By 2004, there will be 295 million smart cards in use in Europe. Companies today are using single-application smart cards to test the economies of scale for multiapplication smart cards, but transitioning to multiapplication cards, which offer a better business model and consumer proposition, will pose enormous challenges. In a new Report, Forrester Research B.V. (Nasdaq: FORR) identifies several hurdles that will prevent the move to multiapplication smart cards. As a result, Forrester believes that firms will issue company-specific cards that allow customers to access networked apps.

“The European smart card market will take off, although currently the interest has not translated into widespread consumer usage,” explained Carsten Schmidt, Associate Analyst in European Corporate Technologies at Forrester Research B.V. “The 7.5 million people carrying Dutch Chipper cards today perform only 1 million transactions a year, but as the region enters the new millennium, market factors will emerge that will sharply increase usage. A new standard (EMV) will accelerate card issuance, and the euro will drive vending machines to accept stored value payment schemes like ePurse. By 2002, $340 million will have been spent by vending firms to outfit machines to handle the new currency, and new technologies will further multiply access points — but multiapplication cards will never materialize.”

Forrester believes that several issues, like the right mix of functionality, the inadequacies of existing smart card operating systems, and appropriate partnerships, will undermine the multiapplication card. Higher costs will also deter card issuers, while telecom advances will eliminate the need to host apps on a card.

As multiapplication’s fortunes erode, the rising importance of networks, driven by Internet growth, will finally spell the end of local applications management. Instead, smart card issuers will focus on enabling secure access to networked applications that range from retail loyalty programs to electronic ticketing. This shift will bring electronic identification to the forefront of smart card functionality.

Forrester believes that firms should launch their smart card strategies today by first determining their priorities. Banks, for example, should start with electronic ID, not just ePurse. To encourage customers to carry a particular card, firms should create customer loyalty through personalization features. They should also use certificates to bridge the on- and offline gap by developing cards that are accepted in both realms and making transactions easy via in-store card readers or over the PC.

For the Report “Europe’s Smart Card Fallout,” Forrester interviewed 40 companies including banks, telcos, digital TV operators, and insurance providers that either issue smart cards today or plan to during the next two years. Sixty-six percent of the companies interviewed stated that they are running smart card pilots, but these primarily support one type of functionality for their customers — ePurse. However, 59% of the executives interviewed want to move to multiapplication cards.