Consolidation is on the cards

Electronics Times, Feb 15, 1999

"The CEPS standards seem the industry's best hope of achieving interoperability. If agreement cannot be reached, then the window of opportunity may be closed.

"[From their introduction in 2002], euro notes and coins will be literally Europe's common currency. There will be no need for the electronic purse, outside a few specialist applications such as parking meters and vending machines."

This political element may be proving the greatest spur to collaboration, with 2002 setting a very specific deadline. As pressure intensifies, consolidation, through a series of takeovers becomes an inevitable aspect of the market.

Major players from the financial world are seeing opportunities to buy in and have closer control over the systems that will run transactions in years to come.

Visa, again, has been an active player, supporting a consortium called Proton World International in its development of an e-purse along with the Banksys Belgian banking group and American Express. Mondex, originally founded by National Westminster Bank, is now owned by Mastercard.

There is also a sense that the sector has its own bank of stored up deals because during the past two years, it has seen relatively low mergers and acquisitions activity.

Several factors have influenced this moratorium: uncertainty over standards and uneveness in terms of geographic usage that may have made it difficult to read the sector's future - France popularising the smartcard through financial services, the UK through pay TV and Germany through health insurance applications.

But again it is the growing willingness of the financial players to make decisions about adopting the technology that is leading to a resurgence of takeovers.

There is also the issue of creating a sufficient number of sector players with the financial resources to develop new concepts, such as multi-application cards, and to handle the massive implementation projects - such as Prestige in the UK and the introduction of smart debit and credit cards by the Association for Payment Clearing Services, run for high street banks.

Against this backdrop, some observers argue that Atmel's acquisition of Motorola's smartcard business in East Kilbride may illustrate the trend, even though no financial services companies are involved.

One rival notes: "The level of investment required now for production and to develop new functions for the cards will force more companies to merge and buy others. Atmel has taken advantage of the fact that Motorola probably does not feel like committing enough resources to smartcards."

Atmel makes no bones about the fact that it is building up its r&d side, product offerings and taking over a company near to the smartcard's central regional market.

At the same time, SJB's analysis suggests that there will also be activity in the US, where, so far, most of the financial services industry is retaining traditional magnetic strips.

As one producer said: "The US has always enjoyed such low telecoms costs that almost all major card transactions are verified on-line. Selling them extra levels of security from a chip card has not worked."