card – • Promoted by BPCL, HPCL, Snowhite, Homesaaz

• Library Management – • Used for stock taking, to determine the location of the

books at DFRL Mysore, Kerala State Central Library


UID program will be issuing an unique identification number alone and will not necessarily influence the usage of smart cards

• Need for UID number is primarily governed by security requirements of the Indian economy and access to opportunity for the poor, which is identity governed

• Around USD 20 mn planned under UID project for FY’ 10. The authorities will work in close coordination with Home Ministry’s National Population register through the Registrar General of the census, in accordance with the Indian Citizen Act

• National Rural Employment Guarantee Act, Sarva Shiksha Abhiyan, National Rural Health Mission, Bharat Nirma are government schemes covered under UID

• Karnataka has been chosen as the pilot state to implement the project; potential of around 50 mn

• Phase 1, which is database collection, is estimated to complete in around 2 years

• Authenticity and safeguard of information through government nominated data collection centers

• First set of UID numbers expected to be rolled out by 2010-11

• Biometric information like fingerprint and photograph to be used for identification and authentication of a particular UID number

IdentityPE, ESI, Pension

Bank account

Police complaints

Property transaction

Employment schemes

VotingInstitutional admissions

Tax

Driving license

Telemedicine

Passport

Unique Identificati

on number to

every resident of

India

UID can be used for applications which demand background checks


UID can be a backbone to drive high potential for smart cards

• Scope to feed the UID number onto a smart card• Ease of carrying the card and use in applications which require UID number• Individuals do not have to remember 16 digit UID number

• Large number of issuing authorities like Banks, Insurance companies, Mobile phone operators, Schools, Government bodies, Corporate firms can incorporate the UID number in the smart cards for their respective users• Easier and faster background checks• Since UID will be accepted nationwide, the migrating population will be hooked onto

the existing services • Eliminates the possibility of re-allotment based on location

• Scope to converge multiple applications onto the UID based smart cards to make the system future proof• Passports• Vehicle registration and Driving license• Ration cards• Banking and insurance, etc

• Likelihood of an all in one card in the years to come


India offers a huge potential for smart cards with e–governance applications leading from the front

Pointers defining potential

for smart cards

e-passport

Banking

Health

Transport and Ticketing

RFID Tags

• Increase in immigrant population mix of students and working professionals seeking overseas opportunity; around 8 - 10 mn passports issued every year

• Initiative to provide free health check up and treatment for the rural population has given rise to the need for health cards; an estimated 800,000 is the rural population of India

• ESIC – provides health services card to 40 mn people at government subsidized rates

• Government focus on metro rail projects across major cities like Delhi, Mumbai, Bangalore, Chennai, Hyderabad; scope for integration by using common card across public transport

• Huge potential, replacing existing magnetic cards with smart cards; smart cards offer scope for multiple applications using a single card

• Growth in the retail sector and need for tracking the goods helps in efficient stocking

• Growth in segments like transport (vehicle tracking), logistics (container tracking); fuelling demand for RFID Tags


Strong regulations and technology convergence likely to help achieve realistic market numbers by 2014

Action points which would help

achieve realistic volumes

• Regulations

– Need for a strong regulation which

would govern and monitor smart

card implementation on a pan

India basis

– A consortium could ideally drive

smart card implementation

• Technology convergence

– Learnings from the global market

and showcase integration with

existing technology

• Inflection points for smart cards

– Faster implementation of pilot

projects and converge to

established applications

Segments

• Other applications like hotel cards, club cards, access cards are likely promising ones, along with the above listed key application segments

• The Indian market exhibits a huge limiting potential owing to the large population base

• Need for technology future proofing likely to be driven by the usage of 32 bit processors



In summary…

• While India offers a huge potential for smart cards, the biggest challenge is timely implementation and existence of strong regulatory policies

• Different Government departments need to work as a consolidated unit for successful implementation of smart card based projects

Learning from the global smart card market

Capabilities of Indian companies to address smart

card demand

Emerging trends – application and segments

• Suitability of new

applications, which can

be directly implemented

in India

• Technology barriers

overcome and converted

into proven success,

which could be replicated

in India

• NFC devices likely to be

the next level technology

products; doubly used as

a smart card and reader

terminal

• 16/32–bit cards expected

to become more popular,

governing the

applications built on

smart cards

• Strong base of system

integrators with exposure

to complex system

applications

• Import of select

components like chip sets,

high integrated application

smart cards, readers, etc.

Conclusion


Need for an active consortium comprising stakeholders in the smart card ecosystem to increase penetration of smart cards and redefine the market in India

Key challenges associated with smart card implementation

• Targeting mass population for smart card implementation likely to be a challenge as rural population is widespread

• Integration of services like authenticity of cards and processing specific applications from a remote location, likely to be a challenge

• Reaching out to the rural population and setting up a strongly networked infrastructure for smart cards

Way forward for the Indian semiconductor industry

• Import of semiconductor chips to address the potential; foundry set-up requires huge investments and rapid change in technology

• SC supplier needs to be a “solution provider” to reap higher benefits in the smart cards and identification business

• Associate strategically with key IT vendors who “ exercise” significant control over potential customers

• Proactive investments in pilots projects; unconditional supply of chipsets and RFID tags for developmental and pilot projects

• Leverage the experience of global markets to develop standardized solutions


Themes for Recommendations – Inputs from the Team (based on the things to be done to benefit the semicon industry)

• Government programs – Enlist various government programs which could potentially

make use of smart cards. Showcase the benefits to individuals and Government by usage

of smart cards for these programs

• Implementation and impact on economy - How will the use of smart cards impact the

economy as a whole – learnings from the global market

• Government policy and regulations – Flexibility in operations, interoperability, use of local

foundry

• UID to create opportunity for smart cards – Convince Government to include UID number

onto smart cards, along with biometric and photo image of individuals

• Benefits to the ecosystem – Enlist the benefits for the stakeholders/ companies involved in

the smart cards ecosystem from a semiconductor perspective

• Boost local manufacturing – Activities that could be locally managed (design,

manufacturing of cards, readers, etc.) relate to employment generation with local interest


Glossary of terms used in the document

Terms Definition

BEST Bombay Electric Supply and Transport Company

BPCL Bharat Petroleum Corporation Limited

bn Billion

DFRL Defense Food Research Laboratory

EMV Europay Master Visa

ESIC Employee State Insurance Corporation

HPCL Hindustan Petroleum Corporation Limited

INR Indian National Rupee

LPG Liquefied Petroleum Gas

mn Million

NFC Near Feed Communication


Glossary of terms used in the document

Terms Definition

NIC National Informatics Centre

NREGA National Rural Employment Guarantee Act

OS Operating System

RFID Radio Frequency Identification

RSBY Rashtriya Swasthya Bima Yojna

SIM System Interface Module

SMARS Smart Rupees

UID Unique Identification

USD United States Dollar

An ISA – FEEDBACK Document

Thank you

ISA Confidential 2009 27

an isa – feedback document isa confidential 20091 an isa – feedback document

Documents

contactless cards

health cards

plastic cards

pin cards

mumbai cards

smarts cards

smart card applications

smart card industry