This paper will try to describe the close relationship between the economic evolution and technology, especially how the technical aspects of debit/credit cards interact with the economical aspects. There are approached concepts related to smart card and especially the use of cards in different economic purposes. Since the introduction of the first cards there has been an accelerated growth of the use of smart cards. One of the essential growth factors has been the progress in the electronic industry and the accelerated development of the software companies, which allowed the emergence of interactive financial services such as e-banking, mobile banking, smart cards being considered the access key to these modern services.Smart cards, credit cards, debit cards, card market in Romania, card payments

Alexandra Pricopi

Alina Elena Oprescu

English

Research Papers in Economics

The Evolution Of The Intelligent Cards And The Romanian Market 
 
THE EVOLUTION OF THE INTELLIGENT CARDS AND THE ROMANIAN 
MARKET 
 
Alexandra Pricopi
1 
Alina Elena Oprescu
2 
 
Abstract 
 
This paper will try to describe the close relationship between the economic evolution and 
technology,  especially  how  the  technical  aspects  of  debit/credit  cards  interact  with  the 
economical aspects. There are approached concepts related to smart card and especially the 
use of cards in different economic purposes. 
 
Since the introduction of the first cards there has been an accelerated growth of the use of 
smart cards. One of the essential growth factors has been the progress in the electronic 
industry  and  the  accelerated  development  of  the  software  companies,  which  allowed  the 
emergence of interactive financial services such as e-banking, mobile banking, smart cards 
being considered the access key to these modern services. 
 
Keywords:  Smart  cards,  credit  cards,  debit  cards,  card  market  in  Romania,  card 
payments 
 
 
Considering the economic environment in general and the banking one in particular the battle 
for new market shares is fought on the field of innovation, dynamics and responsiveness to all 
that  is  new.  Having  to  choose  from  a  very  generous  offer,  the  Romanian  customer  will 
become more demanding to his bank and will use more and more complex choice criteria. 
 
This is why in the former traditional field of banking those who want to succeed will have to 
consider the existing achievements of the world market and to adapt their offer to the ever 
growing and changing demand. Thus, the information system employed by the banks and the 
extension of the use of new technologies will make the difference in the near future. Talking 
about Internet banking, alternative  distribution channels, commercial  web sites, and smart 
cards is no longer fiction but becoming a way of life, the essence of home banking 
 
Smart Cards 
 
Nowadays  smart  cards  are  based  on  the  discovery  made  in  1974  by  the  independent 
researcher Roland Moreno. They are similar in shape and size with the classical magnetic 
stripe  cards  but,  as  their  name  says,  they  contain  an  integrated  circuit,  a  microchip  that 
interoperates with the compatible terminals.  
 
Achievements  in  the  information  technology  have  led  to  the  diversification  of  payments 
services in the banking world and made important changes in the currency circulation. In this 
                                                   
1 Assistant Lecturer, PhD Candidate, Romanian-American University 
2 Teaching Assistant, PhD Candidate, Romanian-American University JOURNAL OF INFORMATION SYSTEMS & OPERATIONS MANAGEMENT, VOL.5.2.1–SPECIAL ISSUE 
 
context, electronic funds transfer and the emergence of "currency" based electronic payment 
cards, were the elements that have revolutionized traditional payment systems. 
 
Ongoing development of the electronic commerce and especially the need for security and 
authentication information of people, made necessary the development of safer and more 
efficient equipment, that can be able not only to retain information, but also to perform 
complex functions in the decision making regarding the sophisticated authentication 
procedures to prevent fraud [1.Pirjan A. 2010]. 
 
Smart cards can be compared, in a way, to a kind of miniature computer; they are composed 
of a processor and memory "operating system". Unlike classical magnetic stripe cards, the 
new intelligent cards can store up to 100 times more information, benefiting from a superior 
long life of up to five years and especially of increased security. 
 
 
Figure 1. Types of smart cards
3 
 
Smart  cards  contain  a  chip  able  to  store  and  process  data.  An  embedded  microprocessor 
controls  all  the  information  on  the  card,  which  operates  under  the  control  of  an,  usually 
unique, operating system that is used only by the manufacturer of that type of card. Cards 
containing a microprocessor benefit from increased protection against fraud and can be used 
in applications involving large amounts of data or requiring higher security. An application, 
for example, could be the storing of cryptographic keys and the card chip could function as a 
secure hardware device. Different card emitters have chosen different cryptographic systems 
in order to protect the privacy of their data by using either well known and public algorithms 
or  proprietary  less  known  and  publicized  variants  of  strong  and  modern  algorithms 
[2.Tabusca A. 2011]. 
 
