Getting ready for new card technologies

A host of new technologies are being proposed and evaluated for cards. This article is the first of a two-part series that addresses the disruptive events looming large on the transaction card horizon. Part one addresses the disruptive events with their possible effects on today’s manufacturing processes and on the card’s role in future digital transactions. In the next issue of Card Manufacturing, part two will deal with issues of card quality and text procedures in light of these new technologies.

 Part 1

Taking a census of the cards in my wallet gives me a small sample of some of today’s card technology as well as some insight into new cards being considered going forward.  They consist of:

• 2 embossed, magnetic stripe financial cards

 • 1 embossed, magnetic stripe, contactless financial card

• 1 embossed magnetic stripe, chip, contactless financial card

• 1 DOD printed, magnetic stripe financial card

• 1 D2T2 printed, magnetic stripe ATM card with photo

• 1 litho printed, barcode prepaid card (closed loop)

• 1 thermal printed, magnetic stripe membership card

 

Manufacturing these cards profitably has caused companies to focus on minimizing scrap and WIP (work-in-process) inventory while eliminating any manufacturing errors. The manufacturing equipment and processes have been upgraded to guarantee quality cards without manual inspection while at the same time optimizing manufacturing plant capacity and throughput. This has been done by the continuous improvement of a manufacturing process that was developed some 30 plus years ago.

 But even in this small sample of cards can be seen some new technology that will require changes to the “standard card manufacturing process.” While some of these cards have new card technology, it has not yet been required for a financial transaction, except in some very narrow applications in some countries. ICMA’s involvement in card standards brings us in contact with the international community where we see new initiatives that could require future disruptive changes to the “standard process. “ These changes fall into three categories: card materials, electronic technology in/on cards, and the impact of the internet on cards and transactions.

 The growth in the use of metal in cards has been dramatic. This includes full metal cards using several different materials and metal/plastic composite cards, including layers of metal foils. Also, polycarbonate cards have been gaining ground especially in driver license/ID applications. Recently, polycarbonate cards that can be laser engraved to produce color images have been introduced, increasing laser engraving options that could previously produce only black and white images.

 The second category of disruptive change is being driven by the major initiatives being considered to include devices on cards. Biometric fingerprint sensors, displays, keypads, full-face touch screens, microphones, buttons and batteries are all being considered. Biometrics as a separate technology is being worked on in three ISO/IEC Standards committees and in three ISO/IEC SC 17 working groups as well. This is a major investment in energy that will produce results for future card applications.

 The third category of disruptive change comes from the impact the internet will have on cards and in all manner of transactions. The effort seems to be at least somewhat driven by “what is possible” rather than on “what is needed.” Mobile wallets are the subject of many news articles and the competition to develop the “best” electronic wallet is astonishing. Initial implementations have been superseded with newer solutions as limited trials try to clarify the optimal mix of value and security. One of the newer features announced for some of the electronic wallets is that financial transactions can be enabled using a mobile device without the need for a secure element in the device.  Called Host Card Emulation (HCE), it allows could-enabled financial transactions without involving the telecom provider or secure key data from the bank issuer resident on the mobile device. This could have a profound effect on the present mobile device market.

 In the next issues of Card Manufacturing, I will reflect on these disruptive events and their effect on card manufacturing processes, quality and testing. These effects could be major, not iterative. To understand what’s coming allows for preparation in implementing operational changes that, in turn, provide competitive advantage.

Advances Towards Achieving 100% Card Personalization Quality Control

Quality control (QC) during the cad personalization process is vital for card bureaus to ensure they are providing the highest quality cards to their issuer clients, and operating with efficient manufacturing processes. Currently, card personalization validation testing occurs as a separate production process, post personalization. This means that costly production errors are identified at the end of the batch, and data validation on the chip, mag-stripe or card embossing is limited and is a manual, time consuming process. However recent developments whereby card personalization validation QC has become an integrated and automatic part of the personalization process enables card bureaus to improve their production processes and efficiencies, and ultimately deliver a superior service to their clients.

Why Do You Need To Test Card Personalization Validation?

EMV cards are far more complex than mag-stripe cards. The chip contains more detailed information and has more complicated encoding. Dual interface cards add still further complexity. As a result there are far more opportunities for errors to creep into the personalization process, with data mismatch occurring in different parts of the card.

