Asia Pacific Smart Card Outlook


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A global smart cards IC overview, delivered by analysts from Frost & Sullivan.

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Asia Pacific Smart Card Outlook

  1. 1. Asia P ifi S A i Pacific Smart Card Outlook t C d O tl k “Secure Silicon for Smart Cards” March 2009
  2. 2. Focus Points Global Smart Cards IC Overview Asia Pacific Smart Cards IC Overview • APAC Smart Card IC Market Dynamics Key M k t D i K Market Drivers & R t i t Restraints Smart Card IC Overview & Market Size • Impact of Financial Crisis on the Smart Card Industry by key applications • Conclusion – Smart Cards Outlook 2009 • Key Take Away Messages Highlights of Related and Upcoming Research & About Us Questions & Answers 2
  3. 3. Global Smart Cards IC Overview Smart Card IC Market: Market Segmentation (World), 2008 • Applications such as SIM, Banking and payment, Government ID, transportation are key contributors to the total global smart card IC and smart card revenue. ICs (Integrated Circuits) • Europe and parts of Asia have been the technological leaders in smart card application over the years. In both these regions, there are catalysts in various fields, pushing the boundaries of smart card usage year on year. • France, Germany and UK are among the more progressive nations in Europe, with adoption in all key applications today. Memory Microcontroller • Asia Pacific houses the most progressive markets like Japan and South Korea and potential volumes from China and India. However at the same time, a large part of this region, in contrast, is extremely nascent, if not underdeveloped. • North America – contactless continue to gain healthy growth North Latin Asia EMEA America America Pacific 3
  4. 4. Global Smart Cards IC Overview • Major applications continue to offer steady growth. • Price continues to have an impact on the market. • New emerging vertical markets begin to show real promise in terms of growth. growth • Use of biometrics increases sparked by US intervention. • The use of contactless technology in the payment sector in all regions heightens. • MCU Smart card IC gaining Momentum –thrust on security and larger memory capacity thrust • Continued variance of market strategies used by manufacturers leading to a dynamic competitive landscape landscape. 4
  5. 5. Global Smart Cards IC Overview: Key Market Drivers & Restraints Pricing Pressure Continue SIM continue to dominate the market & to Stifle Revenue Growth Increasing interest for high capacity SIM Slow emergence of Standards Government application in emerging applications drives growth (e-Passport & ID) Bad media surrounding certain *NFC – sparks new interest in NFC government projects stun growth Multiapplication concept in some geographic area Contactless distant dream to Current economic scenario C t i i actual implementations t li l t ti Dynamic changing landscape Source: Frost & Sullivan * NFC : A combination of contactless identification & interconnection technologies that enables wireless short range communication between a mobile device, consumer electronics, terminals and smart objects. Increasing NFC trials/pilot globally 5
  6. 6. Global Smart Cards IC Overview: Market Size Smart Card IC Market: Revenue Forecasts (World), 2001-2013 5,000.0 , 4,500.0 enues ($ 000,000) 4,000.0 3,500.0 30,00.0 2,500.0 2,000.0 Reve 1,500.0 1,000.0 500.0 0.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Year Note: All figures are rounded; the base year is 2007. Source: Frost & Sullivan • In 2007 approximately over 4.9 billion smart cards IC were shipped worldwide • By 2013- expected to grow to over 9 billion units with CAGR of approximately 12-13% (2007-2013) 6
  7. 7. Percentage Split by Region 2007 & Forecast 2013 Smart Card IC Market: Unit Shipments Split by Geographic Region (World), 2007 North d Latin America N th and L ti A i 6.2% Smart Card IC Market; Unit Shipments Split by Asia Pacific Europe, Europe Middle East 37.9% 3 9% Geographic Region (World) 2013 (World), and Africa 55.9% North and Latin America 4.9% Europe, Middle East and Africa Asia Pacific 53.3% 41.8% Note: All figures are rounded; the base year is 2007. Source: Frost & Sullivan 7
  8. 8. Partial list of Emerging Applications Healthcare Mobile Payments Gaming Emerging Applications Further Developments Tourism in NFC Rural Banking Source: Frost & Sullivan 8
  9. 9. Price War Plummeting SIM card Competition is good for driving prices efficiency, BUT: Significant impact for vendors Vicious price war aggravated by local players is globally- more dramatic in Asian potentially damaging to the industry, as this markets. could eat into the reserves for further R&D and innovation required of smart card manufacturers to further progress the industry. Resulted in overall revenue When the price is too low, some of the card drops for many p y p y players in Asia. vendors might corrupt the quality and security Foreign vendors in the largest standards in order to survive. In the long run, this Asian market, China, loss will affect the end users market share to local Interesting to see developments of local vendors- g p competitors. competitors can live up to the expectation of 3G requirements by telcos and users alike. 9