Consumers use smart cards to buy products and services, and vendors to gather data about 
customers and apply various schemes of discounts based on customer loyalty. In industry, 
these cards are used to pay energy, gas or public transportation or for the everyday shopping. 
 
Smart card will load the monetary value available on that account and will download the 
extent of the payments that are made. Loading is made from a bank ATMs, EFTPOS terminal 
                                                   
3 Figure source www.cardlogix.com The Evolution Of The Intelligent Cards And The Romanian Market 
 
(Electronic Fund Transfer Point of Sale). Smart card can be combined with biometric data - 
fingerprints, hand geometry, voiceprint, in order to uniquely identify the owner. 
 
Smart Cards on the banking market  
 
The card has entered the banking market as an instrument of payment, being the modern 
equivalent of a wallet. Some smart cards are designed for special purposes, such as mobile 
networks or to run applications related to healthcare. Worldwide, there are used two types of 
smart-card technology: 
•  With contact: that allows transactions to be initiated only when the card is 
inserted in a card reader; 
•  Non-contact: using radio signals that can be captured through a device nearby. 
 
While a magnetic stripe card can store up to 200 characters, microprocessor cards have a 
storage  capacity  of  several  tens  of  kilobytes.  This  allows  them  to  store  identification 
information of the holder, security keys, and information that can be divided for independent 
access. 
 
The introduction of smart cards reduces and almost eliminates the possibility of fraud. Smart 
cards work safe, both online and off-line, during on-line transactions, card readers in shops 
are directly related to the bank that released the card. In an off-line transaction card reader 
device itself can perform the authorization by security key. Traditional magnetic track reader 
can only read or write information that is transmitted to a processing center at the end of the 
day that is why the discovery of the fraud is late. 
 
Advantages that are brought by the usage of the smart cards are:  
•  Greater safety and security; 
•  Less investment in infrastructure, because it does not require online connections 
to all points accepting; 
•  Ability to integrate multiple applications on the same support. 
 
The main disadvantages that can be found are:  
•  If it is lost, the money are more or less lost, which is not the case with a magnetic 
strip card, where money is deposited in an interest bearing account; 
•  Non interest-bearing money; 
•  Money are  not listed as bank liquidity, which means that in case of the 
generalization of this card there will probably appear a bank's liquid asset 
erosion. 
•   
 
Smart cards have a number of features that include: 
•  Are resistant to hacking attempts and protect personal information;  
•  Isolates problems sensitive to security (especially those related to authentication 
or digital signature)  
•  Provide portability of information included in computers and systems, 
independent of the architecture of these systems. 
 
The risk for them is minimized, at least because the microprocessor card can be used only by 
the legal owner, often they are programmed to block or destroy the information stored if there 
is something wrong or repeated access errors appear.  The stored value on the smart card JOURNAL OF INFORMATION SYSTEMS & OPERATIONS MANAGEMENT, VOL.5.2.1–SPECIAL ISSUE 
 
cannot be double spent because the chip contains specific filter programs that do not allow 
this, each spending irreversibly diminishing the balance registered on the card. 
 
The  main  technological  features  of  smart  card  systems  are  structured  in  four  areas  of 
information storage: 
1.  Non-confidential area - which includes elements of authentication of the issuer, 
the number of the account holder etc. 
2.  Confidential area - that includes the available balance; 
3.  Inaccessible area - which stores the personal identification number (PIN) or other 
encoding respectively decoding keys; 
4.  Record  area  -  that  captures  details  specific  to  each  transaction,  which  are 
summarized in an "agenda".  
 
Worldwide the smart card usage has grown from almost 400 million units in 1999 to 6135 
million units in 2011 and it is expected to get close to 7000 million units.  
Sectors 
Cards - Millions of Units 
2005  2006  2007  2008  2009  2010  2011  2012 - 
forecast 
Telecom  1390  2040  2650  3200  3400  4000  4600  5100 
Financial services  336  410  510  650  750  880  1010  1200 
Government / 
Healthcare  60  90  105  140  160  190  240  300 
Transport  20  20  30  30  40  65  80  95 
Pay TV  55  65  85  100  100  110  125  140 
Other  27  30  65  65  70  75  80  90 
TOTAL  1888  2655  3445  4185  4520  5320  6135  6925 
Table 1. Evolution of smart card usage worldwide
4 
 
As results from Table 1, the usage of smart cards in the financial sector has registered a 
spectacular growth, if at the beginning of 2000 we were talking of around 100 million units 
nowadays that number is 10 times bigger that is why for 2012 the forecast is around 1200 
million units of smart cards in the financial sector. 
 
