Bolstering our leadership position

• Migration to EMV chip payment cards continued to spread around the world, and dual-interface contactless cards gained further success in Europe.
• In January 2010, Gemalto faced an unexpected situation in relation to certain German payment cards, which led the Company to book a special provision of €11.2m to cover consequences for Gemalto.
• Excluding the special provision, gross margin was 27%, up 40 basis points year-on-year, and EBIT margin was 6%, similar to 2008.

Gemalto offers a full range of solutions for secure transactions in financial services, transport and other emerging markets. These include:

Banking cards:

• Clarista is our complete EMV card payment solution. It supports all profiles – such as JCB, MasterCard and Visa – in both static (SDA) and the more advanced Dynamic Data Authentication (DDA) systems.

Secure services:

• Our Allynis range of secure services includes personalization, packaging, card distribution and activation.
• We apply innovative designs and form factors to payment solutions, as well as eco-friendly biodegradable cards, opening up co-branding and marketing opportunities.
• Our Dexxis Instant Issuance solution also allows banks and retailers to issue cards in store.

Contactless solutions: our contactless card solutions offer faster, more convenient ways to make payments, driving up retail activity and simplifying low-cost transactions.

Trusted Service Manager: our TSM solution supports a variety of convergent payment offerings, including mobile contactless payment programs (please refer to 'the Segmental overview').

Transport: mass transit operators need to maximize passenger throughput as well as reduce fraud and create opportunities for marketing and co-branding. Our solutions address all these issues in one clear proposition.

Pay TV: we supply subscriber authentication and rights management cards to large secure-access service providers.

• Gemalto is the world leader in chip payment cards, serving major banks worldwide with 43% market share(*).
• Market demand for EMV and contactless cards is driving our core business, as well as creating the platform to launch more service offers.
• We are leveraging our leadership, scale and global footprint to develop attractive markets ready for EMV – such as Brazil, Mexico, Canada, Russia, Poland and Indonesia.
• Our in-depth relationships with banking clients enable us to deliver a broad range of services.
• The technology used in Secure Transactions is creating strategic synergies with other Gemalto segments, such as online banking, mobile and contactless.
• We have over ten years’ experience in contactless technology. We have already delivered more than 100 million contactless cards to customers.
• In the fast-growing US market, Gemalto has supplied more than 15 million cards and is recognized for the technological expertise and high level of support it brings to the major US banks for their contactless and magnetic stripe programs.
• We can update contactless cards Over-The-Air. That means additional security against fraud; the chance to deploy customer reward programs; update credentials and subscriptions on the fly; and seamlessly roll out new services.
• Our contactless smart cards for mass transit operators ensure maximum speed of operation and the highest levels of security for passenger identification and revenue protection.
• Our contactless smart cards and readers are already in use by many major transit authorities, including those in London, Paris, São Paulo and Santiago.

(*)

Source: Eurosmart November 2009

Although consumers appreciate the convenience of credit and debit cards, unsolicited access to their credentials remains their number one security concern. New technical and security standards, as well as consumer demand for more choice and convenience, are driving suppliers to look for innovative payment solutions. They want lower costs, better security and innovative platforms to create new revenue streams. Gemalto’s years of experience in card technology and expertise in encryption means we are strongly positioned to address these issues.

Adoption of EMV (EuroPay, MasterCard, Visa) standards for smart payment cards is growing. The familiar PIN authentication process makes them easy to use for customers and keeps transaction times low, a crucial factor for retailers. There are now around 800 million EMV cards in circulation worldwide, but market growth potential remains high. Javelin Strategy & Research estimates that $16.6 billion in card fraud in the US alone could be immediately affected by EMV implementation. Gemalto is involved in major EMV programs in Asia, the UK, Turkey, Russia and Canada, amongst others.

