Local card infrastructure

a new payment paradigm

Local card infrastructure

a new payment paradigmLeonid Delberg

Chairman & CEO

Richard Schweger

CFO/COO

BGS Smartcard Systems

New technologies for SME finance

The World Bank, Washington D.C.

December 4-6 2002

Leonid DelbergChairman & CEO

Richard Schweger

CFO/COO

BGS Smartcard Systems

New technologies for SME finance

The World Bank, Washington D.C.

December 4-6 2002

OverviewOverview

1.Company profile

2.Global vs. local

3.DUET concept

4.Delivery channels

1.Company profile

2.Global vs. local

3.DUET concept

4.Delivery channels

Company profile>>>bgsCompany profile>>>bgsBGS >>> The smart card pioneer, developing smart card solutions since 1991.

Headquarters>>> Vienna/Austria. Offices >> >>> Brazil, India, Kazakhstan, Russia, Ukraine

Distributors >>> Bosnia-Herzegovina, Egypt, Ecuador, Mexico, Macedonia, Paraguay, GCC, Philippines, Romania, Uruguay, Uzbekistan.

Leading supplier of smart card payment systems to the CIS market. 500 installations with 4.500.000 cards issued and 20.000 POS.

55 highly qualified R&D professionals. Expert know-how from 10 years of DUET projects, 50 specialists covering entire project life-cycle.

Company profile>>>SbercardCompany profile>>>Sbercard

Issuer ProblemStartDate NowNext

step

Issuer ProblemStartDate NowNext

step

Savings Bank of Russian Federation Savings Bank of Russian Federation Secure, fast, country-wide money Secure, fast, country-wide money

transfertransfer5 banks, 3.000 cards, 30 POS 5 banks, 3.000 cards, 30 POS December 1993 December 1993 300 banks, 2,3 m cards, 1200 ATM, 300 banks, 2,3 m cards, 1200 ATM,

11.000 POS11.000 POSOpening acquiring for other Russian Opening acquiring for other Russian

banksbanks

Company profile>>>NBUCompany profile>>>NBU

Issuer ProblemStartDateNowNext

step

Issuer ProblemStartDateNowNext

step

Uzbekistan National Bank of Foreign Uzbekistan National Bank of Foreign Affairs Affairs

Retail business outside of bank controlRetail business outside of bank control1 branch, 5.000 cards, 50 POS terminals 1 branch, 5.000 cards, 50 POS terminals April 1995, now 7 other domestic banks April 1995, now 7 other domestic banks 200K cards, 1000 POS, 130 ATMs, 200K cards, 1000 POS, 130 ATMs, National card system, obligatory for all National card system, obligatory for all

banksbanks

Company profile>>>OABCompany profile>>>OAB

Issuer ProblemStartGeneral

Next step

Issuer ProblemStartGeneral

Next step

Oman Arab BankOman Arab BankSecure, country-wide government Secure, country-wide government

paymentspaymentsQ3 2002, 50 000 cards, 300 terminalsQ3 2002, 50 000 cards, 300 terminalsStrategic goal to offer full payment Strategic goal to offer full payment

serviceservicehandling all government bodies handling all government bodies

transactionstransactions70.000 cards, Country-wide usage for 70.000 cards, Country-wide usage for

b2b, b2cb2b, b2c

OverviewOverview

1.Company profile

2.Global vs. local

3.DUET concept

4.Delivery channels

1.Company profile

2.Global vs. local

3.DUET concept

4.Delivery channels

The target of Globalization is to gain access to The target of Globalization is to gain access to new markets by accepting competition at homenew markets by accepting competition at home

Globalization was initiated by developed countries Globalization was initiated by developed countries already having a strong domestic infrastructure already having a strong domestic infrastructure basebase

Equal interest for the further extension of both Equal interest for the further extension of both networks inside and outside of the countrynetworks inside and outside of the country

Emerging countries (EC) also have a strong desire Emerging countries (EC) also have a strong desire to be connected to the global networksto be connected to the global networks

Missing local infrastructure in EC represents a Missing local infrastructure in EC represents a large competitive disadvantagelarge competitive disadvantage

Risk ! - Development of the global networks in EC Risk ! - Development of the global networks in EC will dampen investments in the local will dampen investments in the local infrastructureinfrastructure

The target of Globalization is to gain access to The target of Globalization is to gain access to new markets by accepting competition at homenew markets by accepting competition at home

Globalization was initiated by developed countries Globalization was initiated by developed countries already having a strong domestic infrastructure already having a strong domestic infrastructure basebase

Equal interest for the further extension of both Equal interest for the further extension of both networks inside and outside of the countrynetworks inside and outside of the country

