CHIP: THE GLOBAL
LANDSCAPE
I N T E R N A T I O N A L LY, THE WAV E OF THE CHIP
C A R D L E A D S TO T H E E N D O F T H E S W I P E.
There were 250 million EMV-compliant Of these chip cards, more than 95% are fraud. As chip becomes fully integrated into
chip cards and two million chip-card- EMV-compliant chip cards. the payments landscape, the value goes be-
capable ATMs and point-of-sale terminals yond fraud and chip becomes a competi-
deployed globally at the end of 2004. More In Asia/Pacific, EMV-compliant chip mi- tive advantage for those who have imple-
than 275 million banking cards issued in gration for both credit and debit cards are mented it properly.
at different stages of development. Taiwan,
Korea, Japan and Malaysia are the first TAIWAN
markets to lead the chip migration and Credit card fraud has been a serious prob-
have recently been followed by Singapore, lem for Taiwan. This was one of the key rea-
Thailand and Hong Kong. sons Taiwan set a deadline of 2006 for full
EMV compliance chip migration. The first
A number of factors converged to influence
chip migration in this market. One of the
early reasons was to combat credit card continued on page 12
More than 275 million banking cards
issued in 2005 carried a chip, an amount
that has almost doubled since 2002.
Taiwan*
18 Roll out of smart card-based
EMV migration deadline
health card by end of 2004
2005 carried a chip, an amount that has al- for Asia-Pacific, 2006
16
most doubled since 2002. The number of Mandate by
Ministry of Finance
chip cards in the banking industry is in- 14
to migrate all ATM cards
creasing every year and, given the two bil- to smart cards by
end of 2004
Unit Shipment (Millions)
12
lion chip cards currently in circulation, it is
Implementation of the
clear that the potential for growth is huge. Taipei Easy Card for
10
MRT stations, buses
and parking lots
The majority of chip cards are currently 8
being issued in Europe. In 2005, over 70%
of cards issued in Europe were chip-en- 6
abled. Asia/Pacific is hot on Europe’s heels,
where, as of 2005, over 25% of cards issued 4
were chip cards.
2
CHIP CARD MIGRATION IN ASIA/PACIFIC 0
As of June 2005, MasterCard had more 2001 2002 2003 2004 2005 2006 2007 2008
than 38 million MasterCard branded chip Telecommunications Financial
Government Transportation
cards in Asia/Pacific, registering 65% de-
Source: Frost & Sullivan *All figures are rounded; base year is 2003
ployment growth compared to a year ago.
INSIGHTS WINTER 2006 11
Taiwan Bank Fraud Trends
40
First Ever Multi-Use Smart Card
35
30
In January 2005, MasterCard International
partnered with the Kaohsiung City Govern-
25 ment to introduce a chip-based payment
US$ (Millions)
solution for Southern Taiwan’s transportation
20 system. The OneSmart PayPass Chip Combi
Card integrates both contact and contactless
chip payment solutions for electronic trans-
15 portation payments. The all-in-one payment
card combines MasterCard credit, debit,
10 Mondex stored value features, access to the
Cirrus Global ATM network and the MasterCard
5
PayPass contactless functionalities.
In addition to bringing the latest smart card
0
technology to Southern Taiwan, it also pro-
2000 2001 2002 2003
Mail or Telephone Unauthorized usage
vides mass transit users a higher level of
Lost card Fake card
security, convenience and service.
Stolen Others
Source: NCCC Undeclared card Grand Total
continued...
roll out of different products and the chip
chip card was introduced in Taiwan in 2001 time period. It is estimated that about 60% migration are illustrated in the chart on
jointly by MasterCard, Cosmo Bank and of the total terminals in Taiwan had been page 11.
