On the Way to Personalization Bureaus (“Banking technologies”, No 3, 2006)

In spite of the fact that not a single Russian manufacturing-company claimed itself in the capacity as an independent personalization bureau, there are companies in Russia that, in fact, provide for such services.

Russia, as is well known, has its own way; and the Russian card market has all the more. Despite an experience of the whole world all together and an elementary economical sense the concept “in-hose” remains the most favored – our own processing, personalization, crediting bureau – everything is our own. Naturally, there are certain exceptions, but the most part of banks-exceptions are those that are merely unable to build this “own” up for themselves. As a rule, any “serious” card-project starts with the creation of a processing center.

In order to look deeper into the reasons of the “in-house” concept predomination, it is worth remembering the history of the card market and peculiarities of interrelations between the players.

“Omnia mea mecum porto”

Until 1998, a number of large, mostly Moscow banks had actively offered in the card-market the sponsorship-packs that included an entering to the payment system, card-personalization, processing and transactions of payments. However, a crisis of 1998 destroyed an already shaped market of sponsorship services – most of sponsors simply ceased to exist. Bridge-banks attempts to restore the market in 1999-2000 did not result in any noticeable shifts due to a number of reasons.

Firstly, a number of banks that had stood out the crisis cherished serious prospects for the noticeably devastated market and were building up its own card facilities. Secondly, together with the crises of yield and liquidity the banking system suffered a severe crisis of trust – old banks under the new names had no confidence among their colleagues in spite of any promises and new organization forms. And at last, thirdly – payment systems themselves began to pursue a more rigid policy towards both sponsor- and agent-banks, practically stimulating the banks for the raise of their participation status. As the result, the situation turned in fact into a real paradox. Thus, for instance, with the obvious excess of processing capacities there was not the less obvious shortage of processing services and that deficiency having been eliminated by the further capacity increase.

As the result, most of the large banks have found themselves in possession of a full arsenal of solutions ready for the operation in the card market – processing centers, personalization bureaus and etc. This entire arsenal was used at a mere part of its rated capacity, and it all happened when the banks had to count every penny and the struggle to reduce costs was the main slogan during the post-crisis automation.

An Advent of the EMV

Since already 2001 the talks about migration of the international payment systems “Visa International” and “MasterCard International” began to shift from the field of pure theory to the practical plane – technological and economical aspects of migration initiated active discussions at forums, conferences and in special publications. Various scenarios of the less painful migration of a separately taken bank to a separately taken EMV-project were offered but the foreign experience was stubbornly ignored. Why? Because in the circumstances of the “in-house” concept, that was dominating in the market at the moment, such experience was practically useless. In the article "Why it’s better to come second in the race to EMV” published by the “Banker”, Paul Meadowcroft, an analyst of “Thales e-Security” writes that: “An EMV migration project can require from the bank changing 12 or more separate parts of the infrastructure such as the host system, back-office, personalization line and etc. and to say nothing of course, total change of the whole cards themselves”. Analyzing a European experience, Meadowcroft makes a few interesting conclusions:

An EMV-migration is always turns cheaper to the banks and moves smoother if followed collectively under the auspice of associations and other unions (Let us, in fact, remember at least as a classis example a success of the APACS project).

Projects implementation should be accomplished stage by stage and it is not worth going too fast ahead of the market, otherwise they will benefit by your own mistakes and you will have to rehash everything as a result.

Outsourcing of services and an infrastructure component is the less painful and a more reliable way.

In Russia, centralized migration is not even in question; project implementation goes absolutely asynchronously, and the idea itself of an outsourcing is in the core contrary to the “in-house” concept as it is. Russian banks move to the EMV in irregular columns; success is rarely mentioned, and the whole picture of an EMV-migration deems to be known to the international payment systems only; and they seem, somehow, reluctant to display it.

Perhaps, exclusively what the Russian market has derived from the foreign experience is the large and all the way increasing number of the EMV-compatible decisions themselves. So those who conceive EMV-projects today have much at hand to select from, and the chances to economize are almost everywhere, except for … the personalization.

When magnetic stripe-cards were concerned, the only nightmare was the cost of equipment that practically allowed operating large quantities, whereas with the advent of the EMV into a nightmare turned a generation of personalization data itself. Even the simplest hard- software complexes for the generation of personalization data for the EMV-cards – is not a cheap pleasure. In addition any of such complexes requires, naturally, a certification of international payment systems. From the other side, having a personalization complex in possession is the only chance to offer clients the so called “instant issue” products, and in future – a post-issue loading of additional applications into the cards.