Emerging countries (EC) also have a strong desire Emerging countries (EC) also have a strong desire to be connected to the global networksto be connected to the global networks

Missing local infrastructure in EC represents a Missing local infrastructure in EC represents a large competitive disadvantagelarge competitive disadvantage

Risk ! - Development of the global networks in EC Risk ! - Development of the global networks in EC will dampen investments in the local will dampen investments in the local infrastructureinfrastructure

Global versus local>>>globalization

Global versus local>>>globalization

Competition based on standardized global Competition based on standardized global products ends in favor of large international products ends in favor of large international corporationscorporations

The winner often does not ensure the set up of a The winner often does not ensure the set up of a full coverage infrastructure within the whole full coverage infrastructure within the whole territoryterritory

Today foreign as well as local issuers invest in Today foreign as well as local issuers invest in credit card deployment instead of developing credit card deployment instead of developing local mass markets local mass markets

Development of global card systems by domestic Development of global card systems by domestic issuers opens the door to local markets for major issuers opens the door to local markets for major international competitorsinternational competitors

Only innovative & highly localized card products Only innovative & highly localized card products can successfully support domestic issuerscan successfully support domestic issuers

Competition based on standardized global Competition based on standardized global products ends in favor of large international products ends in favor of large international corporationscorporations

The winner often does not ensure the set up of a The winner often does not ensure the set up of a full coverage infrastructure within the whole full coverage infrastructure within the whole territoryterritory

Today foreign as well as local issuers invest in Today foreign as well as local issuers invest in credit card deployment instead of developing credit card deployment instead of developing local mass markets local mass markets

Development of global card systems by domestic Development of global card systems by domestic issuers opens the door to local markets for major issuers opens the door to local markets for major international competitorsinternational competitors

Only innovative & highly localized card products Only innovative & highly localized card products can successfully support domestic issuerscan successfully support domestic issuers

Global versus local>>>competitionGlobal versus local>>>competition

Emerging countries are still cash based economiesEmerging countries are still cash based economies

Conventional online debit and credit card systems Conventional online debit and credit card systems represent solutions for developed marketsrepresent solutions for developed markets

There are substantial differences between There are substantial differences between developed and emerging card markets:developed and emerging card markets:

Low household income results in substantial Low household income results in substantial un-banked populationun-banked population

Much higher number of POS are required in Much higher number of POS are required in emerging countriesemerging countries

Small merchants can’t afford on-line card Small merchants can’t afford on-line card operationoperation

Missing trust (collateral) to consumer requires Missing trust (collateral) to consumer requires card card products with no overspending products with no overspending

Emerging countries are still cash based economiesEmerging countries are still cash based economies

Conventional online debit and credit card systems Conventional online debit and credit card systems represent solutions for developed marketsrepresent solutions for developed markets

There are substantial differences between There are substantial differences between developed and emerging card markets:developed and emerging card markets:

Low household income results in substantial Low household income results in substantial un-banked populationun-banked population

Much higher number of POS are required in Much higher number of POS are required in emerging countriesemerging countries

Small merchants can’t afford on-line card Small merchants can’t afford on-line card operationoperation

Missing trust (collateral) to consumer requires Missing trust (collateral) to consumer requires card card products with no overspending products with no overspending

Global versus local>>>card markets

Global versus local>>>card markets

OverviewOverview

1.Company profile

2.Global vs. local

3.DUET concept

4.Delivery channels

1.Company profile

2.Global vs. local

3.DUET concept

4.Delivery channels

500100 400

Client account

DUET concept>>>paymentDUET concept>>>payment

deposit fundsobtain funds

settlement

purchase

Merchant account

400Transf. fundsPreathor.funds

client card

merchant card

issuer acquirer

DUET concept>>>client cardDUET concept>>>client card

PIN2

Account

PIN1

on-line

PIN-A

off-lineAgent

Merchant

SCA

E-contractPIN-M

off-line PIN2

FSL

DUET MF-SoftwareDUET MF-Software

Issuer Data, Key, Client PINIssuer Data, Key, Client PIN

1. Savings book 1. Savings book 2. Time deposit 2. Time deposit

Loyalty Points Area Loyalty Points Area

ID Data Area ID Data Area

Card EMV OSCard EMV OS

3. Preauthorized debit 3. Preauthorized debit 4. Bank credit 4. Bank credit

5. Micro-lending 5. Micro-lending

6. Differed payment 6. Differed payment 7. Merchant credit 7. Merchant credit 8. Client data 8. Client data

VISA

VSDC

VISA

VSDC

MC

M-Chip

MC

M-Chip

DUET concept>>>applications

DUET concept>>>applications

OverviewOverview

1.Company profile

2.Global vs. local

3.DUET concept

4.Delivery channels

1.Company profile

2.Global vs. local

3.DUET concept

4.Delivery channels

Delivery channels>>>competing cash

Delivery channels>>>competing cash

As of today cash is the only payment instrument to As of today cash is the only payment instrument to compete with in all retail mass marketscompete with in all retail mass markets

