US-based smart-card integrators know a thing or two about lean times. And most have had their hopes dashed on too many occasions to get excited about another blockbuster pilot or hockey-stick market projection.
But as government legislation thaws the market for smart cards, and certain verticals begin warming to their promise, several U.S. integrators are warily optimistic, betting that this once-promising technology finally may go gangbusters in the United States.
Integrators on the fence, however, should proceed with serious caution.
With major successes overseas in the late '80s and '90s, smart cards appeared poised to deluge the U.S. market, as many analysts predicted they would. With the promise of a single card providing everything from network access to personal medical records and financial data, consumers and corporations could lighten their plastic load from a walletful to a single card.
But fast-forward to 2000: Although many integrators boast a handful of smart-card gigs, those by no means pay the integrators' bills. While verticals such as health care and transportation are joining the financial industry as key smart-card proponents, most U.S. projects remain in pilot phase. And those that have graduated to the big time typically exist in "isolated" scenarios—like a college campus—where there's less hassle coordinating multiple vendors or functions, whether it's checking out library books or buying lunch at the cafeteria.
"It has not taken off quite like we expected," concedes Steve Kreye, president of NewMarket Solutions, which first began working with smart-card solutions in 1997. Smart-card app developer Touch Technology International (TTI) agrees. "We've had some moments that were a little bit tight, to be honest," says CEO Bill Hussey. "But we think it's the next big thing. If you're going to be in it, you've got to be involved now."
Window of opportunity
Many U.S. smart-card integrators have long en vied the opportunities in the booming European market, despite the fact that it's an entirely different ball game. But now, some U.S.-specific opportunities have sparked a flicker of hope for domestic integrators betting big on the technology.
One of the biggest advancements will hit home in the health-care industry, as the Health Insurance Portability and Accountability Act (HIPAA) of 1996 takes effect. The initial buzz was that workers or dependents with preexisting conditions are guaranteed health insurance when the employee moves between jobs.
However, the act calls for electronic claims and payment systems for health plans. The act also calls for a very high level of security to protect patient information. The confidentiality requirements are so stringent, that even technicians might be required to log their reviewing of a patient's records before taking an X-ray or ultrasound. The authentication and logging requirements from the act's pages almost scream "smart card."
More recently, opportunities may be beckoning with the Electronic Signatures in Global and National Commerce Act, dubbed the "E-sign Act" and signed by President Clinton this past June. The act, effective yesterday (Oct. 1), gives digital signatures the legal certainty that handwritten signatures enjoy.
The E-sign Act makes online commerce fully enforceable and will open major infrastructure needs for everything from certificate authorities to ATM readers. Nonetheless, it does not necessarily guarantee success for smart cards. Other forms of digital authentication, such as biometrics, could suffice.
But for many integrators, a few positive developments like those are enough to merit excitement.
Thirty-two-year-old security integrator Litronic is predicting that its smart-card business will jump from 15 percent of its revenues this year to 40 percent next year. That's a pretty big change for an industry graybeard. "Digital signatures on smart cards are going to be very critical, [especially] as this becomes law," notes Litronic CEO Kris Shah.
But legislation is only partly responsible for driving the optimism. Beefed-up smart-card agendas from mammoths Microsoft and Sun Microsystems have convinced many integrators the space is for real. Even though the software giants offer competing smart-card operating systems, the rivalry is certain to push development of apps, argue integrators.
"Their involvement is huge," says TTI's Hussey. "I think Microsoft could do for smart cards what IBM did for the PC in the early '80s."
While that may be a stretch, most smart-card integrators report very healthy billable rates—a sign the market is approaching maturity. Several solutions builders interviewed by Sm@rt Partner charge between $150 and $225 an hour for consulting and deployment work—not a bad deal when downtime can be spread into other security integration work.
Still a long shot?
But how significant is the recent legislation and uptick in smart-card deployments? While integrators remain optimistic, several analysts believe the technology has a ways to go before catching hold in the United States.
Its biggest hurdles: infrastructure and branding issues. Not only do very few PCs come equipped with smart-card readers, it's just as rare to find a vendor willing to share the branding of the card itself. Indeed, if an airline issues a smart card with its logo and design, how thrilled will it be to share that precious real estate with a financial institution or health-care provider?
Other factors chill domestic acceptance of the cards. Consumers think that smart cards are only substitutes for cash and maintain an ingrained wariness concerning privacy toward smart cards. The religious right also views smart cards with grave suspicion. In spite of American Express issuing its Blue credit/smart card, a Department of Justice lawsuit contends that Mastercard and Visa stifled banking-industry innovations, including credit-card companies.
Despite those factors, Forrester Research analyst Carsten Schmidt believes that smart cards are "an unsexy industry that is doomed to grow." He pegs major acceptance for the cards in identity verification and digital signatures between 2004 and 2006.
For the short term, however, cell phones that use subscriber-identity modules and set-top interactive TV boxes will be the big markets for smart cards. He quips, "Smart cards may not be in your wallet for now, but they will be in your appliances."
Unless you can put profits from those sales into your coffers, consider banking on the possible long-term opportunities that could result from recent government legislation.