St.Petersburg State University
Faculty Of Economicss
the term paper
The History Of Smart-Cards and Their Place In Modern Russia
writer: Victor Travin
Contentss
Introduction… … … … … … … … … … … … … . 2
What are fictile cards? What kinds of cards exist? .. 2
Card games with magnetic line and memory-cards… … … … … . 2
Smart-cards: measure frontward… … … … … … … … … … 4
The development of smart engineering… … … … … … … .. 5
Smart-cards appear in Russia… … … … … … … … 7
Smart-cards as bank & # 8217 ; s cards… … … … … … … … … . 7
Smart-cards as corporate cards… … … … … … … … .. 8
The topographic point of smart-cards in modern Russia… … … . 12
Plastic card payments in Internet… … … … … … … . 14
Decision… … … … … … … … … … … … … .. 15
Beginnings and literature… … … … … … … … … .. 16
Introduction
Russian smart-cards market is one of the fastest developing sectors of state & # 8217 ; s fiscal market. The test period which was over by 1995 allowed its participants to larn engineerings and jobs that can be hit upon while covering with & # 8220 ; cards & # 8221 ; concern. The fact that more so 500.000 international plastic cards were issued in Russia for several last old ages merely approves of the topicality of such payment systems.
What are fictile cards? What kinds of cards exist?
Card games with magnetic line and memory-cards
Cashless payment systems based on traditional cards with magnetic line are ruling universe broad. They achieved noticeable betterment in providing card proprietors with many sorts of services. But the fact of internal bounds in magnetic line cards leads to many new jobs. These jobs are: the addition of fiscal hazards and losingss, disposal disbursals, proficient jobs. This sort of cards has a batch of disadvantages that make their operation in Russia in same graduated table as in Europe impossible. The most serious disadvantage, in my sentiment, is that such systems require online mandate in shops and, as a effect, they need good branched high quality communicating cyberspaces ( e.g. telephone lines ) .Because of this fact magnetic line cards systems have a serious limitation for their operation in the states with unsatisfactory province of telecommunication systems. I besides have to detect a low security degree of magnetic line cards and the full technological concatenation of such systems. This frequently leads to great flow of unprovided false minutess. This facet is a serious obstruction to developing magnetic card systems, particularly in the states with a high degree of criminalism.
Memory-cards belong to chip-cards equipped with memory bit. Payment systems based on memory cards have of import advantages as compared with magnetic line cards. They have a higher security degree and the option of off-line mandate in shops. Technical abilities of bit built in memory cards define limitations to their operating in payment systems though. We have merely the same job here ( as with magnetic line cards ) & # 8211 ; unsatisfactory security degree of any individual card and system in general. Taking condemnable state of affairs in Russia into consideration we have to acknowledge that this sort of cards can barely happen the appropriate topographic point in modern Russia. This aspect captures a particular topographic point when several Bankss are involved in one payment system, where particular attending should be paid to accident bar and genuineness of fiscal information, distinction of duty for maintaining a secret information with dealing members. Main countries for memory-cards are systems of limited entree to adjustment and computing machine webs ( designation cards ) ; telephone webs ( cellular telephone web GSM ) ; payphone and tube cards, local payment systems ( club cards ) . Surely, memory-cards will happen their topographic point, but evidently they will non be governing in future.
Therefore, magnetic line is a medium in magnetic line cards which lowers dependability and makes multi entering impossible and requires online entree.
The bit is a medium in memory-cards. Such cards can be used with off-line entree, multi recording is available, but the process is still complex. Because of low security degree running memory-cards is unsafe.
Smart-cards: measure frontward
Magnetic line cards market is now formed in all developed states. Elephantine substructure was created: processing centres, money entree machine, trade terminuss, 100s million cards in usage, international criterions are formed and admitted. That is why magnetic line cards will be still in usage for many old ages.
However, universe leaders VISA, Europay, MasterCard have already declared about inevitable transition to smart-card engineering in future. All of them started developing future international criterions for payment systems based on smart-cards. Even in Europe where magnetic line cards are traditionally popular smart-cards are winning one undertaking after another.