European banks moved the usual way – looked for the services of personalization bureaus. Whereby, the beginning of the EMV-migration sprouted up two world tendencies. Firstly, an outsourcing share of personalization services is growing, and, secondly, inside the market of the outsourcing agencies the share of the largest personalization bureaus, which belong to the largest card-manufacturers in the world, is increasing. Both tendencies are clear: technologies are rising in price and become more and more complicated, but confidentiality and responsibility are growing.

In December 2005, "Oberthur Card Systems” celebrated an opening of a new renovated personalization bureau in Italy, near Milan. Mass EMV-migration of Italian banks began in 2005 and its market resembles to a certain extent the Russian one – 850 banks, more than 50 million cards in circulation, 20 million are issued annually. Specific features of an Italian OCS bureau consider peculiarities of the Italian market; the bureau is designed for a simultaneous production of a multiple variety cards in whatever small quantities. Whereas an urgent card personalization takes only six hours. According to Massimiliano Brocci, head of OCS Italian Subdivision, the bureau issues more than 2500 card profiles, 500 various cards are processed daily. His colleague, Oscar Parigi, responsible for the banking sector said at the opening of the bureau – “With the EMV-migration smart-cards personalization turned to be extremely complex, requiring new skills in the handling of data and the management of keys. We have this experience and allow our clients to focus on their core business and spare their time and money for the acquisition of new technologies”. It should be noted that to the services of an OCS bureau resort not only small and middle-size banks but also large issuers, such as “SSB” and a “daughter” of the "Deutsche Bank” – “BankAmericard”.

A Credit Race

A process of the EMV-migration in Russia flows sluggishly, though the market of consumer credits is rapidly developing. Strange as it is, but in the field of crediting the banks also come across problems related to the plastic card personalization. If an advent of the EMV arose evident technical difficulties in the field of personalization, then the consumer crediting boom – a sharp upswing in quantities along with a simultaneous acceleration of the process.

It became evident to the majority of the banks actively involved nowadays in the business of retail crediting, that a plastic card is an exact optimal instrument that allows solving one of the main problems of this business – automating the receipt of credit payments. Credit card circulations have abruptly risen and the cards must be quickly distributed, whereby very often the cards are not handed over personally but, for example, sent by post. A notion of a credit card was replaced by the notion of a client’s package – a card inserted into a special wrapping envelope together with an activation guide and, quite possible, with some other additional information.

Mass production of clients’ packages requires from the bank an arrangement of a regular production line for the personification and packaging of the cards, and this line must be also certified by international payment systems. Very often there is no time for that – an “in-house” conception works no longer.

Are there personalization bureaus in Russia?

In spite of the fact that not a single Russian manufacturing-company claimed itself in the capacity as an independent personalization bureau, there are companies in Russia that are in fact providing for such services.

NovaCard is a Nizhny Novgorod company that began card production in 1994, became the first Russian company certified at the same time by both international payment systems Visa International and MasterCard International. Nowadays the company produces more than a million of cards per day and an annual production capacity exceeds 500 million cards.

In December 2005, NovaCard obtained accreditation from MasterCard International for the compliance with the requirements of this payment system to the quality management system under production and personalization of its microprocessor banking cards MasterCard, (CQM - Card Quality Management Infrastructure Quality Requirements), to confirm a compliance of its production facilities with the requirements to the quality management standards under production of cards, module implantation and personalization. That December the company was also certified by Visa International for the personalization of microprocessor cards and as well as for the production of the new Visa brand banking cards.

NovaCard has already got rich experience in supplying large consignments of client’s packages; recently the company announced the release of the first million of MasterCard Electronic cards for the Home Credit and Finance Bank, whose co-operation with began in August 2005.

Within the scope of co-operation in the credit cards production program NovaCard has also provided Home Credit with a full range of services of tailoring for the card holders a fully customized documents package ready for the delivery via post.

So, independent personalization bureaus are there in the Russian market. They are in possession of serious production facilities and are waiting for the new clients whom the market urges to review at last the “in-house” concept and avail themselves of the fruits of the world experience.