Subject: Smart Cards coming to Israel
Date: Thu, 5 Feb 1998 23:52:29 +0000
To: "Hebraic Heritage Newsgroup"<heb_roots_chr@geocities.com>

From:           Eddie Chumney
Subject:       Smart Cards coming to Israel
To:            <HEB_ROOTS_CHR@geocities.com>

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 Tuesday , Feb 3, 1998 Sun-Thu at 18:00 (GMT+3)

 Globes - High Tech News

 Electronic Wallet Sets Sights on Annual $40 Bln

 By Efi Landau

 How much money goes through Israelis' wallets
 and pockets every year? The banks talk of $40
 billion. The turnover on credit cards is estimated
 at $50 billion, and a similar amount is turned
 over in the form of cheques.

 That $40 billion is the strategic target of the
 companies introducing electronic wallets into
 Israel.

 An electronic wallet is actually a computer chip,
 generally set into a plastic card similar to a
 credit card. It can be loaded with money directly
 from one's bank account, and it can be used to
 pay on buses, in taxis, at the supermarket,
 basically anywhere. The average withdrawal from
 a bank ATM today is between NIS 150 and NIS
 200. The internationally accepted statistic is
 that everyone makes a cash withdrawal at least
 once a week.

 Data gathered in Israel shows that 30% of
 payments at petrol stations are still in cash, as
 are 20-25% of payments at supermarkets. This
 is the breeding ground for electronic wallets.

 We are talking about a revolution, and it will
 materialise in Israel this year. For the first time,
 Israel is contemplating the possibility of citizens
 buying the money they use, and not from the
 retail banks, or from the Bank of Israel, but from
 commercial companies. They will be able to use
 the money they purchase from Bezeq, Mondex,
 or maybe at university, anywhere that accepts
 payment via electronic wallet: supermarkets,
 football stadiums, or cinemas.

 Israel's electronic wallet pioneers were the
 commercial banks. For the purposes of the
 project, they set up a de facto cartel, a sort of
 joint steering committee, and published a tender
 for the issue of the national electronic wallet, no
 less. This was in 1996. Fortunately for Israelis,
 for whom cash is the only financial area not
 dominated by the banks, internal rivalries and
 conflicts of interest caused the banks to
 hesitate over crossing the road, until it was too
 late.

 The banks' tender referred to a smart card that
 would be an electronic wallet with an RSA type
 security system - a private key and a public
 key. With this method, encryption is in the
 hardware, not the software. Each user goes
 around with part of the code in the chip on his
 card (private key), while the other part of the
 code, the public key, is on some server. The
 combination of the two keys constitutes
 verification and authorisation for use.

 Another security method, inferior but more
 widespread, is software based, and in this
 method everyone has the same code. The
 method is called DES. The difference between
 the two methods can be summed up in one
 sentence: software can always be cracked.
 Hardware, on the other hand, represents a much
 tougher proposition. In the case of RSA, the
 system is completely arbitrary. No-one knows
 just who has what part of the code, and even if a
 card is stolen, the thief cannot make use of it.

 What was strange about the banks' tender was
 the fact that, despite the RSA requirement, two
 consortia reached the final stage. One, IBM
 together with Fortras, proposed RSA, whereas
 the second consortium, Teldor with Siemens
 Niksdorf proposed triple DES, an advanced,
 more secure DES method, but DES all the
 same. Some ascribed this to the fact that Bank
 Hapoalim deputy general manager Yitzhak
 Amram, who chaired the steering committee
 and was a member of the professional
 committee that reviewed the tender bids, is also
 a director of Teldor, whose success in reaching
 the final stage was, on the face of it, puzzling.
 Amram, of course, utterly denies any
 connection.

 The malicious rumours had their effect, and, no
 less puzzlingly, after the whole market was
 waiting for a decision on the winner, the tender
 was suddenly cancelled, and a new one was
 published with a few "slight" changes. The
 crudity of one of these changes simply cried
 out: there was no ultimate requirement for RSA
 security, and a bid could be based on DES as
 long as the system worked and a timeframe was
 specified for conversion to RSA.

 Although everyone was certain this was a tender
 rigged in favour of Teldor-Siemens, seven bids
 were submitted, Teldor-Siemens naturally being
 among the bidders. The person who put an end
 to this farce was Restraint of Trade
 Commissioner David Tadmor, who did the
 obvious: he opened an investigation into a
 suspected restraint of trade violation, and
 virtually brought the tender to a halt. This
 investigation was never finished, and no
 conclusions have been published.

 The final push was given by the Bank of Israel,
 which carried out a comprehensive investigation
 of the electronic wallet issue, and
 recommended, in effect, that the banks should
 not lead the process, but rather commercial
 bodies that would compete in a free market.

