VLADIMIR KRUPNOV: RISK MANAGEMENT IS THE KEY TO SUCCESS OF EMV (Cards’ World, №8, 2005)

Cards’ World: Let speak about evolution of bank strategies in the field of EMV-migration. Do you agree, in particular, that «liability shift», which was dominating the year before, now is replaced by «positive shift» (additional capabilities of EMV-cards as a new source of profit)?

Vladimir Krupnov: The question is difficult and everything is far ambiguously. There is no way of speaking about radical replacement of motivators though motivational system has been undergoing considerable changes in the long run.

The more actively the bank I involved in the process of movement to EMV-platform, the better its relationships with Visa International and MasterCard International. It is not a secret for anybody that the international payment systems conduct the global replacement of technological platform and infrastructure that is why they are forced to resort to very different shifts for the bank-participants. The shifting of responsibility acting a part of sword of Damocles in the process of EMV-migration is still there. The role of such an important shift as the best protectability of EMV compatible cards form all kinds if fraud in recent time is also increased, as the rascaldoms is always searching for the weakest link in a chain and is inevitably activated there where the banks is still working with magnetic strip.

The opportunity of additional services creation on the basis of EMV compatible cards such as loyalty programs and discount systems is also interesting today to the Russian banks, though the banks realize quite distinctly that the main problem there not in the capacities of EMV cards as such but in the necessity of creation of complicated organizational schemes with participation of commercial facilities, clients and etc.

New capacities in the field of risk management put into recent versions of specifications are the main, to my mind, «positive shifts» of EMV-migration for the Russian banks. The opportunity to manage authorization limits and the character of authorization, which is implied today by EMV standard, flexibly and dynamically gives the bank complete control of transactions. That is the most actual for Russia, moreover, the market of credit financial products is rapidly developing in recent time.

C.W.: What is the reason of a jump of banks’ interest to additional capabilities of EMV-cards? Is the reason a positive lagged effect of Visa and MasterCard policy toward EMV-specifications, opened up the new opportunities for the banks and vendors? Or is the reason in the appearance of new types of certified cards? Is the reason in reduction of cards’ cost? Is the reason in something else?

V.K.: The cards technologically allowing to implement as much as difficult loyalty programs or other services have been existing for a long time. Change of the payment systems policy is still the main thing, of course. I would not call this change as «lessening», because Visa as well as MasterCard pay strict attention today to such things as loyalty that finds a reflection in the specifications. The bank gets the standardized platform for building of loyalty systems it means they can be sure in maintaining investments which have been already made today and to speak with potential partners from other positions.

Moreover, though Visa International and MasterCard International have already had their own specifications for the loyalty programs on EMV compatible cards, the work on them proceeds and there is a certainty that in the near future the banks will have intersystem sectoral standard.

C.W.: What the principle problems do the banks starting the process of EMV migration face today?

V.K.: It depends on bank strategy in this sphere. If a bank has an intention to launch several hundred or thousand the simplest cards just to put a daw in the line «EMV-emission», there are not so many problems. That is another matter if the bank considers the movement to EMV as an opportunity of creation of the new financial products, and it means the new sources of profit-making. In this case we speak about a long-term strategy which has to take into account the mass of factors, and it is always very difficult. We, in particular, in the partnership with Oberthur Card Systems consider consulting the banks in the field of the existing products, types of cards, scheme of risk management as one of the main tasks. With this aim NovaCard and Oberthur hold a chain of practical seminars, and I invite there all comers.

Of course, there are common and fairly technical problems in the field of EMV-migration, for example, in the creation of personalization complexes.

C.W.: What solution, in the field of EMV, does the alliance NovaCard – Oberthur Card Systems offer today? What is their main competitive advantage (choice of products, prices, terms of delivery, support and etc.)?

V.K.: Oberthur Card Systems is not the only solution supplier in the field of EMV-migration. Competition in this field on the Russian market is very strong becomes harder. By the way, demand for EMV-solutions is so high that the appearance of a new player provokes a great interest of the banks, moreover, our alliance with Oberthur has a number of strengths. First of all, Oberthur Card Systems is undoubtedly a supplier number one in the world in the field of financial applications. The company has a wide practical experience and a great number of implemented projects with different banks. Secondly, we as a local card manufacturer have an opportunity to assembly the optimal list of relationships between the chip supplier and the final consumers – the banks. It is optimal from different points of view: volumes and terms of order placement, price setting, service, consultations. Finally, thirdly, we are in position to solve all problems concerning personalization of EMV compatible cards saving the banks from the necessity to built their own personalization centers with all implied problems.

C.W.: Does it mean that NovaCard is ready to undertake functions of independent personalization bureau?

V.K.: Yes, certainly. Though, this practice is not typical for the Russian market. By the way, the institute of independent personalization bureaus is the mainstream in the world, and the experience of the first projects in the field of EMV cards took off all apprehensions connected with appearance of the chip and the personalization bureaus will soon become ineffective. So we will try to change the situation and in Russia.

At the same time Oberthur Card Systems has practical experience in creation of the personalization lines with all the popular suppliers of personalization equipment on the Russian market, so we are ready to solve the problems of EMV cards personalization in the regime in-House for our clients.

C.W.: What cards and solutions of Oberthur Card Systems do you consider the most actual for the Russian banks as of today? And why?

V.K.: Oberthur Card Systems and NovaCard see the main direction of development of the payment applications in the promotion of solutions based on the opened specifications of JavaCard and Global Platform. Such solutions allow the bank to develop the portable applications in accordance with different requirements to the business organization and safety and to adopt quickly the new services formatting extra value. The solutions based on such opened platforms save the bank from technological dependence from the supplier of a chosen solution.

The products MoneyIC Cosmo and MoneyIC Chrysalis are the most required payment solutions of Oberthur Card Systems.

MoneyIC Cosmo, available on the cards with different EEPROM capacity (8, 16 and 32 k) in accordance with the specifications Java and Global Platform, offers flexible bank solutions, the advantage of it is in different applications rapidly adopted to the clients’ needs.

MoneyIC Chrysalis is the most advanced software of EMV standard developed by OCS for the native cards. Chrysalis is specially made for the installation on the crystals of different types. This software is constantly renewed in terms of safety and recent EMV-specifications.

Chrysalis supports multi-EMV applications and offers additional applications based on EMV- authenticaction, for example, access and signature control for the home banking. Besides EMV-functionality, MoneyIC Chrysalis allows the card to support other applications enclosed safety data, for example, loyalty applications.

C.W.: How does the product line of GSM-cards look there? What are the competitive advantages of a company on the GSM market?

V.K.: Our partner Oberthur Card Systems was the first which applied the technology Java to GSM. The development of the safest and the most flexible and highly efficient products, which help GSM-operators to reach the maximum efficiency of their strategy and to increase incomes, is the result of 10 year experience of work with the platform Java. The completed line SIMphonIC V3 (from 32k to 256k) EEPROM is the most popular product line, which provides with direct migration on large storage capacity at expanding the spectrum of rendered services.

We also offer SIMphonIC 3G, the set of the most advanced Java-cards for 2G and 3G nets. This product allows the operators to jump easily from 2G to 3G thanks to backward compatibility of SIMphonIC 3G with nets of the second generation. Constant innovations of Oberthur Card Systems supplies with cards and larger memory span such as the cards SIMphonIC 3G MEGA with 1 M capacity.

NovaCard, being one of the Russian partner of Oberthur Card System, has complete production cycle available – form cards’ design to their personalization, development of additional applications and formation of full client packet.