Demographic trends

Society is increasingly populated by digital natives. People born after the late 1980s have grown up with cashless transactions, mobile communications and virtual reality. They are at home in a digital world, sharing information and projecting their identities online.

In fact, for these people – and for many members of older generations who straddle the digital divide – everything is online. They expect a seamless digital experience. They gravitate towards brands and activities that are consistent with, and respect, their digital lives.

Globalization

Rapidly emerging economies offer massive organic growth potential in digital security and identity. Indeed, many parts of the developing world are actually leading in digital innovation, leapfrogging ‘developed’ nations. Adoption of high-speed wireless communications and digital services is a logical choice in large countries where alternative infrastructures are more costly. Many states are moving directly to ePassports. And in parts of Africa, for example, entrepreneurial users of relatively basic technology – such as 2G mobile phones – have created innovative approaches to mobile finance.

Organic growth potential

Source: CIA World Factbook 2009; Informa 2009

Technological advances

More than a decade after the mass adoption of the World Wide Web, we are still seeing an explosion of digital services, communities and devices. Technology is allowing a range of services, from banking to media, to converge around each individual’s digital identity rather than a particular device such as an ATM or TV. We want the provision of all those services to be coordinated and seamless.

Developments in Identity and Access Management (IAM) technology also promise to propel growth in this market. And while contactless card systems have proven invaluable in mass transit systems, their application in other smart card arenas is also growing rapidly. As the size of smart card chips shrinks and their power increases, their value grows for businesses, governments and end-users. High-speed mobile data and multi-function smartphones, for example, are creating demand for more advanced SIM cards allowing users secure access to a host of new applications in sensitive areas such as banking and retail.

These drivers combine to create significant opportunities in the digital security market. For this world to function, individuals must be able to identify themselves, as well as feel that their privacy is protected in an increasingly exposed environment.

That’s why it’s simplest to describe our markets in terms of end-users – our customers’ customers. Their needs and demands create opportunities for us to help our own client businesses grow and add value.

These markets concern far more than just smart cards. The convergence of different technologies, the need for brands to offer their customers a seamless experience and consumer demand for innovative offerings means that ‘digital security’ now encompasses a range of hardware (chips, cards and readers), software (particularly encryption and authentication systems) and services (from personalization of cards to consultancy around secure access).

Increasingly, these markets are also demanding solutions that can be updated and upgraded over time to meet changing consumer needs and security threats.

Mobile communication

Smartphone adoption has created new markets for wireless services, on top of continued organic growth in areas such as voice and messaging. These ongoing revenue opportunities are supported by a more pervasive digital lifestyle and businesses that now integrate mobile communications into their products and marketing.

Mobile TV, mobile marketing and mBanking are already taking off; cellular operators are developing their roaming options to encourage greater use of their services around the world; and M2M functionality is creating new opportunities in automation.

For mobile consumers, value no longer resides purely in their handset. They expect to be able to access upgrades, applications and content Over-the-Air (OTA), regardless of the device. They also need their digital lives to be protected separately from their phones, safeguarding their contacts, their identities and their contents. The SIM card is the only universal and secured application platform working with 100% of handsets.

Wireless activity soars, even in 'mature' markets

Voice - US cellphone talk time
million minutes

Data - US mobile data revenues
$m

“Personal portable security devices (PPSDs) will increase in number and range of use over the next several years, especially in the online transaction divisions of the banking, financial, government, healthcare and retail markets.”

IDC April 2009

Financial services and retail

There are already around 800 million EMV(*) cards – banking cards with a microchip – in circulation. Some of the fastest-developing economies in the world (such as Brazil, South Africa and Turkey) already have EMV in place. But huge potential markets such as China, central and eastern Europe and Latin America remain largely untapped.

And there are signs that US issuers – with a base of more than 700 million credit cards and 460 million debit cards – are being won over by chip payment cards’ anti-fraud and user benefits, especially as internet and mobile banking become the norm. In the UK, for example, banks such as Barclays are supplying customers with plug-in readers to authenticate their EMV cards on their own computers.

In February 2009, American Express became the fourth member of the EMV consortium, massively expanding its reach. And the Single Euro Payments Area (SEPA) initiative in Europe, designed to encourage easier payments within the Eurozone, could also drive higher uptake, even in this more mature market.

Aside from enhanced security, convenience and transaction costs are key drivers for EMV. Contactless cards and faster, more reliable authentication are delivering in-store efficiencies that create real competitive advantage for retailers.

800 million EMV cards in circulation in countries such as Brazil, South Africa and Turkey as well as Europe.

Potential markets: China, Central & Eastern Europe, Latin America and US.

(*)

EMV: EuroPay, MasterCard, Visa: the industry standard for international debit/credit cards.

Identity and access management

Cloud computing – data and applications that are accessed via the internet or virtual private networks – is growing rapidly. IDC expects spending on IT cloud services to reach $42 billion in 2012; by then, it will represent 25% of IT spending growth and nearly a third of growth the following year.⁽¹⁾

But freedom of access places a huge additional burden on security. It’s essential to verify the identity of authorized users without hampering the convenience and efficiency of cloud computing.

At the same time, complex software tends to have more security vulnerabilities, not fewer. This is increasing demand for ‘strong’ (two- or even three-factor) authentication. For example, a user might need a password as well as a physical component like a fingerprint; or an ultra-secure one-time password generated by a smart card and reader.

Compliance with data protection regulations (which IDC estimated to be responsible for 75% of maintenance revenues for IAM in 2007) and the principles of good corporate governance are also pushing both private and public sector organizations to invest in access control, encryption and identity management.

⁽¹⁾

IDC Press Release October 2008.

Government programs

Governments need systems that offer efficient interactions with their citizens – who in turn demand security and convenience from their authorities. That’s why nations around the world are investing heavily in digital identity systems. More than 100 countries already have an ePassport system in place, including the US, Russia, Japan, Nigeria and all the EU states. ePassports offer compelling benefits including enhanced security and greater convenience for travellers and airlines.

Regulatory pressures – for instance, the visa waiver scheme to gain entry to the US, which now mandates biometric passports – are also driving growth in this market. And because they are accredited for fixed periods, there is predictable churn in ePassports, allowing for digital security enhancements as well as maintenance revenues.

ID card schemes go a stage further: here, every citizen, not just international travellers, needs to carry a smartcard. Many governments and other bodies are already deploying them for access to health and social security services, as drivers’ licenses, for student ID – and, in many cases, combining functions to derive even more efficiency and convenience for users. The potential here is immense. For example, India, with a population of 1.2 billion, has initiated a scheme to provide multipurpose national identity cards (MNIC) to every citizen by 2011.

Outside the use of digital ID cards, government technology investment is moving increasingly online in an attempt to find similar cost and efficiency benefits as the private sector. A White House report in May called for a transformation of federal IT in the US with the widespread adoption of the cloud delivery model, for example. That will further drive the adoption of an integrated digital identity approach. And in November, Ministers from the EU and EFTA approved a declaration recognizing that eGovernment ‘increases efficiency and effectiveness...to constantly improve public services’ and setting priorities to be achieved by 2015.

“The government and identification segment is expected to explode over the near to medium future. The introduction of contactless technology has sparked the convergence of various applications… Having one card for a number of activities is believed to continue to grow, saving issuers’ time and money.”

Frost & Sullivan, World Smart Card Market, December 2008