  10. 10. Contactless Smart Card Applications Key Applications Government ID Mass Transit Contactless Payment OTHERS Rationing of Health Education Public Goods bli d Cards Student ID cards Entertainment Contactless C l Door Travel /Theme Parks SIM Access /Tourism Source: Frost & Sullivan 10
  11. 11. Key Applications for Contactless-Partial List of Examples Key Applications Government ID Mass Transit Co tact ess Contactless Payment & Loyalty e-Passport SUICA Visa Wave/Touch National ID/Citizen Cards (e.g. T-Money MasterCard's MyKad and Second Generation ID PayPass/PayWave card in China) Octopus JCB – QUICPay/JSpeedy Driving License/Vehicle Registration Ez-Link Foreign Worker Cards Edy – prepaid e wallet e-wallet Taiwan Money Card & Public Sector Cards EasyCard Moneta Taxation Cards Social Security 11
  12. 12. Contactless Market Trends Security concerns drive business case for various applications Flexible form factors provide opportunities for value-add Upgrade and improved features in some pg p applications Convergence of mass transit and payment – on cards and mobile platform d d bil l tf NFC and other mobile payment technologies p moves towards mass adoption 12
  13. 13. APAC Market Dynamics High population. New technology gy India 1.1 billion I di = 1 1 billi acceptance levels China = 1.3 billion high Eg: Japan, Korea Densely populated regions. Minimal legacy systems in Tier 3 y countries Manufacturing Hub of the world. Rising Income Levels. Improvement in standards of living Majority of markets far from saturation 13
  14. 14. APAC Smart Cards IC Overview: Key Market Drivers SIM Continues to Drive Growth Contactless Proven to be A Winning Business Case Growth in Transit Projects Government Mandates & roll out NFC Brings New Interest to contactless and Multi-application Source: Frost & Sullivan Large User base 14
  15. 15. NFC Outlook Current State Future State: Mass Deployment Outstanding key factors O di k f Availability of y Contactless Convergence of smart card t d 2006 & 07: trials, handsets contactless SC infrastructure acceptance apps on 1 testing platform &standards setting Equitable TSM and business support model service for Using U i APAC: South multi-apps Contactless SC Korea and Japan technology – leads way with mobile devices highest usage of Interoperability contactless & standards * NFC : A combination of contactless identification & interconnection technologies that enables wireless short range communication between a mobile device, consumer electronics, terminals and smart objects. APAC Volume Ramp up- expected in later half Increasing NFC trials/pilot globally of 2010 f 15
  16. 16. APAC Smart Cards IC Overview: Key Market Restraints Lack of Business Case Continuous Price Erosion Reducing Profit Security Leaks And Demonstrations affects user confidence Interoperability Issue with Contactless Infrastructure Source: Frost & Sullivan 16
  17. 17. APAC Smart Cards Overview: Market Size & Estimated Forecast 2007 APAC total smart card IC shipments = over 1.9 billion units (to grow to over 4 billion by 2013 ( with CAGR of approximately 15%) • In 2007, SIM was still the key application with approximately 60% of total smart card volume in the region Mobile Communication Others SIM 34% 60% Mass Government ID Others Transit APAC 40% Key Smart Card 2006 Total Asia Pacific Smart Card Market Applications SIM 60% Corporate Banking/ Security Loyalty 2007 Total Asia Pacific Smart Card Market Others Source: Frost & Sullivan 17
  18. 18. Impact of Financial Crisis on the Smart Card Industry by Key Applications 2009 outlook Corporate Security Government ID Loyalty & Banking GDP Growth, (World), 1970-2010 9.0% Emerging and developing economies World 6.0% Growth (%) Healthcare Telecom 3.0% Advanced economies 0% -3.0% 1970 19 0 1975 1980 1985 1990 1995 2000 2005 2010F Source: IMF 18
  19. 19. Corporate Security Outlook • Irrespective of the economic scenario, security will continue to be a key issue. issue • Companies may have reduced their budgets in terms of the type of security needed; they might prefer standard security systems, which offer good security, rather th hi h d security systems. it th than high-end it t • Security tensions are still quite high in the Asia Pacific region (e.g. Bali, Mumbai and Pakistan) • In order to have economic security measure, smart cards would be employed to have the biometric template on the chip, as against a database that would attract significantly higher costs. • Corporate security, therefore, will continue to be of high priority, i C t it th f ill ti t b f hi h i it irrespective ti of the economic scenario. • Vendors can maximize on the cards ability to host multiapplications on a card – for example in addition to physical access control application – suggest to include cafeteria /micropayment application to ensure higher return on investment (ROI) 19