 
Figure 2. Number of valid cards in circulation (units)
5 
                                                   
4 Data issued by Smart Card Alliance 
11,000,000
12,000,000
13,000,000
14,000,000
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1The Evolution Of The Intelligent Cards And The Romanian Market 
 
In Romania the usage of the banking cards used, as seen in figure 2, has registered a fall in 
June  2009  but  after  this  the  card  market  trend  was  a  slightly  positive  one,  that  is  why 
nowadays the number of valid banking cards in use is close to 13 million units. 
 
Electronic wallet 
 
An electronic payment system is a set of operations generated by converting real currency in 
electronic currency and vice versa, and the latter transfer between system users. 
 
Due to the explosion of the internet use worldwide, with some countries even stating the right 
to be connected to the internet through written law, like Finland for example [3.Tabusca SM. 
2011]. 
 
In an electronic payment system there are involved at least three entities: a buyer, a seller and 
a bank at which the two have opened accounts; these run transactions in the multitude of 
protocols of the operating system in three steps, in general.  
 
The first step is to charge the buyer account with electronic money by converting the funds 
available in the real current account from the bank. The second stage is the purchase and 
payment of sales and the third involves the seller and the bank in whose account the funds are 
deposited electronically. 
 
Any electronic payment system consists of two levels: the user and the system level. The user 
level is above the system and consists of all users and transactions between them. The system 
level consists of all electronic devices through which transactions are finalized. These devices 
are the electronic wallet and a POS application, which suggests the seller cash register.  
 
An electronic wallet is a smart card that replaces cash or checks and has several advantages, 
such as: the ease of carrying it, it’s cheapness, it’s safeness in terms of functionality, the 
possibility to include debit or credit facilities. 
 
 
Figure 3. The evolution of transactions done with cards (million)
6 
 
                                                                                                                                                   
5 Data source Romania National Bank Interactive Database 
6 Data source Romania National Bank Interactive Database 
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1JOURNAL OF INFORMATION SYSTEMS & OPERATIONS MANAGEMENT, VOL.5.2.1–SPECIAL ISSUE 
 
In our country the number of transactions increased in a sustained way that is why nowadays 
we can speak of about 34 million transactions, which is a promising figure. 
 
Electronic wallets are issued only to customers who have accounts opened at certain banks. 
The bank opens an account that focuses all operations in the electronic wallet system. 
 
Loading the wallet imply that when an owner recharges his electronic wallet, it debits the 
amount from the current account using an ATM, a computer or phone or mobile. The bank, in 
turn, will credit its account balance. Since the transaction is on-line, it is easy to check if the 
holder has sufficient credit for charging, thus eliminating the problems of guaranteeing the 
payment.  
 
Purchasing goods and services supposes that when the owner buys a product or service wallet, 
his  card  is  debited.  The  POS  terminal  records  the  credit  of  the  merchant  in  an  internal 
electronic  safe  or  directly  on  the  card.  At  the  end  of  each  banking  day,  the  merchant 
communicates to the bank the electronic cash that he obtained and the bank transfers the 
amount from the account holder into the merchant’s account. Electronic wallet also permits 
the option of working off-line, and to be used as means of payment for selling machines, 
public phones machines or charging for parking cars. 
 
Thus there are three types of electronic wallets:  
1.  Disposable  -  contains  a  default  value  and  becomes  unusable  after  the 
consumption of that value; 
2.  Rechargeable - the card has zero balance at the beginning and then is loaded with 
electronic value, and when consumed it can be recharged using ATM or other 
electronic devices; 
3.  Multifunctional - that has attached functions of debit or credit, in addition to the 
initial e-wallet function. 
 
The advantages of smart card usage 
 
The  use  of  intelligent  cards  has  a  number  of  advantages  for  all  participants:  customer, 
merchant, bank.  
 
The  client,  as  a  cardholder  has  three  major  advantages:  First,  and  most  important  its 
convenience, the owner is not being forced to wander whether or not he has money on it, 
simply uses the card.   
 
Another key factor was the ease with which cards can be used, that can have access to cash at 
any time of day and night from an ATM without having to resort to services of a bank pushed 
the card as the main payment instrument in the world. Another advantage available to the 
holder  is  that  he  can  purchases  things,  with  certain  types  of  cards,  without  having  the 
necessary amounts, within a limit and the payment is made later. 
 
