Smart card sales shifting from memory to processors

New banking technology and shifts in telephone usage are changing the economics of the smart card industry, where worldwide sales of cards containing microprocessors are set to outstrip sales of memory-only cards for the first time next year, card manufacturers association Eurosmart announced Tuesday.

The telecommunications industry has traditionally been one of the largest buyers of smart cards — until now mostly in the form of memory cards for stored-value applications such as prepaid phone cards for use in pay phones. That’s changing, though, as the mobile phone industry expands. Many mobile phone networks use smart card technology for the SIM (Subscriber Identity Module), the part of the phone which associates calls made with the person who pays the bill.

Eurosmart predicts the switch will push sales of microprocessor cards from 430 million units in 2002 to 570 million in 2003 and 635 million in 2004. By comparison, 950 million memory-only smart cards were sold to telecom users in 2002, and around 850 million will be sold this year, according to Eurosmart figures.

In the financial, retail and loyalty card sector, Eurosmart predicts microprocessor smart card sales will grow from 175 million in 2002 to 185 million in 2003 and 235 million in 2004.

The association’s prediction for 2004 is all the more remarkable because it runs against the cyclic nature of the German card-issuing industry, one of the biggest buyers of smart cards for financial applications, Eurosmart chairman Olivier Piou said Tuesday.

Geldkarte, an electronic purse introduced in Germany in 1996, has a three-year renewal cycle, according to Piou. In 2002, the majority of cards issued in the former West Germany were renewed, making it a good year for smart card manufacturers. This year will be a medium year, as cards issued in the former East Germany are renewed, while next year only a few Geldkarte cards will be issued, to new users or to those whose renewal dates have changed because they have lost cards, he said.

The sharp growth in financial applications of microprocessor smart cards the association predicts for 2004 will be driven by adoption of the EMV (Europay-Mastercard-Visa) secure credit card system in countries such as the U.K., Japan, Taiwan and Brazil, Piou said.

Eurosmart expects strong growth, albeit starting from a low base, in use of microprocessor smart cards for corporate security next year, predicting sales will rise from 7 million cards this year to 10 million next year. However, the association’s optimism may be ungrounded: it made the same prediction last year.

Overall, 461 million memory-only smart cards were sold in the first half of 2003, compared to 424 million cards containing microprocessors, according to Eurosmart. For the full year, it predicts 961 million memory cards will be sold, compared to 867 million microprocessor cards.

This is the first time in years that sales of memory smart cards have dipped below a billion. Next year, Eurosmart predicts, sales of microprocessor smart cards will top 1 billion.

The association compiled its figures from data provided by card manufacturers, which buy semiconductors to make the cards, and checked them against sales figures provided by the semiconductor manufacturers. The two sides of the equation balanced to within a few percent, said Piou, ruling out any hype on the part of card vendors.