Executive Director's Letter

Dear members and friends of the Alliance:

As quickly as you can say "frost on my pumpkin!," the fall season has arrived and that means the onset of the holidays are nearly upon us. That is good news if you think of it in terms of family gatherings and holiday parties, but it is also bad news if you are trying to compress the next 6 weeks of Smart Card Alliance activity into about 3 weeks of time. So much for having some downtime after the completion of our successful October Annual Conference in Miami!

I will focus my comments on what is already behind us rather than talking about what lies ahead for a change. Last week, I was in Paris attending the Cartes Conference, which is always the highlight of the fall season for me. I can report firsthand that the images of Paris and its suburbs on fire and under siege by protests were nowhere to be found and, unlike many of the visitors from the U.S. and China who changed their hotel locations and transportation to avoid potential problems, the French citizens were going about their business with little or no concern.  It certainly did not have an impact on the crowds walking the exhibition halls. The exhibits were flooded with people - so much so that it was difficult to get close enough to see what was on display in the booths of the smart card companies, chip manufacturers, and especially the POS terminal vendors. Cartes had created an ID security pavilion and had some success in reaching out to the security and identity markets. However, payment still is the dominant business in Europe. Contactless technology and products were showcased throughout the card, terminal, and financial services exhibits. Some of the most interesting demos I saw involved NFC-enabled solutions, showing the potential use of mobile handsets equipped with contactless technology that allows the phone to operate as a reader, a payment device, and a data port for peer-to-peer communication. The people I spoke with are very excited about the U.S. market for NFC since the technology is compatible with the more than 100,000 ISO/IEC 14443 contactless POS terminals being installed throughout the country as part of the contactless payments roll-out. Wouldn't it be interesting if a technology born and developed in Japan (Sony), the Netherlands (Philips), and Finland (Nokia) would take root in North America first?

Another important industry development that was clearly evident at Cartes is that the financial industry is interpreting the recent action by the FFIEC as a push by federal regulators to get financial institutions to take action to counter the threat of online banking fraud. The FFIEC guidance is requiring financial institutions to come up with two-factor authentication solutions by the end of 2006 to replace user names and passwords that are prevalent today. Since many of the top financial institutions are international banks who are already engaged in EMV chip migration elsewhere, this may be the business driver that has been missing to get financial institutions in the U.S. to revisit chip cards. Chip cards don't need connected readers to accomplish two-factor authentication, but can work using handheld readers to generate one-time passcodes that meet the two-factor requirement and replace insecure user name and password schemes. Early reports from the United Kingdom, which has completed their EMV migration, shows that fraud has moved from card-present locations (in-store retail) to card-not-present locations (online retail). This may demonstrate that financial institutions can really control organized fraud only by looking at the multiple ways criminals can take advantage of financial accounts and providing solutions that address all of these channels for fraud. I encourage readers to closely examine this month's member profile interview with Toni Merschen, Head of the Chip Center of Excellence at MasterCard International, who talks about these issues.

In case you missed our press release on November 8th, we announced that membership in the Smart Card Alliance has grown over 45% in the last year. This remarkable growth can be directly attributed to the increased interest in the work that our technology and industry councils are doing in the areas of physical security, healthcare, contactless payments, transportation, and identity. It also demonstrates that mainstream computer software and hardware companies like Sun Microsystems, Adobe, Cisco Systems, and Texas Instruments recognize that the smart card industry is no longer a niche market for specialty players, but that the technology is now pervasive. Latin America will soon follow, leading to the Americas possibly becoming a driving force in the smart card market in the next five years. Thank you to all of our new and existing members for supporting the Smart Card Alliance. There is still much more that we can accomplish together in the future.

Randy Vanderhoof, Executive Director

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