There many reasons to throw cash out from There many reasons to throw cash out from circulation:circulation:

cash is very expensive cash is very expensive cash doesn’t generate interestcash doesn’t generate interest cash is slow movingcash is slow moving cash is always anonymouscash is always anonymous cash is uncontrollablecash is uncontrollable

There is a sufficient savings potential to finance There is a sufficient savings potential to finance cash substitutioncash substitution

As of today cash is the only payment instrument to As of today cash is the only payment instrument to compete with in all retail mass marketscompete with in all retail mass markets

There many reasons to throw cash out from There many reasons to throw cash out from circulation:circulation:

cash is very expensive cash is very expensive cash doesn’t generate interestcash doesn’t generate interest cash is slow movingcash is slow moving cash is always anonymouscash is always anonymous cash is uncontrollablecash is uncontrollable

There is a sufficient savings potential to finance There is a sufficient savings potential to finance cash substitutioncash substitution

Delivery channels>>>paymentsDelivery channels>>>payments A standardized global card is the wrong A standardized global card is the wrong

instrument to solve domestic problems in different instrument to solve domestic problems in different countriescountries

Creation of separated payment environments is Creation of separated payment environments is supported by geographically limited area of supported by geographically limited area of consumer spendingconsumer spending

Consumer interest is of primary importance for Consumer interest is of primary importance for local card systems, guaranteeing overall merchant local card systems, guaranteeing overall merchant acceptanceacceptance

Offering cards with credit facilities is the best Offering cards with credit facilities is the best attraction for any consumerattraction for any consumer

Targeted spending power can substantially Targeted spending power can substantially minimize credit risk minimize credit risk

A standardized global card is the wrong A standardized global card is the wrong instrument to solve domestic problems in different instrument to solve domestic problems in different countriescountries

Creation of separated payment environments is Creation of separated payment environments is supported by geographically limited area of supported by geographically limited area of consumer spendingconsumer spending

Consumer interest is of primary importance for Consumer interest is of primary importance for local card systems, guaranteeing overall merchant local card systems, guaranteeing overall merchant acceptanceacceptance

Offering cards with credit facilities is the best Offering cards with credit facilities is the best attraction for any consumerattraction for any consumer

Targeted spending power can substantially Targeted spending power can substantially minimize credit risk minimize credit risk

Delivery channels>>>money flow

Delivery channels>>>money flow

Purchase

Rent

Service

Utility

Taxes

Car

Savings

Salary

Pension

Allowance

Credit

Loan

Delivery channels>>>infrastructure

Delivery channels>>>infrastructure

Retail

Landlord

Service

Utility

Authority

Petrol

Finance

Enterprise

Authority

Social

Bank

Credit

Delivery channels>>>summaryDelivery channels>>>summary Creation of domestic card infrastructure is an Creation of domestic card infrastructure is an

investment process, profits are generated through investment process, profits are generated through services offered over such networks services offered over such networks

Development of a standardized global system Development of a standardized global system could benefit a competitor’s businesscould benefit a competitor’s business

The competition with large international The competition with large international enterprises can only be won by capitalizing on enterprises can only be won by capitalizing on local market know howlocal market know how

Technology can help a local enterprise to Technology can help a local enterprise to differentiate itself through functionality and faster differentiate itself through functionality and faster response to marketresponse to market

Proprietary knowledge transformed in innovative Proprietary knowledge transformed in innovative solutions is the key for a successful businesssolutions is the key for a successful business

Creation of domestic card infrastructure is an Creation of domestic card infrastructure is an investment process, profits are generated through investment process, profits are generated through services offered over such networks services offered over such networks

Development of a standardized global system Development of a standardized global system could benefit a competitor’s businesscould benefit a competitor’s business

The competition with large international The competition with large international enterprises can only be won by capitalizing on enterprises can only be won by capitalizing on local market know howlocal market know how

Technology can help a local enterprise to Technology can help a local enterprise to differentiate itself through functionality and faster differentiate itself through functionality and faster response to marketresponse to market

Proprietary knowledge transformed in innovative Proprietary knowledge transformed in innovative solutions is the key for a successful businesssolutions is the key for a successful business

ContactContactBGS Smartcard Systems AG

Gersthoferstrasse 131; A-1180 Viennaphone: +43 1 47601 301; fax +43 1 47601 330

info@bgssmartcard.com - www.bgssmartcard.com