Introduction
Russian smart-cards market is one of the fastest developing sectors of country’s financial market. The trial period which was over by 1995 allowed its participants to learn technologies and problems that can be hit upon while dealing with “cards” business. The fact that more then 500.000 international plastic cards were issued in Russia for several last years only approves of the topicality of such payment systems.
What are plastic cards? What kinds of cards exist?
Cards with magnetic line and memory-cards
Cashless payment systems based on traditional cards with magnetic line are dominating world wide. They achieved noticeable improvement in supplying card owners with many kinds of services. But the fact of internal limits in magnetic line cards leads to many new problems. These problems are: the increase of financial risks and losses, administration expenses, technical problems. This kind of cards has a lot of disadvantages that make their operation in Russia in same scale as in Europe impossible. The most serious disadvantage, in my opinion, is that such systems require on-line authorization in stores and, as a consequence, they need well branched high quality communication nets (e.g. telephone lines).Because of this fact magnetic line cards systems have a serious restriction for their operation in the countries with unsatisfactory state of telecommunication systems. I also have to notice a low security level of magnetic line cards and the entire technological chain of such systems. This often leads to great flow of unprovided false transactions. This aspect is a serious obstacle to developing magnetic card systems, especially in the countries with a high level of criminality.
Memory-cards belong to chip-cards equipped with memory chip. Payment systems based on memory cards have important advantages as compared with magnetic line cards. They have a higher security level and the option of off-line authorization in stores. Technical abilities of chip built in memory cards define restrictions to their operating in payment systems though. We have just the same problem here (as with magnetic line cards) – unsatisfactory security level of any single card and system in general. Taking criminal situation in Russia into consideration we have to admit that this kind of cards can hardly find the appropriate place in modern Russia. This aspect captures a special place when several banks are involved in one payment system, where special attention should be paid to accident prevention and authenticity of financial information, differentiation of responsibility for keeping a secret information with transaction members. Main areas for memory-cards are systems of limited access to accommodation and computer networks (identification cards); telephone networks (cellular telephone network GSM); payphone and metro cards, local payment systems (club cards). Certainly, memory-cards will find their place, but obviously they will not be ruling in future.
Thus, magnetic line is a medium in magnetic line cards which lowers reliability and makes multi recording impossible and requires on-line access.
The chip is a medium in memory-cards. Such cards can be used with off-line access, multi recording is available, but the procedure is still complex. Because of low security level running memory-cards is dangerous.
Smart-cards: step forward
Magnetic line cards market is now formed in all developed countries. Giant infrastructure was created: processing centers, money access machine, trade terminals, hundreds million cards in use, international standards are formed and admitted. That is why magnetic line cards will be still in use for many years.
However, world leaders VISA, Europay, MasterCard have already declared about inevitable conversion to smart-card technology in future. All of them started developing future international standards for payment systems based on smart-cards. Even in Europe where magnetic line cards are traditionally popular smart-cards are winning one project after another.
The most successful introduction of smart-cards is supposed to take place in the countries where magnetic cards hold a weak position; in the countries without high quality well branched and reliable communication systems; in the countries with a high criminal level where the population have a low credit reliability.
These days many Russian banks issue traditional magnetic cards of international payment systems. However, such issues are definitely oriented on concrete social consumer group and regions of their use are quite limited.
Now lets say some words about a smart-card. The medium in smart-cards is a small processor chip. The identification area allows only one record while personalizing the card and later available for reading only. Access to other areas available only after the card holder entered the proper “key”. The smart-cards security level is much higher than the magnetic cards one. As to prices on smart-cards, they are higher, but they become lower and lower every year as their technology is being improved and production scale is being enlarged
The smart-cards are small computers is some way. Modern smart-card chips features can be compared with personal computers in early 80’s. Part of the data located on a smart-card can be used only in internal card’s operations. This fact together with high level cryptographic security makes smart-cards valuable asset for financial systems demanding additional security and reliability. Because of that smart-cards are now considered to be the most promising kind of plastic cards. They can be also considered to be the most promising for their features. Smart-cards counting abilities allow card holder to keep multi-currency wallet. As predicted by VISA and Europay/MasterCard, smart-cards will replace magnetic line cards within the 10 year period.