1. The International EMV Software Market AuthorAntti Öfversten SupervisorProfessor Heikki Hämmäinen InstructorM.Sc. Sakari Ranta

2. The International EMV Software Market Introduction EMV is an internationally agreed standard for payment cards The name EMV is an acronym of ”Europay MasterCard Visa” The main purpose of the EMV standard is to introduce a more secure payment method by using a chip card instead of a magnetic stripe card The risk with regard to fraudulent transactions is much higher when magnetic stripe cards are being used This risk will be shifted to them who do not support the EMV functionality Points of sale Card Issuers

3. The International EMV Software Market Research Problem How can target market characteristics be measured? What are the key factors that make the target market suitable for EMV software products ? When should market entry take place? When is the shift from magnetic stripe cards to EMV cards going to happen? What strategy should be applied at market entry? Which markets should be targeted?

4. The International EMV Software Market EMV Payment System Model Issuer (ex.g. banks, oil companies) Issue chip cards to the payment system Acquirers (ex. g. Luottokunta) Release payment accepting terminals to merchants Process the terminal transactions Pay the merchants for the transactions Merchant Obtain terminals that accept EMV Payments Cardholder

5. The International EMV Software Market EMV Security Mechanisms The actual EMV functionality for authorising transactions resides with the issuing bank Authorisation requests Asymmetric algorithms Authenticate the card as valid to the terminal Symmetric algorithms Generate and verify transaction cryptograms based on key shared between the card and the issuer bank

6. The International EMV Software Market Payment Applications EFTPOS PC POS / standalone terminals Mobile EFTPOS Uses the GSM or GPRS networks Contactless Payment (RFID, bluetooth, infra red) Contactless cards Mobile phones Payment tokens

7. The International EMV Software Market Foreign Market Entry Modes There are several methods of foreign market entry including Exporting Licensing Joint ventures Direct Investment The chosen method depends on a variety of factors…

8. Mode Conditions Favouring This Mode AdvantagesDisadvantages Exporting Limited sales potential in target country; little product adaptation required Distribution channels close to plants High target country production costs Liberal import policies High political risk Minimizes risk and investment. Speed of entry Maximizes scale; uses existing facilities. Trade barriers & tariffs add to costs. Transport costs Limits access to local information Company viewed as an outsider

9. Mode Conditions Favouring This Mode AdvantagesDisadvantages Licensing Import and investment barriers Legal protection possible in target environment. Low sales potential in target country. Large cultural distance Licensee lacks ability to become a competitor. Minimises risk and investment. Speed of entry Able to circumvent trade barriers High ROI Lack of control over use of assets. Licensee may become competitor. Knowledge spillovers License period is limited

10. Mode Conditions Favouring This Mode AdvantagesDisadvantages Joint Ventures Import barriers Large cultural distance Assets cannot be fairly priced High sales potential Some political risk Government restrictions on foreign ownership Local company can provide skills, resources, distribution network, brand name, etc. Overcomes ownership restrictions and cultural distance Combines resources of 2 companies. Potential for learning Viewed as insider Less investment required Trade barriers & tariffs add to costs. Difficult to manage Dilution of control Greater risk than exporting & licensing Knowledge spillovers Partner may become a competitor.

11. Mode Conditions Favouring This Mode AdvantagesDisadvantages Direct Investment Import barriers Small cultural distance Assets cannot be fairly priced High sales potential Low political risk Trade barriers & tariffs add to costs. Greater knowledge of local market Can better apply specialised skills Minimises knowledge spillover Can be viewed as an inside Higher risk than other modes Requires more resources and commitment May be difficult to manage the local resources.

12. The International EMV Software Market Selecting Foreign Markets Target market indicators: - Not yet fully mature - Credit card liability shift - Number of independent payment terminals vs. PC POS software

13. The International EMV Software Market Credit Card Liability Shifts Visa Asia Pacific2006 Canada2010 Central/Eastern Europe, Middle East, Africa 2006 Europe2005 Latin America / Caribbean2 years after 50% of regional credit card sales volume is chip-based. Critical mass expected in 2008.