  20. 20. Loyalty & Banking Outlook • The banking vertical is expected to experience a slowdown in 2009, as a direct consequence of various financial institutions having stricter regulations on the issuance of credit cards. This scenario is, however, not expected to be a long-term effect. • Banks would also be looking at situations where a credit card could be given to a high-risk customer, but with stricter penalties in case of defaults. Moreover, the credit limit would be very much restricted f high-risk customers. h t i t d for hi h i k t • Financial institutions will be looking at having proper segmentation. As per the segmentation, users will have benefits that are apt for their credit rating. These conditions will not be binding forever as the users credit rating could increase depending on his/her forever, payback capacity over a period of time. In such cases of improvement in the user's credit rating scores, he/she can opt for higher, or better, privileges on the same card. The privileges may be in the form of more credit, or lower interest rates, or even the availability of loans and insurance on the card. • Through a smart card, these conditions can be rewritten as many times as there is a change in the user's credit rating score. • Loyalty programs are expected to continue unabated despite many of them still being in unabated, the pilot stages. The loyalty card programs, as a matter of fact, are likely to experience a higher growth rate in 2009 than in the previous years, as a result of the economic recession. the loyalty program is expected to witness substantial growth with many of the customers wanting to take full advantages of the points accrued on their loyalty cards. 20
  21. 21. Telecom Outlook • Mobile and social applications are expected to be some of the major g growth areas for 2009. • Blogging and social applications that can be accessed from the mobile phone have all been growing since the second half of 2008, and are expected to continue to grow in 2009 2009. • Telecom applications will continue to grow especially in the emerging countries in Asia Pacific. Currently, mobile banking through short y, g g message services (SMSs) is extremely popular in the Philippines. In the current financial crisis, a rapid growth in additional subscribers in this field can be expected. • Local participants should be able to provide quick applications that could be an addition to the payment application on these phones. The addition of these applications would be dependent on the subscriber identity module (SIM) card b i used and h d l d being d d hence, could pave th way f hi h ld the for higher capacity SIM cards in the future. 21
  22. 22. Healthcare • The healthcare application is also likely to witness a slowdown in the issuance of smart cards Many of the healthcare card projects in Asia cards. are still in the pilot stage. • The correct documentation and record conciliation features, which the , smart card offers, are indispensable; however, during this time of an economic recession, many hospitals would rather concentrate their efforts on not increasing the cost to the end user. • However for certain healthcare projects have been brought in line with the country's national ID project. Projects such as these will continue on track and other vendors such as the terminal readers can also be vendors, readers, expected to benefit from such programs. 22
  23. 23. Government ID • It is during an economic recession that individual vehicle owners would consider other more economic modes of transportation. Thus will see a other, transportation steady growth in this application market. • Transit projects in the Asia Pacific region are already q p j g y quite p p popular and have been chosen as the killer application for contactless smart cards. • Small value payments is already an application that is being uploaded p y y pp g p on many of the transit cards. Revenues generated from this application could be used by smart card participants to invest in new applications. • One of the first applications that is usually considered is the loyalty application, which could be added on to the transit card, that is likely to be a new and faster source of revenue generation. Retail and loyalty can also be used in conjunction with an access control application application. 23
  24. 24. Government Application/s Outlook • Government ID projects are expected to continue without any delays as a result of the economic recession. • The main driver for government ID cards continues to be security threats in the Asian region, which takes precedence over the recession. • Various governments are providing tax holidays or concessions for companies during these tough times. In line with this, various governments are bringing in more companies in the value chain for the production and issuance of smart card, which would be beneficial to the country in the final reckoning. y g • In line with an increase in the demand for security, government agencies in the Asia Pacific region will be increasing their security, especially along border regions. This would demand fast and proper identification of citizens in these areas. p p • The e-passport program is an example of a project that will not see any reduction in unit shipments over the years. As a matter of fact, certain new additions can be expected in the security protocols of the e passport program, in terms of other biometric parameters being added apart from facial and fingerprint. • The e-passport program would also ensure the stable growth of high-capacity chips in the coming years with more countries being brought in under the web years, web. 24