Gemalto’s latest generation of DDA cards results in a further reduction of fraud, by a factor of two. Visa and MasterCard have mandated DDA for all their EMV cards in Europe by January 2011; similar mandates are expected in the rest of the world soon. And with American Express joining EMV in 2009, the consortium is stronger than ever. Our global presence makes us a logical partner for banks looking to manage EMV migration. In March 2009, for example, RBS selected Gemalto to roll out EMV in three major markets: Indonesia, Taiwan and India. And earlier in the year, we formed an alliance with Corporación Cardtech and Newtech Solutions to spread EMV adoption in Venezuela.

We also supply card readers, software and services to manage the entire payments ecosystem, helping retailers drive down costs. Our consultants and technical experts are on hand to provide advice on any aspect of secure payments – from migrating users to EMV and system design to deployment of new technology. We also train customer employees on technology, standards and strategy.

Applying our expertise in handling secure data, we personalize cards for each user then manage their distribution and administration. With the widest range of added-value services in the market and 30 personalization centers around the world, Gemalto is reputed for the flexibility, reliability, speed and security of its issuance services.

We are also innovating in issuance for emerging markets. In November we announced deployment of our Dexxis Instant Issuance offering in Indonesia, where consumers – 90% without bank accounts – require micro-banking services. Dexxis offers them instant, on-the-spot issuance of EMV cards in exchange for cash. The package also includes servers, software, printers and training to deploy the solution over a secure network. And in July, Nigerian secure payments provider InterSwitch chose Dexxis to roll out 30 million EMV cards for its 25 member banks.

Our customization services allow banks and retailers to issue unique designs to enhance their market position. Allynis CardLikeMe lets users add photos to their cards – a powerful marketing and security tool. In May 2009, Le Crédit Lyonnais used Gemalto solutions to issue the first EMV cards in France to be customized with a personal photograph. For more advanced projects, our Optelio range of payment cards includes on-board applications, opening up a number of possibilities for both issuers and customers.

Our biodegradable Eco Card range – launched in 2009, along with more environmentally friendly packaging – means issuers can reinforce their green credentials.

Gemalto has been supplying contactless technology for over a decade, delivering more than 100 million contactless cards to customers. Users make a payment by simply holding their card near a reader, perhaps while it’s still in a wallet or purse. That means we can offer new form factors, such as keyfobs, as payment tokens. It also makes it easier for banks and retailers to create co-branded payment cards.

Our ability to navigate the converging worlds of banking, mobile communications, transport and retailing is also opening up new opportunities for our Secure Transactions business. In 2009, we achieved MasterCard certification for our TSM solution that will support the launch of state-of-the-art contactless payment programs using, for example, NFC enabled cellphones to perform transactions.

By incorporating EMV services into a SIM card, Gemalto has already been able to provide five French banks with a contactless payment system called Payez Mobile, built into users’ cellphones. And in June 2009, we teamed up with Citibank and Visa to provide Singaporean users of NFC-equipped cellphones with payment functionality.

We also rolled out several new contactless payment card projects last year. For example, in Taiwan we deployed Secure Access Modules (SAM) into existing EasyCard payment terminals. The upgrade gives 16 million consumers a simple, fast and secure means to make small-sum contactless payments.

Our smart cards are already being used to access mass transit systems in 30 cities that each have more than one million inhabitants. Passengers appreciate the convenience of our contactless cards while operators value the additional revenue protection. Unauthorized travel is reduced and with our cryptographic expertise, fraud is all but eliminated. STIB, the company managing transport in Brussels, started rolling out Gemalto contactless cards in 2009. With our Celego card, more than 400,000 inhabitants in Brussels will benefit from the speed and convenience of contactless technology when traveling on the subway, busses and trams.

Innovation is critical in all our businesses, including transport. In 2009, we agreed to supply Paris transport company RATP with card readers that allow customers to top up their Navigo passes online. Users can now connect a Gemalto PC Twin Reader to their PC and buy tickets from home. As technologies converge, there is strong potential to bring contactless card functionality onto other devices also secured by Gemalto technology. In June, for example, the operators of public transport services in Paris committed to being able to accept a cellphone payment for transport tickets by the end of 2010. Our Company is uniquely well-positioned to exploit these and other convergence opportunities in the years ahead.