Core Pacific Mall. Over 80% of the 1,000 made fully EMV compliant by the end of
point-of-sale terminals in Core Pacific Mall 2004, making Taiwan the leader in Even before the completion of the planned
became EMV compliant within a short Asia/Pacific in this regard. Details of the chip migration, payment card fraud losses
Malaysia*
12
EMV Comes to China
Smart cards issued
11
peaked in 2003 due to
the Central Bank’s mandate
10
for migration to chip-based Smart cards issued
The Industrial and Commercial Bank of China
ATM cards by end of 2003 national ID (MyKad) (ICBC), the largest commercial bank in China,
9
was launched in partnered with MasterCard International in
2001, and the duration
Unit Shipment (Millions)
8 of the roll out is Malaysia is stepping
December 2005 to launch the first EMV-com-
7
3 years (2003 to 2005) up to meet the pliant, chip-based card in China. The introduc-
government’s tion of the Peony MasterCard card marks an
mandate for
6
EMV migration– important milestone in the Chinese credit card
deadlines for industry, with ICBC as the first local bank to
5 card and terminal pioneer the shift to chip-based cards.
migration are end
4 of 2004 and 2005
respectively The completion of the ICBC program and move
3
to the EMV chip platform enables cardholders
2 traveling overseas to use their EMV chip card
1 utilizing the POS systems and ATM machines.
This also allows the service to be accepted
0
locally and provides opportunities for the
2001 2002 2003 2004 2005 2006 2007 2008
local payments industry as they enhance the
Telecommunications Transportation
payments environment in China, especially in
Government Others
light of the 2008 Beijing Olympics.
Financial
Source: Frost & Sullivan *All figures are rounded; base year is 2003
12 INSIGHTS WINTER 2006
declined. Card fraud rate, for example, fell THE EUROPEAN EXPERIENCE
US$10.8 million in 2002 to US$7.6 million
in 2003. Losses due to stolen cards, howev- FRANCE
Experience has
er, rose 36.4% from 2002 to 2003. But the
general trend of card-related fraud has
Cartes Bancaires (founded in 1984) started
France’s chip usage as early as 1990 with shown that after
been on the decline as illustrated in the the issuance of its first B0' (Bull Zero Prime)
first chart on page 12. card. Today, there are 42 million chip cards several years of using
issued by 180 banks and financial institu-
MALAYSIA tions to access 40,000 ATMs and carry out chip cards, domestic
The deadline set for full EMV compliance transactions with 600,000 merchants all
in Malaysia is 2006. Significant progress over France. These are US$ 200 billion and counterfeit has
has been made so far. Terminal compliance 3.4 billion transactions (75% payments,
and credit card compliance are near 100%. 25% ATMs) per business year. dropped from about
Growth in EMV-compliant terminals has
come from both “new” and “replacement” The French experience has shown that after US$25 million in
demand. The Association of Banks of several years of using chip cards, domestic
Malaysia and member banks have worked counterfeit has dropped from about US$25 1992 to almost
very closely in achieving speedy progress in million in 1992 to almost zero in 1997.
chip migration. The fraud rate has also dropped from zero in 1997.
0.087% to 0.019%.
continued on page 14
INSIGHTS WINTER 2006 13
continued...
UNITED KINGDOM losses topped £20.3m (17% total fraud)
The UK is the most mature card market in while chip-enabled France enjoyed a 0%
the world with 35 million cardholders and rate of counterfeit fraud. In the UK, coun-
87.6 million cards. The credit card is in- terfeit fraud grew at a rate of 72% between
grained into the payment landscape with 1995 and 1996 and another 49% from 1996
83% of adults carrying one or more pay- to 1997 – the case was clear cut. In addition,
ment cards. card issuers realized that the mature card
market would benefit from the fresh plat-
The primary motivation for the move to form for new services and product offerings
chip, as in other markets, was to reduce that smart cards brought.
counterfeit fraud. In 1997, UK industry
In the UK, counterfeit fraud grew at
a rate of 72% between 1995 and 1996
and another 49% from 1996 to 1997.
The First Chip Trial in the UK
The first chip trial in the UK was held in
Northampton and Dunfermline. The key
objective of the trial was to create a national
framework with global inter-operability that
had a common specification, was EMV compliant,
and secure. The trial also had to demonstrate
the operability and acceptability of chip tech-
nology in POS and ATM environments.
The trial began in January 1997 with 13 card
issuers and 8 acquirers taking part issuing
53,000 credit cards and 64,000 debit cards.
The cards could be used at 475 retailers and
19 ATMs. Throughout the trial, cardholders
used their cards for 104,000 point-of-sale
transactions and 117,000 ATM transactions.
The trial wrapped up in June 1998 and
exceeded all success criteria established.
Minimal incidents were reported and those
that were, were related to service code
failures. Both retailer and cardholder market
research done after the trial demonstrated
positive experiences with the technology
within these groups.
14 INSIGHTS WINTER 2006