It is therefore important to test the validity of the data in the following area:

·         Magnetic stripe vs. chip data (contact and contactless)

·         Adherence to payments scheme specifications

·         Issuer/card type chip data integrity (tag data values)

·         Cryptographic keys

·         Card embossing and printing

·         Card livery and stock

Types of Personalization Error

Due to a lack of knowledge about EMV and payment scheme specifications, the high levels of manual intervention and the fragmented supplier chain in the card manufacture to issuance process, invalid data generation can easily occur. Here are some examples of the most typical of error:

·         Mag-stripe encoding quality

·         Data transposition differences between mag-stripe, chip and contactless data

·         Cryptography-DES keys incorrect

·         Formatting-incorrectly formatted data

·         Production file creation errors

·         Chip malfunction-damaged contact or contactless chip

Quality Control Today

It is not possible to perform 100 percent QC with the process commonly used today. Typically, cards are tested at the beginning and end of each batch, with random cards tested in between. Whilst this may identify data transposition errors, other data errors or damaged chips may go undetected.

The card personalization testing process is currently “offline,” meaning that finished cards are manually tested by operators using an offline card personalization test tool. This can add a significant amount of time to the QC process and additional process error and security risks are introduced with the high level of human intervention.

Advances towards 100 Percent QC with Inline Testing

The latest development is to use inline testing, which means card personalization validation is integrated into the personalization process, performed automatically after personalization by a QC test module built into the perso machine.
 
Achieving 100 Percent QC

To achieve 100 percent QC, all data elements should be validated:

• Mag-stripe data

• Contact / contactless chip data

• Cryptographic keys

• Embossing on card face

• Card Stock

To validate all the data elements, test scripts and scenarios are set up to:

• Validate data to EMV and payment scheme requirements

• Confirm chip, mag-stripe and embossing correlation (depending on machine modules)

• Identify incorrect data or keys

• Validate contact and contactless chip data

• Validate multiple application data

• Validate issuer-specific data

• Confirm card livery and stock

 Offline Testing Versus Inline Testing

Whilst offline testing has been the industry standard for many years, it does have its limitations. If a card bureau wants to manufacture to full efficiency, then it should consider moving to inline personalization QC. Here are examples of how inline QC testing combined with the card personalization test tool (CPT) brings additional benefits:

• Mag-stripe Data

o   The QC module reads all three data tracks on the mag-stripe and the CPT test engine checks these against ISO character and data rules plus correlation between the mag-stripe and the chip, as well as validating that the mag-stripe and chip ICVV differ on every card.

• Contact/Contactless Chip Data

o   The ATR is activated and APDUs sent to the chip by the QC module Contact/Contactless Coupler. The APDU response data is then sent via the Perso Machine Controller to the CPT test engine, where tests are performed to validate:

• EMV, Payment Scheme Application rules

• Validation of chip data values against issuer requirements test

• Chip Data vs. Mag-stripe and Contactless Chip

• The correct keys were put onto the card

These tests take just a couple of seconds. Since they are run simultaneously with other card personalization cycles, they do not add additional time.

• Embossing on card face

o   Optical character recognition (OCR) scans character impressions on spent topping foil and the embossed data can be validated against the mag-stripe or chip cardholder data, issue and expiry dates by the CPT test engine. There is no need for any manual handling of the card, which reduces potential security risks from operator fraud.

• Card Stock Verification

o   It is possible to add the card stock reference data to the test scenarios. OCR recognition passes the data to the CPT test engine which validates that the correct card stock for the batch has been used alongside all other cardpersonalization validation tests. This is particularly important when different card stocks are being used in the same batch.

A Validation Test Report

A validation test report provides a summary of the tests performed, and if and where errors occurred. The report allows the bureau to confirm test results to their issuer clients, identifying and explaining where and why cards have failed. The report can also be saved for audit purposes.

Benefits of Inline QC

• 100 percent card testing in real time

o   Errors can be detected and corrected quickly

o   Reduces time and costs of re-issuance

• Full data validation

o   EMV and payment scheme

o   Tag values and keys

o   Issuer specific requirements

• Increased production efficiencies and ROI

o   Can run 24/7

o   No need for additional QC operatives

• Improved data security

o   Less need for human intervention

• Full audit trail

o   Comprehensive reports for each test

It is clear to see why inline card personalization validation is an attractive proposition for card bureaus looking to improve the efficiency of their current production practices and deliver a better solution to their clients. Whilst this is a relatively new development, adoption from progressive bureaus is expected to be rapid with increased pressure from card issuers in large emerging markets, who demand superior levels of product quality and service delivery.

Instant Issuance can Improve Customer Experience

Research from the payment and banking firm Aite Group shows that while there are more than 570 million active credit and debit cards in US cardholder pockets, the average card life is shrinking, and top-of-wallet positions are threatened by the rapidly rising tide of data breaches. Financial institutions want to drive for longer card life and higher usage, and therefore require ways to entice new cardholders, such as instant card issuance.