  25. 25. Smart Cards Market: Focus Steps for Sustainable Growth (APAC), 2009 IMMEDIATE MODERATE FUTURE Focus on core applications for 2009 growth New applications for N li ti f Strategic alliances for 2010/2011 growth expanding user base for non - core applications Utilization of government funding, tax subsidies, and lower interest rates 25
  26. 26. Conclusions – Global Smart Card IC Growth Recommendations • To be a market leader in this market, strong presence in the SIM market is required. • Focusing on new emerging applications with certainly provide manufacturers with a boost in growth and also boost average selling prices. • Looking for new types of customers is a medium term process and one which needs to be done carefully as not to frustrate existing ones. • National ID projects expected to provide momentum in the market market. • NFC expected to bring substantial growth to the market in the coming years. • Contactless and dual-interface technology on the upswing with electronic passports with contactless chips being the highlight. 26
  27. 27. Key Take Away Messages • On the whole, the smart card industry participants should concentrate on their core competencies for their respective applications through utilizing all the benefits from government subsidies, tax cuts, and so on. • The next stage should be in investing, or at least laying the foundation, for the next g g, y g , year from when an economic upswing is likely to be witnessed. • New applications should be tapped now. pp pp • Strategic alliances should also not be ruled out. A strategic alliance would help the industry participant to expand to new markets, as well as allow it to concentrate on its core competency. 27
  28. 28. Who is Frost & Sullivan • A global growth consulting company that partners with clients to support the development of innovative growth strategies. • For more than 45 years, we have leveraged our comprehensive market expertise to serve an extensive clientele that includes Global 10 000 companies emerging companies and the investment 10,000 companies, companies, community • We offer industry research and market strategies, provide growth consulting and corporate training, and support clients to help grow their businesses businesses. 28
  29. 29. What Makes Us Unique o •Exclusively Focused on Growth •360 Perspective TM Global thought leader exclusively focused on Proprietary T.E.A.M. Methodology integrates all addressing client growth strategies and plans – 6 critical research methodologies to significantly Team actively engaged in researching and enhance the accuracy of decision making and developing of growth models that enable clients lower the risk of implementing growth strategies strategies. to achieve aggressive growth objectives. •Growth Monitoring •Industry Breadth Continuously monitor changing technology technology, Cover the broad spectrum of industries and markets and economics and proactively address technologies to provide clients with the ability to clients growth initiatives and position. look outside the box and discover new and innovative ideas. •Trusted Partner •Global Perspective Working closely with client Growth Teams – helping them generate new growth initiatives and 32 global offices ensure that clients receive a leverage all of Frost & Sullivan assets to global coverage/perspective based on regional accelerate their growth. expertise. 29
  30. 30. 360 Degree Perspective 30
  31. 31. Global Perspective Oxford Toronto T t London Frankfurt Palo Alto Paris Warsaw New York Milan Beijing Tokyo San Antonio Israel Seoul Dubai D b i Shanghai Delhi Fuzhou Bangalore Mexico City Mumbai Bangkok Chennai Bogota Kuala Lumpur Singapore Sao Paulo Cape Town Sydney Buenos Aires Melbourne 31 Offices – 1,700+ Staff 31
  32. 32. Highlights of Current & Upcoming Research Research Titles (GLOBAL) Research Titles (ASIA PACIFIC) Draft Smart Card IC Market size APAC Smart Card Outlook 2009 O tlook Draft Smart Card Market size APAC Smart Card Management System Collection of Smart Card Numbers APAC Smart Card Printers Smart Card Market Profiles f l P fil of local Companies: Smart C d V l lC i S Card Value Smart Card SIM Chain Smart Cards for Banking Smart Card Third Party Testing Smart Cards for Government Chip & PIN in Asia (banking/payment) Smart Cards for Transportation South Korea Smart cards Market Smart Card IC Market Asia Best practices/Cases for Contactless Contactless Smart Card Convergence Readers & Chipsets Asia Pacific Smart Card IC on Different Form Factors M2M High Density SIM Cards Corporate security (inc Smart USB) Smart Card Management Systems Near Field Communication 32
  33. 33. Thank Th k you Questions & Answers