Contactless prospects. Interview of Alexey Kovalev, IT-Director of JSC NovaCard (World of Cards No.6, 2012)

<p><strong>From the 19^th to the 22^nd of April, 2012 the company NovaCard held the banking conference called «New technologies and plastic cards» in the branch office of the Diplomatic Body Central Authority under the Ministry of Foreign Affairs of Russia, at the rest-base «Zavidovo» (Tver Region). The meeting gathered over a hundred of representatives not only of banking community but of telecom companies, nowadays actively participating in development and adoption of NFC-technologies.</strong></p>
<strong> </strong>
<p><strong>We have talked with one of the conference lecturers Alexey Kovalev, IT-Director of JSC NovaCard. «World of cards»: For many years payment solutions on the basis of contactless cards have been in the process of pilot tests. Can we say now that an industrial stage has already started?</strong></p>

<p><strong>Alexey Kovalev:</strong> Yes, of course, if only because it is expected according to Eurosmart expert’s estimates that the contactless and dual cards will be produced in a quantity of 290 million in the world in 2012. If the forecast comes true the growth from the previous 2011 year will reach 29%, that is considerably higher than the increase of payment smart cards output basically, whose growth is expected to be 19%. Besides, the share of the contactless cards in the total volume of payment cards is growing. If in 2011 it was 22%, in 2012 according to the forecast this share will be about 25%. In absolute figures, it will be 1,2 billion cards. Moreover, according to the forecasts of Frost & Sullivan analytical agency (November, 2011), by the end of the 2017 year the share of cards with dual interface can be 45% of the total amount of shipped cards (Figure 1).</p>

<p>Over the past two-tree years Russian banks have shown increasing interest in the contactless technologies. And almost all leaders of bank industry either have already run the projects of card emission PayPass and payWave or are in the process of their launch. So that the launch point of global emission may be considered to be passed.</p>

<p>And if in the past we, the company NovaCard, were addressed with the theoretical questions about our possibilities for production of such cards, now the matter concerns quite concrete large orders on the dual payment cards production.</p>

<p>While, certainly, the share of such cards in overall production is small, but right now its considerable and steady growth in the next few years can be predicted with certainty. On the average, across Russia about 1 million of the dual payment cards can be produced by different manufacturers this year.</p>

<p>I must observe, that not accidentally I stress these cards are payment. Our forecasts do not take into consideration the emission of other contactless cards – social, identification and transportation.</p>

<p><strong>«W.C.»:</strong> Can we say the same about NFC? Which are the most evident achievements in the application of this technology?</p>

<p><strong>A.K.:</strong> If we talk about world experience the critical mass of successful projectsб using NFC technologyб have already been accumulated and can not be already ignored. The problem of launch of new large-scale projects or expansion of existing ones is just a question of time. For instance, experience, which was got in Nice, now is compiled in other cities of France and even in other countries.</p>

<p>So, in 2010, in Nice the project on payment of accommodation by public transport with the help of the mobile phone was implemented by three French national mobile operators – Orange, SFR and Bouygues Telecom. Already in autumn, 2011 these operators started the service Cityzi on payment of parking and purсhases in the shops in Strasbourg. At the same time French payment Ingenico provider declared about partnership with chain hypermarkets Globus in Czech Republic in the project on NFC-payments adoption by 2012. Today similar projects are unfolding world over – in UAE, Netherlands, USA, Japan, Spain and etc.</p>

<p>In Russia it is too early to speak for now about any concrete results because potential participants of such the projects share, to say the least, distrust to each other: banks not too trust telecos, telecom-operators grab the biggest piece of the pie too, trying to function as banks, and trade and transport companies are dully watching this process, not seeing for themselves habitually obvious business-case. In such situations agreement between the project participants is an exception rather than the rule. At the same time international practices show that productive cooperation is just a question of time. After all, we have already had even just single but ambitious projects.</p>

<p>Russia traditionally falls a few years behind Europe, meanwhile the process of adoption and development of any technology recapitulates all-European by its key stages. It was true of migration in microprocessor EMV cards, and it is true now when the matter concerns addition of contactless technologies to the classic EMV.</p>

<p>It is an overall market tendency and the causes of it are found, to my mind, in inadequate competition on the banking market. That force is not yet great to start banks off on practicing high technologies to stimulate profit earning and to compete for their clients. It is natural because Russian banks have not yet exhausted the resources of extensive progress that is why there is no need to apply new technologies and to develop intensively. And, as a consequence, infrastructure of contactless cards usage is underdeveloped.</p>

<p>However, it is impossible to point activity of the largest Russian mobile operator – the company MTS, which is going to launch the project using NFC-SIM-cards with MasterCard Mobile PayPass of «MTS Bank» payment application. We take part in this project and these SIM-cards were produced and personalized at our plant.</p>