During the last six months, large data breaches and the coming wave of EMV card conversions have piqued interest in instant card-issuance solutions.  Instant card-issuance solutions providers claim they can trigger immediate and increased card use, a scheme that, if true, will gather financial institution acceptance and investment. Opportunities that drive a payment card to the top of the wallet and allay consumer fears when sudden adversity hits are attractive.

However, instant issuance solutions are not cheap; Aite Groups’ analysis shows instant-issued cards are more than twice the cost of bulk-produced cards, so producing all cards through the instant card-issuance process is not practical for the majority of Fls. Therefore, Aite Group believes instant card-issuance solutions should not be justified based on cost alone. Solution should instead be constructed to fit within the overall service goals of an organization.

Fls with large branch networks and payment card portfolios should deploy instant card-issuance solutions to improve the customer experience and increase card activation and purchase volume. In addition, to maximize value, instant card-issuing solutions should be coupled with marketing initiatives that compel a cardholder to immediately make a purchase. “Findings indicate instant card issuance solutions can be advantageous due to interchange revenue and purchase volume lifts in addition to being effective in compromised-card incidents, enabling expedited card replacement for distraught cardholders,” says Madeline Aufseeser, senior analyst in retail banking at Aite Group. “Nevertheless, instant card-issuance solutions are a complex bundle of service with specific security needs that require an Fl’s thorough investigation to determine the best strategic partnership, deployment mode, and implementation strategy.”

EMV migration in the US.

The inertia building up among card issuers in the US toward EMV chip card migration has become significant. However, the executive order passed by President Obama in October of this year to help speed up adoption of EMV-compliant cards ready for the country to make the transition to the EMV standard by October 2015 has done much to drive awareness and convince card issuers that it’s time, finally, to make the switch.

Of course it’s not entirely the fault of the US payment industry that EMV has been left sidelined for so long. With the game-changing entrance of Apple into mobile payments, demand and the pull of the consumer is essential for the success of any new technology or form factor – even if, as in the case of EMV, that technology is about protecting the consumer from fraud.

A series of high-profile fraud attacks that have resulted in loss of payment card details as well as others leaked data scandals not directly related to the payment industry is creating a perfect storm that is driving awareness among consumers of the need for new measures to protect their payment data.

Speaking to PCM at Cartes, Cathy Medich, director of strategic programmes at the EMV Migration Forum, explained that there would be 120 million EMV cards in circulation by the end of 2014 and that this number would likely triple over the next two years. A number that still pales in comparison to the estimated 1.6 billion EMV-compliant cards in circulation around the world at the moment.

It’s still too early to sound the bell for the death of the magnetic stripe. True to form, the scale of the US marketplace and a tradition of US exceptionalism means that while chip and PIN will become commonplace, use of PINs to authenticate payments transactions will remain optional.

Karen Czack, vice-president of global chop products at American Express explained that, despite heightened consumer fears around payment security, there are still considerable obstacles to overcome in convincing consumers to switch to chip and PINs that will take time to address.

Oliver Manahan, vice-president of emerging payments at MasterCard, drew attention to some recent research carried out earlier this year to assess the potential of EMV among US consumers. Speaking at the conference he remarked: “Consumers will start to identify not accepting chip cards as an unwillingness to protect consumer data consumer sentiment is shifting.” 

Interestingly, with the proportion of EMV transactions accounting for only around 0.3%, the company’s market research revealed that 15% of consumers polled in their survey said they would consider changing their bank for one that issued chip cards. An even higher proportion of consumers – 32% said that they would prefer to shop at a chip and PIN retailer. Concerns around lack consumer awareness of EMV might therefore be over- reached.

The Changing Card Market

A global overview

In the June issue of Card Manufacturing I detailed and forecasted the trends, opportunities and growth for the global card manufacturing, personalization and fulfillment (P&F) markets. At the 2014 North American Workshop and EuroForum I delved deeper into those trends and opportunities looking specifically at the North American and European markets. As Asia Pacific continues to play a larger role within the industry I have also taken a detailed looked at this, and the opportunities and growth that are emerging.

In 2013, the global card industry manufactured 34.2 billion cards, which resulted in an increase of 1.9 percent over the prior year. The 34.2 billion cards that were manufactured resulted in $16.1 billion dollars, a 6.5 percent increase over 2012. In 2013, the global card industry personalized and fulfilled 30.2 billion cards resulting in a 1.5 percent increase over 2012. From the 30 2 billion cards that were personalized and fulfilled, $6.4 billion in card services were gained, an 8.8 percent increase of the prior year. What we are seeing from the P&F numbers is that as the global product mix migrates to a higher price; chip cards will continue to accelerate the global dollar market growth. Our industry continues to drive commerce, security and technology while providing employment and opportunities for thousands of people around the world. 