 The Bank of Israel electronic wallet committee
 recommended that the Bank of Israel should not
 be directly involved in issuing electronic wallets,
 as such involvement would be liable to reduce
 the incentive for private sector bodies to develop
 their own technological initiatives in this area.
 However, the committee took the view that the
 Bank of Israel should supervise electronic wallet
 projects, because of the consequences of these
 new products for the economy's payments
 system, and for the conduct of monetary policy
 and foreign currency control. For these
 purposes, new legislation would need to be
 enacted authorising the Bank of Israel to fulfill
 this role.

 The criteria which electronic wallet issuers that
 are not banks have to meet are: reliability;
 proven financial capacity; incorporation as a
 company, or subsidiary, that will deal
 exclusively in electronic wallets; and the ability
 to abide by the rules of the monetary and foreign
 currency supervision departments. It follows that
 large entities like Bezeq, local authorities, and
 others, have no trouble meeting the criteria,
 although Bezeq, for instance, dislikes the
 obligation to set up a subsidiary. The committee
 recommended setting the maximum amount an
 electronic wallet could hold at NIS 300, both out
 of security considerations and in order to cut
 down on the use of electronic wallets for illegal
 activities such as money laundering, transfer of
 the proceeds of crime, and so on. The
 committee also recommended obliging issuers
 to report in writing to wallet owners on single
 transactions exceeding NIS 50, while providing
 for the possibility that details of these
 transactions would be printed by the apparatus
 used by the suppliers.

 One of the companies with proven electronic
 wallet technology that competed in the banks'
 first tender was Mondex International. It did not
 compete in the second tender that was
 cancelled. When information about the Bank of
 Israel report began to filter out, Mondex
 International joined up with Discount
 Investments of Israel to set up Mondex Israel.
 This company, it now seems, will be the first in
 Israel to set up an electronic wallet on a national
 scale.

 It now looks as though the second entity to do
 so will be the partnership between Bezeq and
 Bank Leumi, which is still at an early stage. In
 contrast to Mondex Israel, which began
 operations over six months ago on the basis of
 existing technology, the Bezeq-Bank Leumi
 partnership, which has still not been established
 as a company, is still looking for the technology
 it will use, and has published a tender which will
 close next month. The intention is for the
 technology supplier to be a partner in the
 company. Bezeq brings to the partnership its
 network of public telephones, which will become
 smart phones some of which will be capable of
 reading and loading an electronic wallet. Bank
 Leumi brings to the partnership its Visa credit
 card, which will shortly become a smart card
 with a chip, capable of being used as an
 electronic wallet.

 Despite declarations from Bezeq of its intention
 to start marketing its electronic wallet in June
 1998, this looks and sounds like a dream. There
 is as yet no company (and it should be recalled
 that government approval is required for setting
 up a subsidiary at Bezeq), no general manager,
 no offices, and no technology. Moreover, we are
 talking about two unwieldy bodies like Bezeq
 and Bank Leumi, which, in the past, have not
 managed to realise commercial projects with the
 required speed.

 Mondex Israel needed almost a year to start
 marketing its wallet. The planned launch date,
 this April, has been set, but it is really only
 theoretical. In any event, it would seem that,
 when Mondex Israel does commence
 operations, it will have a fairly large margin of
 time in which it will have the market to itself, and
 an opportunity to attain a critical mass of
 customers, which will give it no small advantage
 in the competition which eventually pens up.

 The challenge for Mondex, and for the
 competitors which follow it, will be, on the one
 hand, to convince users that the electronic
 wallet really can be a substitute for cash, and,
 on the other, to convince traders that this is the
 way to collect cash. This is a matter of
 educating people in a new payment culture. The
 advertising agency that will work with Mondex
 Israel is Kesher-Barel, and the account for the
 market penetration year is worth some $3
 million. A campaign to present the advantages
 of Mondex's wallet over money will start in
 February 1998.

 French company SGS-Thomson and Israeli
 company OTI, located in Rosh Pina, recently
 announced a strategic agreement for the
 development of an electronic wallet for dual use,
 with and without contact, while maintaining a
 high level of security. SGS-Thomson is one of
 the world's largest smart card processor
 producers. OTI specialises in developing
 non-contact smart cards which work without an
 independent voltage source. The card obtains
 the current it needs to work from the unit to
 which it is presented.

 An electronic wallet which facilitates dual
 communication, with and without contact, could
 offer its users many advantages, as it allows a
 combination of contact and non-contact
 applications. For example, loading money could
 be done using a regular bank ATM, but payment
 on buses or at the supermarket could be made
 by presenting the card to a non-contact reader.
 Naturally, Mondex has not been indifferent to
 these developments, and is negotiating with OTI
 over implementing a non-contact electronic
 wallet.

 Published by Israel's Business Arena February 3, 1998
   c Copyright 1998, Globes Publishers Ltd.
 Disclaimer

>From Eddie:
**************

    For more info on Smart Cards and financial Babylon, please visit 
my Web site located at:

    http://www.geocities.com/Heartland/2175/babylon.html

   The day is nearing when Rev 13:15-16 will become a reality.

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