For years, Europe has been using smart cards to do everything from
health identification to banking to buying groceries, but the United
States has been slow to implement the technology due to a lack of infrastructure
and the highly fragmented market. But increased growth in the digital
realm, the increased use of mobile systems, the importance of network
security, and the government taking an active role in smart card applications
will drive this market to unprecedented heights.
According to Frost & Sullivan's research on the U.S. smart card
market, participants shipped 14.4 million units in 1999. By the end
of the forecast period, 2006, the units shipped is projected to rise
to 114.7 million. The pay TV segment, which includes digital broadcast
satellites (DBS) and PC/TV set-top boxes, such as Web TV; and the mobile
segment are currently driving the market. Combined, these two segments
were responsible for shipping nearly 93 percent of all units sold in
the U.S.
In the future, however, the network security and government segments
will garner a greater share of the marketplace. The government, specifically
the defense sector, has played an important role of piloting smart card
applications and will begin mass deployment in the next few years. The
network security segment is projected to make up nearly half of all
units shipped by 2006.
The greatest challenge facing the industry is a revamping of the infrastructure.
Frost & Sullivan projects that it would take nearly $3 billion to
convert just the hardware and over $12 billion to change the entire
infrastructure in both direct and indirect costs. The rest of the world,
including Europe, on the other hand, built their infrastructures from
the ground up, based on smart card technology.
Instead of smart cards, the U.S. based its payment systems on magnetic
stripe card technology. Until the banks have a business case that proves
smart cards can be a viable competitive advantage, this industry is
reluctant to change.
"U.S. banks haven't been able to nail down return-on-investment
with smart cards," Frost & Sullivan analyst Alyxia T. Do says.
"But banks have to face the fact that new competitors in the form
of telecom operators, insurance companies, and transit authorities are
changing the face of the financial competitive environment. Smart cards
can be the banks' response to increased competition."
Fragmentation in the application market is also a major hurdle smart
card participants must overcome. Whereas in France or Germany, the country
may have one to three telecom operators, the U.S. has nearly 50 wireless
service providers.
"While we have been able to create pockets of market activity
and development, the total conversion of the country is not occurring
yet," Do says. "What will continue to hurt the U.S. market
are issues that need to be solved in the industry more generally. We
have more application frameworks and platforms than we can handle, our
markets are niched by vertical market demands, and the banking industry
is still trying to find its business case. All of this is slowing down
the industry quite a bit."
Despite these difficulties, Frost & Sullivan expects that the U.S.
market will grow and will become one of the leading and most innovative
markets in deploying smart cards."Smart cards in the U.S. will
grow with everything Internet-related," Do says.
Alexia Do is the program leader for Frost & Sullivan's Smart Card
Global Service Subscription. This subscription offers 16 deliverables
throughout the year and covers semiconductors, smart cards, software,
system integration, and readers. The Frost & Sullivan smart cards
market research team is comprised of six analysts worldwide, covering
the Asian Pacific, European, Latin American, and United States markets.
For additional information, visit the Frost & Sullivan web site
at http://www.frost.com or contact Cara Shevlin at tel: 210-348-1018;
fax: 210-348-1003; email: cshevlin@frost.com.