The most successful debut of smart-cards is supposed to take topographic point in the states where magnetic cards hold a weak place ; in the states without high quality good branched and dependable communicating systems ; in the states with a high felon degree where the population have a low recognition dependability.
These yearss many Russian Bankss issue traditional magnetic cards of international payment systems. However, such issues are decidedly oriented on concrete societal consumer group and parts of their usage are rather limited.
Now lets say some words about a smart-card. The medium in smart-cards is a little processor bit. The designation country allows merely one record while personalising the card and later available for reading merely. Access to other countries available merely after the card holder entered the proper & # 8220 ; cardinal & # 8221 ; . The smart-cards security degree is much higher than the magnetic cards one. As to monetary values on smart-cards, they are higher, but they become lower and lower every twelvemonth as their engineering is being improved and production graduated table is being enlarged
The smart-cards are little computing machines is some manner. Modern smart-card french friess characteristics can be compared with personal computing machines in early 80 & # 8217 ; s. Part of the informations located on a smart-card can be used merely in internal card & # 8217 ; s operations. This fact together with high degree cryptanalytic security makes smart-cards valuable plus for fiscal systems demanding extra security and dependability. Because of that smart-cards are now considered to be the most promising sort of plastic cards. They can be besides considered to be the most promising for their characteristics. Smart-cards numbering abilities allow card holder to maintain multi-currency billfold. As predicted by VISA and Europay/MasterCard, smart-cards will replace magnetic line cards within the 10 twelvemonth period.
The development of smart engineering
First smart-cards appeared in France in the in-between 70 & # 8217 ; s. The chief advantages as compared to magnetic line cards are higher dependability, security and multifunctionality. The chief disadvantage that it is still hard to acquire over is high premier cost.
However, in early 90 & # 8217 ; s rapid growing of smart-cards market took topographic point. Therefore, at the last smart-technology forum ( SmartCard Forum ) , hosted in the USA, statistical studies showed that the bulk of magnetic line cards proprietor would utilize smart-cards as electronic billfold if their bank issued such cards.
But fiscal institutes that working with smart-cards have a batch of inquiries at the minute. Many of these inquiries still do non hold replies. Here are the most popular 1s:
– How high is the degree of smart-cards security?
– What schemes should be used for minutess: unfastened or secured?
– How available and sensible is the complete replacing of hard currency with electronic money?
– What mandate manner is better: online or off-line?
The fact of being of these inquiries demonstrates that there is a high involvement in smart-cards connected with an ability to transform small sum payments into cashless payments. Visa researches show that yearly more so 1,8 trillion dollars go on to less so 10 dollars dealing. Obviously operation of these payment through electronic cards is more than attractive. But the organisation of such transmutation hits upon serious jobs even in good developed states. In this instance work outing this job with a aid of electronic billfolds seems to be the most effectual. Harmonizing to Jean Jacques Debone, the president of European subdivision of Visa International & # 8220 ; the development of smart-cards, leting the client to do less so 8 dollar payments, will treble bank & # 8217 ; s cards net income & # 8221 ;
Smart-cards appear in Russia
Smart-car
Ds as bank & # 8217 ; s cards
BGS Smartcard Systems AG is the official trader and distributer of Visa International smart-technologies is Russian and the former USSR market. It was founded in 1997 and holds right for package and engineerings of cashless payments based on U.E.P.S criterions. U.E.P.S. & # 8211 ; cosmopolitan electronic payment system is a system based on smart-card engineering. The chief technological characteristic of U.E.P.S. is that all dealing operations are done in off-line manner trough direct contact of two smart-cards. BGS introduced several big undertakings for Sberbank of Russia, Promstroybank, Inkombank and some other Bankss and bank & # 8217 ; brotherhoods in Russia, the taking Bankss of Uzbekistan, Ukraine and Kazakhstan. In September 1996 BGS signed the understanding with Visa International on developing and migration of smart-card merchandise COPAC including U.E.P.S. as a footing. The affair for greater involvement is joint undertaking with Sberbank on making the united smart-card system ( SberCard cards ) . Taking graduated table of spreading and recent issue day of the month into consideration we can state that SberCard is on of the most promising card in Russia.