<p><strong>«W.C.»: NFC, PayPass, payWave – how do all these technologies correspond between themselves?</strong></p>

<p><strong>A.K.: </strong>PayPass and payWave are the payment applications of the international payment systems MasterCard and Visa. Such applications can be a part of NFC-system. NFC is a broader concept which involves either technical elements or a way of the system participants’ interaction. Generally speaking, the abbreviation NFC means Near Field Communication or Interaction of Near Field. It is a mechanism of interaction between the client device and the terminal, which works at a distance of several centimeters.</p>

<p>As a rule, when speaking about NFC, we bear in mind the mobile phone, having the properties and its controls. NFC-telephone has to contain a secure element, which involves the application, emulating different kind of the contactless cards, and which safely keeps these applications data as well as radio-interface, providing contactless interaction with the terminal. The secure element can be produced either in the form of special SIM-card or can be built in the telephone set.</p>

<p>Thus, the contactless cards can be like loaded in NFC-telephone and works the same way as the ordinary contactless cards. For the terminal such cards and NFC-telephones are equivalent. These cards can be presented by the payment bank cards. Transportation cards, discount cards, in particular the applications PayPass and PayWave can be loaded in the secure element of NFC-telephone and turn the telephone into a resource of payment.</p>

<p><strong>W.C.: There are quite evident zones of potential application of contactless payments – transport, fast food restaurants and etc. Whether the range of these zones will be wider? Whether the contactless solutions will become dominating payment technology just for comfort?</strong></p>

<p><strong>A.K.:</strong> To my opinion, the contactless technologies in virtue of absolute comfort of their usage should become dominating for the foreseeable future and press other technologies. Transport and fast-food spheres are the most obvious spheres of their application, as they can be characterized, first of all, by steadily large client stream whose need is a quick service, and, second, by small amount of payments.</p>

<p>Therewith, the contactless payments are convenient and for ordinary transactions to the greater sums. These transactions as well as the contact ones are secured by PIN-code. If in the past appearance of the bank cards was taken for an attack on money in cash, appearance of the contactless payment cards is called an attack on coins.</p>

<p>Restaurants and fast-food cafes are of interest for banks not only by client capacity but by advertising resources of the institutions as such.</p>

<p>Application range of the contactless payments and the contactless cards will be definitely expanding. Successful projects are necessary, and on their expansion new ideas of the contactless payments application will arise.</p>

<p>In this regard loyalty programs, applications connected with the human environment, medical applications will be a very good venue for the wider application in whole of the contactless transactions. It may indirectly assist the growth of total number of transactions, as the contactless cards are easier to work and represent optimal and choiceless exchange of money in cash, especially when transaction is small and its implementation does not require to enter PIN-code or to sign a check.</p>

<p>Transaction implementation speed is very critical for these small payments. Such payments are made usually on a massive scale, so sales point will get the greater profit the faster it can service a customer and the more effectively it minimizes queue and payment implementation, in principle. Certainly, the contactless technologies are a godsend for them.</p>

<p>Now in the course of realization the projects appear like that:</p>

<ul>
  <li>Contactless payment at the filling stations, providing in total the greater traffic of cars in comparison with traditional payment form and comfort of use;</li>

  <li>Traffic on paid highway (West Speed Diameter (WSHD) in Saint-Petersburg).</li>
</ul>

<p>In Turkey, which is one of the most advanced regions on the contactless cards, the services have been already implemented and have been had an element of popularity like that:</p>

<ul>
  <li>Travel along paid bridges (traffic jams have been reduced);</li>

  <li>Stand of periodicals (queues have been disappeared);</li>

  <li>Flower sale;</li>

  <li>Entrance to cinemas;</li>

  <li>Tramways and water transport;</li>

  <li>Payments on checkout counter in large supermarkets.</li>
</ul>

<p>The services with NFC-technologies application are claimed, such as:</p>

<ul>
  <li>Music downloading for listening;</li>

  <li>Data acquisition about historical monuments situated by the way and the rest.</li>
</ul>

<p><strong>«W.C.»: How are the contactless payments secured? How are technologies of their security developing?</strong></p>

<p><strong>A.K.:</strong> Indeed the contactless payments are secured considerably higher than other technologies, when protection is built on some visual elements on the card surface, to say nothing of the magnetic strip that is not secured at all.</p>

<p>The magnetic strip is very easy to copy, while the contactless payment is not even if it is represented in its simple static version. There is a counter of transactions which is constantly changing. Even if once transaction data have been countered it is impossible to duplicate the data for the implementation one more transaction.</p>

<p>«W.C.»: What are the main features and difficulties of the contactless and dual cards production?</p>

