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August 1, 1997


Smart cards arrive

M S Shanker in Hyderabad

The Hyderabad-based Model Group, which pioneered the first Rs 10 million chit fund in the country, is now all set to introduce a new concept in the Indian financial marketplace - smart cards!

A smart card is nothing but a plastic card with an embedded computer chip. These cards are primarily used as stored value cards. The stored value card is charged with a fixed amount of economic claims or value that can be 'spent' or transferred to individuals and/or merchants in a manner that is similar to spending paper money or coins.

Says Model Group Chairman A Krishnamurthy: "Stored value cards operate more like debit cards or is the functional equivalent of electronic cash (e-cash)."

E-cash refers to stored value represented by a digital computer code that consumers use for payments processed through a computerised financial network. When the customer spends e-cash with a merchant (or shopkeeper), the point of sale device 'collects' the appropriate amount for the merchant, deducting the e-cash from the stored value card. The merchant could redeem the accumulated e-cash from the POS devise through a credit to his deposit account.

Stored value cards may be disposable or reloadable. Disposable cards store a one-time fixed amount of e-cash which are extensively used as telephone cards in Europe, the US and Asia. Reloadable cards generally store e-cash on a computer chip and interface with special loading devices that allow a consumer to load e-cash on the card. Stored value payment cards are the most common application currently employing smart card technology.

Smart Cards are a key enabling technology for efficient delivery of government services too. According to Krishna Murthy, their use in conjunction with other technologies would enable agencies to provide information and services in a more automated fashion. The ability to store and in some cases process data in a small wallet-sized card is the primary strength of the smart card technology. "This strength translates into reduced loads over telecommunication network and more efficient delivery due to an automated data access," he added.

Today, there are over 200 smart card applications, primarily in the areas of telephone cards, financial cards, health cards, retail cards, communication cards, and security cards. Stored value cards could be as well be used at supermarkets, bakeries, petrol bunks, fast-food joints, theatres, retail outlets, etc.

Model Finance Corporation, the flagship company of the Model Group based in Hyderabad, has also found its technology partner in Verifone, the leader in electronic payments world wide. Verifone is said to have a massive 75 per cent of the global market for the supply of electronic payment solutions. It has shipped over five million units to over 100 countries and has authored over 2,000 payment related applications.

Krishna Murthy says that Verifone, which is driving the electronic payment industry, has over 33 patents in payment processing. Incidentally, Verifone India is the leading supplier of terminals and network products to Citibank, Standard Chartered, and HDFC, besides creating the shared credit network solutions for Bank of America, Bank of Baroda, Canara Bank, and Bank of India.

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