On Sep 13 1996 during one-year meeting of banks-members of international payment system VISA International announced a new merchandise & # 8211 ; a new plastic card with microprocessor Chip Off-line Preauthorized Card. This merchandise has no particular trade name name yet, abbreviation COPAC was taken as a working version of a trade name name.
Since 1992 BGS company has sole right for distribution U.E.P.S engineering in the former USSR, Western Europe and Austria.
VISA International declared in the 2nd one-fourth of 1997 of the new pilot undertaking with Sberbank of the Russian Federation and Inkombank ( Union Card ) on presenting COPAC engineering. After this the pilot undertaking was over new COPAC specification became
available universe broad.
Smart-cards as corporate cards
The greatest company offering corporate integrates smart-cards systems in Russia is IT company. Founded in 1990 today Information Technologies Co. ( I.T. Co. ) ranks among the top three Systems Integrators in Russia, harmonizing to the Dator selling bureau and Russian Computer Union sentiment canvass statistics. Reporting one-year grosss in surplus of $ 27 Million, I.T. Co. has deployed over 500 undertakings in Russia and the CIS for industrial endeavors, trade companies, authorities, and fiscal establishments. In 1996, Computer Press magazine granted I.T. Co. an award & # 8220 ; For Outstanding Results in Developing the Russian Computer Market & # 8221 ; , and was included into the State Registry of Quality Systems. Having extended experience in the development of information and calculating systems, I.T. Co. has created a wide merchandise line of private-branded hi-tech package and hardware solutions for the local and international market. Since 1990, I.T.Co. has focused on run intoing the demands of what is now today ‘s competitory planetary market place. As concerns, big and little, increasingly long for ways to
interface with all of their providers utilizing one system — a complete information direction system that is specifically designed with the clients ‘ demands in head, and merely every bit significantly, a system friendly to the bottom line — I.T.Co. remains on the head of engineering, presenting a quality merchandise on clip, and on budget
I.T. company has developed their ain construct of smart-card systems CmartCity. Besides SmartCity engineering section returns developing and publicity of new systems of commanding and pull offing banking histories through Internet. This undertaking is based on the client-server package on personal finance pull offing DEKART, a new solution in electronic commercialism country.
SmartCity is a & # 8220 ; card & # 8221 ; merchandise of I.T. The company together with its providers created several large-scaled undertakings based on this system.
I would wish to emphasize three undertakings of this company in Russia.
One. Cashless payment system & # 8220 ; Meta Card & # 8221 ; based on SmartCity engineering for Metkombank, Cherepovetz. System projected & # 8220 ; power & # 8221 ; is 50.000 cards, with 300 trade terminuss. This figure covers 75 % of town & # 8217 ; s shops and trade points and services. The card holder can utilize his card non even in Cherepovetz but in Metkombank affiliates in Vologda excessively.
Two. Cashless payment system for gas filling station & # 8220 ; LICard & # 8221 ; besides SmartCity merchandise. This system was created for oil company Lukoil and Imperial Bank in Volgograd, Perm, Vologda, Cheliabinsk and Baku for 100.000 cards. Further development of the undertaking provides organisation of cashless payment for Lukoil gas station on full district on Russia with 300.000 cards issued by 2003.
Three. Cashless payment system for Purneftegas in Gubkinsky in Tumen part. This undertaking provides 31.000 cards. More so 100 terminuss were installed to cover with smart-cards in nutrient, bakeshop shops, air hose engagement offices. All in all in 50 trading and serving topographic points in Gubkinsky.
Lashkar-e-taibas take a proper expression at & # 8220 ; LICard & # 8221 ; undertaking. In my sentiment, it is the most promising one.
Lukoil corporation has large and invariably turning figure of make fulling Stationss in all parts of Russia and many states of the former USSR. The company plans non merely farther grown of figure of gas Stationss but besides widening the ghost of provided services including cashless payments by fictile cards.