In 2013, North America (U.S. & Canada) manufactured $2.62 billion in cards through 8.78 billion units. This represented a 1.06 percent and 1.03 percent increase over 2012, respectively. North America's dollar growth is driven by the manufacturing of government/health cards, gift cards and especially Canadian financial chip card penetration. Gift cards are the largest segment, at more than 3 billion cards, by which North America is dominated. Financial chip cards are the second largest segment with more than 1.4 billion cards.

When comparing size and ranking of the market segments on a dollar value basis, a very different picture is painted. When looking at the market segments on the dollar value basis, we see that the mobile Card market dominates the North American landscape at one billion dollars, while the growing financial card dollar market is second at $630 million dollars. Overall North America manufactured 9.04 billion cards in 2014, 7.9 of those being traditional cards and 1.1 billion being smart chip cards.

In terms of personalization and fulfillment units, the giftcard market continues to dominate with more than 3 billion cards personalized and fulfilled. The financial segment follows at 1.42 billion cards, with the retail and gas card market rounding out the top three at 915 million cards. Again, when looking at the dollar market value for personalization and fulfillment, the rankings lift just slightly. In terms of dollar market value, the financial market is the largest P&F market with more than $689 million, followed by the gift card market at $597 million, and the retail/gas card market continuing position in third at $246 million.

Europe

The European card market grew over the prior year, albeit slightly slower than North America. Europe manufactured 5.66 billion units in 2013, representing one percent growth over 2012. The 5.66 billion units represent $4.15 billion in cards manufactured, which is 1.07 percent increase of 2012. The European market manufactured 1.28 billion prepaid phone cards in 2013, followed by 890 million SIM mobile phone cards and 775 million financial cards. The European market manufactured a total of 5.7 billion cards in 2014, three billion of those being traditional cards and 2.7 billion of those being smart chip cards.

As in North America, comparing the number of cards manufactured to the dollar value alters the landscape of the European market. When looking at the dollar value, the mobile phone and financial phone cards continue to dominate the market, however, they are closely followed by government/health card market. $1.4 billion were manufactured in 2013, followed by the financial market at $886 million and followed by the government/health market at $730 million.
The prepaid phone card market segment continues to dominate the European P&F market as well with 1.28 billion cards personalized and fulfilled. The financial card market follows with 890 million units and the transports on market makes an appearance rounding out the top three with 575 million cards personalized large and fulfilled. The dollar value continues to greatly skew the view of the markets. When looking at the European P&F market in terms of dollar value the number one unit position is held by the financial market at $497 million, followed by the SIM mobile phone market at $260 million. The retail/gas market comes in third position at $257 million.
 
Asia Pacific

The Asia Pacific region has experienced exceptional growth over the past few years and is ranked as the largest regional market with approximately 12.1 billion cards manufactured in 2013. Given this, the Asia Pacific region dominates with more than one-third of global unit volume. In terms of dollars, the region manufactured $7.04 billion in 2013, an impressive nine percent increase over 2012. When looking at the growth of North America and Europe, the Asia Pacific region North America and Europe, the Asia Pacific greatly exceeds the growth of the other regions. 12.1 billion Cards manufactured, 7 billion were traditional cards and 5 billion were smart chip cards.

The Asia Pacific market segments that are helping to drive this growth are SIM mobile with 3.45 billion manufactured, prepaid phones with 1.95 billion and the financial card market at 1.83 billion cards manufactured. As we analyze the dollar Value, the landscape does not change too much. The SIM mobile phone card market dominates the Asia Pacific dollar value at $4.3 billion, while the growing financial card dollar market is second at $918 million.

Looking at P&F units, the Asia Pacific region continues its trend of dominating market segments, beginning with SIM mobile phone, prepaid phone, financial and lastly government/health card market. In terms of P&F dollars, the SIM mobile phone card leads at $724 million, followed by the financial card at $431 million. The retail/gas card comes in last at $159 million.

Outlook for 2014 and Beyond

As we look at the regional reports and analyze the data we see that, again, the Asia Pacific market continues to grow. Its growth will continue but at a slower rate as consumer demand grows in China and India. The region however will continue to outperform all others in the future growth with some selective segments declining. Growth in financial, government/health and transportation will remain strong, driven by EMV, debit and prepaid growth, and the overall adoption of chip cards.  Europe will continue to experience slow declines in some market segments except for gift, government/health, transportation and access control. Manufacturers and personalizers alike would be best served to review the market segments, gain an overall understanding of their potential, and begin to see opportunities within those markets that will sustain their growth.

The 2013 North American, European, and Asia Pacific Card Manufacturing and Personalization and Fulfillment reports are now available on the ICMA member's only website at wwww.icma.com. Members are able to download the reports for free by going to the ICMA website at www.icma.com, then logging into My ICMA/Log-in, and then by clicking on Card Statistics Reports.