<p>A.K.: There are no difficulties in the production of purely contactless cards. The technologies have been existing for a long time, they have been perfected and applied in a mass scale by all plants including NovaCard. Also the technology for so named «hybrid» cards has been perfected.</p>

<p>There are definite difficulties in the production of the dual cards. These difficulties as a rule are connected with providing reliable contact between the antenna, located along the card perimeter and the micro-module. There are still no any dominating technology which is used everywhere. There are a great number of different technologies each of them has its own benefits and drawbacks.</p>

<p>There are the basic of them:</p>

<ul>
  <li><strong>Current-conducting glue technology.</strong></li>
</ul>

<p>At this technology the micro-module is glued by two spots to the card body and to the antenna with the help of current-conducting glue.</p>

<ul>
  <li><strong>Anisotropic glue technology.</strong></li>
</ul>

<p>This technology does not require special glue which is able to conduct electricity between the micro-module contacts and the antenna, but which does not close them between each other because of special characteristics of glue to conduct electricity in one direction and to be a dielectric in the other. The technology suits for the standard manufacturing process of smart card assembling, demanding just a little adaptation.</p>

<ul>
  <li><strong>Flexible Bump Technology,</strong> the contact between the micro-module and the antenna is provided by a packer located between the micro-module contacts and the antenna. The technology is required the application of special equipment and materials.</li>

  <li><strong>Technology by which the micro-module is soldered to wires of the antenna.</strong></li>
</ul>

<p>It can be implemented at the stage of card inside production (prelam) or at the stage of card assembly. Such technology requires the application of very specific complex equipment and materials.</p>

<ul>
  <li><strong>Technology of inductive coupling</strong> between a big card antenna and a small antenna located on the micro-module. Very high card reliability is provided due to absence of mechanical contact between the module and the antenna. Moreover, the technology of card production is not differ from the standard technology and does not require any additional equipment.</li>
</ul>

<p>The current-conducting technology is the oldest and the most incomplete in terms of contact demolition between the antenna and the chip as affected by natural causes: mechanical winding, heterogeneous thermal expansion and compression of different card components, chemical degradation of the contact with the lapse of time. Disadvantages of this technology, prevailed in good time, forced to invent another more subtle and reliable technologies.</p>

<p>All described technologies have been extensively studied by the specialist of our companyб we choose only those of them that give more reliability.</p>

<p><strong>«W.C.»: Please, tell in detail about your NFC-project.</strong></p>

<p><strong>A.K.:</strong> As I mentioned earlier, on the Russian market NovaCard turned out the first NFC-SIM-cards with MasterCard PayPass application for MTS and MTS Bank innovative project. This unique product represents the extreme example of telecom and bank spheres convergence: SIM-card of new generation with NFC and full-range EMV payment Mobile PayPass application capabilities – the technology of contactless payment MasterCard. The cards were produced in close partnership with the company Oberthur Technologies, whose micro-module was used for the card production.</p>

<p>Users of the innovative technology will to pay for goods and services through the payment terminals, with MasterCard PayPass «one-touch» receipt capability, just putting the mobile phone to the reader. Thus the mobile phone becomes a universal mobile purse. Herewith the main advantages of the MasterCard PayPass technology are kept, such as protectability, convenience and transactions speed.</p>

<p>A unique technology of NFC SIM-cards personalization that allows to bring two different personalization processes together, that is the personalization of SIM-card actually and the personalization of banking application, so to solve the problem of diverse informational streams and different project participants integration, was developed by our specialists.</p>

<p>Moreover, in April 2012 inside the same strategy of innovative leadership JSC NovaCard passed a test for appropriateness to the GSM Association safety SIM-cards production requirements (standard SAS, Security Accreditation Scheme). SAS certification is free and corresponds to very high level of production security. So there are less than 20 companies in the world which managed to go through the certification.</p>

<p>JSC NovaCard is the first and at present the only one Russian company-producer of SIM-cards, that got the SAS certificate. Receipt of the certificate has its special significance under conditions when convergent products enters the market , such as NFC SIM-cards, and the security of SIM-cards production systems becomes a part of bank cards production security.</p>

<p>Furthermore, at present JSC NovaCard is the only one Russian company which has a rich experience of SIM-cards and bank cards production. So those banks and telecom companies that have already seen an opportunity to expand their business using convergent solutions can fearlessly contact us for the most hi-tech products.</p>

<p>Copyright © Alexey Kovalev, IT-Director JSC NovaCard, 2012. All right reserved</p>

<p>Copyright © Journal World of Cards, No. 6, 2012. All rights reserved</p>

<p>Usage of the materials is permitted on condition of reference to the company NovaCard and World of Cards journal</p>