While making corporate electronic payment system on company & # 8217 ; s make fulling Stationss and terminuss the following purposes were pointed out:
– Addition of fiscal reachings to Lukoil ;
– Creating of information database for doing pull offing determinations ;
– Researching new gross revenues markets.
Lukoil fuel cards are used in several parts ( Volgograd, Chelyabinsk, Perm and others ) for old ages. In every separate part cards functionate good. But the job of unite system was non solved yet. The card holder can non utilize his card in another part but merely where he has bought his card. That & # 8217 ; s why the inquiry of fusion of the system of electronic payments appeared where cards could be acceptable at every filling station.
The chief standard while taking the engineering for forming cashless payments was the low degree of telecommunication systems in Russia, which makes online dealing about impossible. Therefore, it was decided to utilize smart-cards to run the particular processing centre alternatively of online minutess ( off-line ) . The 2nd statement for smart-cards was high security degree of recorded on smart-card information. Besides, smart-cards are available for many sorts of application which was besides of import for this undertaking.
It was decided to utilize smart-cards produced by GemPlus company in SmartCity engineering for making corporate electronic payment system for Lukoil make fulling station. Every individual or company can go a card proprietor.
Before traveling someplace a auto driver put his money on his smart-card or money can be transferred by an organisation. And now our driver travels with a fictile card alternatively or a immense billfold full of money for his trip. When make fulling at Lukoil gas station matching amount of money is written off from his smart-card. If utilizing smart-card driver gets 3-7 % price reduction.
By the terminal of 1997 LICard system has been in action in greater portion of Russia. Noticeable growing of personal LICard proprietors was hit upon for the recent twelvemonth.
LICard has three degrees the graduated table of ranks as to its organisation:
1. Low degree. Regional bureaus and service offices, and make fulling Stationss Lukoil ;
2. Middle degree. Regional processing centres and regional representative offices of LICard ;
3. High degree. Application centre and interregional processing centre LICard.
Transportations between regional centres are carried out through the interregional processing centre. This action allows any filling station to have money even if no money was put on the card.
This undertaking can existent on the job illustration of using smart-cards for corporate demands. But I would wish to detect that non all characteristics were used in this undertaking. Using some extra billfolds project proprietor could hold more effectual and profitable system.
The topographic point of smart-cards in modern Russia
In this chapter I mean smart-cards under & # 8220 ; plastic cards & # 8221 ; term. Because magnetic line cards and memory cards have small opportunity for success in Russia.
Our fictile cards market is instead a montage image. Before 90 & # 8217 ; s plastic cards was so severely known that they even were non shown in Soviet movies that showed disadvantages of Western manner of life. Meanwhile, plastic cards are so profoundly incorporate in American and Western manner of life that individual who has instead large amount of money is hard currency about instantly additions the repute of a felon.
Plastic cards are non so broad spread in Russia as in Europe and of class in the United States. Obviously, the ground is in the deficiency of necessity of mundane cashless payments We besides have to take mean income in our state into consideration which, unluckily does non allow many citizens to hold adequate free money to put so on a card. There are still many obstructions in operating plastic cards in Russia: from simple tradition to name pieces of paper in a pocket money to simple misgiving, fright to go a victim of another & # 8220 ; MMM & # 8221 ; guess undertaking.
Hence puting fictile card into operation in further 3-5 twelvemonth would non convey a satisfactory consequence to any bank, no affair how dependable it is. The success can be reached merely by unifying all bing systems into one national payment system. But this position is now really attractive to the bulk of Bankss as they are afraid to depend on bigger and stronger banking groups. Beside that the present degree of telecommunication systems and banking equipment will non allow such undertaking to be realized. And great investings are needed for many Bankss to continue the convertion from magnetic line cards to smart-cards. That & # 8217 ; s why I consider seting smart-cards into operation in Russia instead let downing in the nearest old ages.
