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U.S. Smart Card Use Up Sharply

From January through June 2002, unit shipments more than doubled to 31.2 million, according to a new study.
Oct 16, 2002Oct. 16, 2002 - Smart card usage in the United States has long lagged behind Europe and Asia. There are some historical reasons for that. One is that Europe and Asia's cell phone industry was built around GSM, which used smart cards to store subscriber information. Another is the high communication costs for online authentication of cardholders outside the U.S., which made chip cards a more attractive alternative overseas.

But there are signs that the U.S. smart card industry may finally be poised to catch up to other regions. Smart card shipments to the U.S. and Canada from January through June 2002 rose to 31.2 million units, according to a new study conducted by KPMG for the Smart Card Alliance. That is more than double the number of shipments in the first half of last year.

For the study, KPMG contacted the nine largest smart card manufacturers, including Gemplus, Schlumberger, Infineon and Atmel. Of the total smart cards shipped, microprocessor cards accounted for 25 million units in 2002, up 87 percent from a year earlier. Shipments of memory card jumped to 6.24 million in the first half of the year, which is more than four times the 1.46 million shipped during the first half of 2001.

The rise in chip card shipments was driven by a number of key segments, according to Randy Vanderhoof, executive director of the Smart Card Alliance, a not-for-profit association that includes government and private industry users, issuers, manufacturers and systems providers.

"The cell phone industry is converting to chip-based value-added services," he says. "The financial market is strong, with four major issuers now issuing smart cards. The retail segment received a boost from Target, which has issued 7 million branded Visa smart cards. And we've also seen a rise in the use of smart cards with pay TV set top boxes."

There are currently about 12 million financial smart cards in the U.S. That's only 6 percent of the total number of credit cards, but it is about one quarter of the 50 million smart cards in Europe. Industry watchers project the number of the smart cards in the U.S. financial sector to rise to 20 million over the next two to three years.

The vast majority of the smart cards shipped in the first half of the year were contact smart cards. But Vanderhoof says the contactless segment has also been growing rapidly. Some 13 U.S. cities have adopted contactless cards that store electronic funds for bus, subway and other transportation systems.

Security concerns are also propelling the use of smart cards in the U.S. The U.S. Department of Defense has issued more than 1 million smart cards for building and network access. "The Department of State and the Treasury Department are also issuing new identification smart cards," says Vanderhoof. "And we've seen an increase in shipments to the corporate and education campus segment, which are doing more to provide security."

The Transportation Department is also evaluating smart card technology to provide ID credentials for workers at the country's seaports and airports, as a security measure. That could eventually lead to another 15 million contactless smart cards being issued during the next several years.
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