14. The International EMV Software Market Credit Card Liability Shifts MasterCard Asia/PacificJanuary 2006 CanadaIndefinite Latin America / CaribbeanJanuary 2005 EuropeJanuary 2005 South Asia & Middle East AfricaJanuary 2006; January 2005 for South Africa U.S.No current plans to support EMV

15. Target MarketThe total number of cardsNumber of Issued EMV-cards The total number of PC POS systems and standalone terminals Number of EMV certified PC POS systems and standalone terminals Finland2,9 million1,8 million (5 %)540002700 (5 %) Sweden8,1 million4,9 million (5 %)1900009300 (5 %) NorwayUnknown Denmark4,0 million40 million(100 %)900004500 (5 %) Estonia1,3 million0,5 million (40 %)110004400 (40 %) Latvia1,2 million0,5 million (40 %)150009000 (60 %) Lithuania1,6 millionUnknown1000Unknown Poland16,9 millionUnknown112000Unknown Hungary7,0 million1,4 million (20 %)3600014400 (40%) United Kingdom141,1 million141,1 million (100 %)899000 Ireland3,3 million(60 %)Unknown Poland16,9 millionUnknown112000Unknown Germany114 million(40 %)500000(5 %) Netherlands26 million(5%)1800000 (0 %) Belgium12,7 million(40 %)73000(60%) Czech Republic5,8 millionUnknown25000Unknown Slovakia2,4 millionUnknown12000Unknown Austria8,7 million(80 %)109000(5 %) Slovenia3,3 million(5 %)350000 (0 %) France49,1 million(53 %)850000(73 %) Spain61,6 million(5 %)915000(20 %) Portugal15,5 million(0 %)151200(20 %) Italy53 million(5 %)950000(5 %) Greece9,9 million(5 %)183700(20 %) Malta4000000 (0%)6600(5 %) Cyprus7000000 (0%)110000 (0%)

16. The International EMV Software Market Software Entry Strategies Most interesting target markets can be divided into two groups: 1.Group: Percentage of PC POS systems and standalone terminals capable of EMV payment 0..50 % Total number of PC POS and standalone terminals: 0.. 100000 2. Group: Percentage of PC POS systems and standalone terminals capable of EMV payment 0..50 % Total number of PC POS and standalone terminals > 100000

17. Group 1 CountryTerminals Capable of EMV payment Cards capable of EMV payment Total number of PC POS and standalone terminals Finland5 % 54000 Denmark5 %100 %90000 Estonia40 % 11000 Hungary40 %20 %36000 Slovenia0 %5 %35000

18. Group 2 CountryTerminals Capable of EMV payment Cards capable of EMV payment Total number of PC POS and standalone terminals Sweden5 % 190000 PolandUnknown 112000 Germany5 %40 %500000 Netherlands0 %5 %180000 Austria5 %80 %109000 Spain20 %5 %915000 Portugal20 %0 %151200 Italy5 % 950000 Greece20 %5 %183700

19. Suggested Strategy Target MarketEntry MOde EstoniaIndirect exporting / EMC HungaryIndirect exporting / EMC SloveniaIndirect exporting / EMC PolandIndirect exporting / EMC SwedenJoint venture GermanyIndirect exporting / piggyback exporting SpainIndirect exporting / piggyback exporting PortugalIndirect exporting / piggyback exporting ItalyIndirect exporting / piggyback exporting

20. The International EMV Software Market Software Entry Strategies The design of a market entry strategy is actually iterative with many feedback loops The strategy proposed in the thesis can be used as a starting point for iterative development of the international marketing plan As some of the markets are entered, more detailed information of the EMV situation is inevitably collected Further research for more detailed information should excercised so that target markets can be included or limited out of the marketing plan Finding useful data for the internationalisation plan will be an ongoing challenge No literature study can replace the information and data that can be obtained through a visit to a potential foreign market

21. The International EMV Software Market Thank You!