I think the solution of this job is in replacing bing systems of cashless payments with smart-cards engineering. Lashkar-e-taibas take conveyance fuel vouchers as an illustration. Obviously, presenting plastic cards in this domain will run into the lowest opposition of citizens who got accustomed to other sorts of cashless payment for fuel. Such systems are good for both: people and oil companies. Peoples are glad to transport one little card alternatively of a clump of vouchers and to be certain that cipher else would utilize their fuel recognition even if their card is stolen. Oil companies gets valuable assets with such systems as they guarantee themselves from serious losingss connected with voucher disproof. And if we mention rushing up money return, it becomes perfectly clear that such systems will shortly look in our life. After fuel smart cards are introduced, extra billfolds can be added to the same cards. For illustration, on one and the same card fuel credits can be recorded ( in liters ) , some proficient service for cliens auto ( in working hours ) , dinners in make fulling station coffeehouse ( in figure of dinners ) . It that state of affairs our driver can go with a small amount in hard currency and his smart-card.
Besides, utilizing fictile cards alternatively of vouchers territory depending job can be easy solved, as direct and strong & # 8220 ; voucher & # 8221 ; connexions already exists through oil companies.
Therefore, in my sentiment, the procedure of debut plastic cards should get down non from banking but from trading sphere. The ideal instance could be the combination of corporate, banking and international cards into one.
Plastic card payments in Internet
Another stimulation for developing smart-cards is active growing of selling trough international computing machine web Internet. Unfortunately it has non received plenty development in Russia. Although there are companies selling goods through Internet ( music Cadmium, books, computing machine ) payments are still processed after an old mode: client pays the money after he gets the good at the station office. Hence there are some noticeable losingss because of payment holds.
The state of affairs in Europe and the United States is rather different. Companies sell about everything from pens to autos and bungalows through Internet and such activities give existent net income. For illustration, on 10 May 1999 Apple practical computing machine shop sold equipment on more than 1.9 million dollars & # 8211 ; a record during short history on Internet merchandising.
In merchandising portion of the Internet the determination to discourse from magnetic line cards to smart-cards has been discussed for more so 3 old ages. As e-companies incur changeless losingss because of low security degree of magnetic line cards If such determination is made we will hold the right to state that it will be a concluding triumph of smart-cards over their out of day of the month congeners.
Decision
The above analysis of runing smart-cards as modern international payment tools allows me to do the undermentioned decisions:
1. Affecting consequences are reached in realisation of smart-technology and using different sorts of plastic cards payment systems in international markets.
2. The procedure of developing fictile cards as cosmopolitan payment systems is in a stage of rapid growing in Russia
3. There is a clear inclination of intellectualisation of plastic cards, based on modern engineering bit equipment and electronic communications.
4. Year 2000 will specify inclinations of plastic cards developing one time and for all.
5. The most promising manner of presenting smart-cards in large Russian metropoliss is in making local systems of little amount cashless payments with their farther fusion into one national cashless payment system.
Beginnings and literature
1. Mike Hendry. Smart Card Security and Applications ( Artech House Telecommunications Library ) . Artech House. September 1997
2. Catherine A. Allen. Smart Card games: Seizing Strategic Business Opportunities: The Smart Card Forum. Irwin Professional Pub. November 1996
3. Jose Luis Zoreda. Smart Cards. Artech House. December 1994
4. Ron E. Gielgun. 1 Business, 2 Approachs: How to Succeed in Internet Business by Using Real-World Strategies. Actium Publishing. September 1998
5. Bruce J. McLaren, Constance H. McLaren. E- Commerce: Business on the Internet ( Computer Applications Series ) . South-Western Pub. June 1999
Other beginnings:
1. WWW-server of Visa Internetional hypertext transfer protocol: //www.visa.com
2.
WWW-server of MasterCard International. hypertext transfer protocol: //www.mastercard.com
3.
WWW-server of BGS Smartcard Systems AG. hypertext transfer protocol: //www.bgs.ru
4. WWW-server of company & # 171 ; I.T. & # 187 ; hypertext transfer protocol: //www.it.ru
Particular thanks:
Erik Przekof. Consumer Credit Counseling Services. Farmington Hills, MI, USA
Tyra Turnquest. CCCS of the Gulf Coast & A ; Money Management International. Houston, TX, USA