Another  advantage  of  using  the  card  is  physical  security,  knowing  that  in  this  way 
substantially reduces the possibility of loss or theft. Beside this, issuers add different services 
attached to cards in order to make them attractive. The Evolution Of The Intelligent Cards And The Romanian Market 
 
 
The main advantage for the trader is the increased turnover due to the possibility of serving 
customers who have both cash and those who prefer the card. In developed countries cards 
acceptance as a method of payment is a condition of survival in a competitive market. With 
the increasing number of cardholders, merchants began to accept more and more brands of 
cards, thus attracting more clients. 
 
The fact that cardholders made purchases much higher than if they had used cash was a factor 
that leads to increasing the sales volume. The absence of risk is another advantage for the 
trader, by eliminating the cash usage; the handling costs of large amounts of money can be 
reduced or even eliminated. Also, the development of a system of selling on credit is difficult 
and costly for small merchants, the acceptance of cards eliminating this problem. 
 
The banks take advantage of this system in order to eliminate the payment of handling large 
amounts of cash with all the disadvantages and costs related to it (security, counting, storage, 
transport). 
 
Banks can use the cards as an easy way to give credit and encourage customers to borrow, 
interest  on  such  loans  being  a  source  of  income.  This  instrument  of  payment  can  attract 
customers who do not live near the bank.  
 
Typically, bank customers were those who lived or had their work place near the banks, the 
appearance of cards eliminating this disadvantage. Also, cardholders are potential customers 
for other banking products. It is obvious a relationship of interdependence between the three 
parties involved. 
 
As  there  are  many  merchants  that  accept  cards,  so  they  become  more  favorable  to  card 
owners because increasing the  number of cardholders contributes to the sales  volume  for 
merchants.  A  larger  number  of  merchants  who  accept  cards  and  also  a  large  number  of 
cardholders  mean  revenue  growth  for  the  issuing  bank  through  charges,  which  are  set 
independently by each bank. 
 
References 
 
1.  Basno C., Dardac N., Sisteme de plati, compensari si decontari, Bucuresti, Editura 
Didactica si Pedagogica, 2003; 
2.  Floricel C., Botea L., Tehnica platilor si finantarilor internationale, Bucuresti, Editura 
Universitara Carol Davila, 2009 
3.  Munday S. R., Idei de avangarda in economie, Bucuresti, Editura Codecs, 1999; 
4.  Negruş M., Plati si garantii internationale, Bucuresti, Editura All, 1996; 
5.  Vasilescu A., Cum sa muscam azi din painea zilei de maine, Bucuresti, Editura Minerva, 
2006; 
6.  Smart Card Alliance Reports 
7.  Romania National Bank Interactive Database 
8.  www.cardlogix.com 
9.  www.epayment.ro 
10.  www.romcard.ro  JOURNAL OF INFORMATION SYSTEMS & OPERATIONS MANAGEMENT, VOL.5.2.1–SPECIAL ISSUE 
 
 
Citations 
 
[1.Pirjan A. 2010] - Electronic commerce security in the context of the means of payment 
dematerialization, Journal of Information Systems & Operations Management, vol. 4, nr. 
1, May 2010, pp. 184-194, , Editura Universitara Bucuresti, ISSN 1843-4711 
 
[2.Tabusca A. 2010] -  A New Security Solution Implemented By The Use Of The 
Multilayered Structural Data Sectors Switching Algorithm (MSDSSA), published in the 
volume „Journal of Information Systems & Operations Management – Vol.4, No.2 – 
December 2010” –  B+ rated magazine by CNCSIS; ISSN 1843-4711, Universitary 
Publishing House, pages 164-168 
 
[3.Tabusca SM. 2011] -  The Internet Access as a Fundamental Right, published in "Journal 
of Information Systems and Operations Management" Vol.5 No.1 – May 2011, ISSN 
1843-4711, Universitary Publishing House  
 
 

Cum sa muscam azi din painea zilei de maine,

Electronic commerce security in the context of the means of payment dematerialization,

Idei de avangarda in economie,

Plati si garantii internationale,

Sisteme de plati, compensari si decontari, Bucuresti, Editura Didactica si Pedagogica,

Tehnica platilor si finantarilor internationale, Bucuresti, Editura Universitara Carol Davila,

THE EVOLUTION OF THE INTELLIGENT CARDS AND THE ROMANIAN MARKET

http://www.rebe.rau.ro/RePEc/rau/jisomg/WI11-2/JISOM-WI11-2-A19.pdf

THE EVOLUTION OF THE INTELLIGENT CARDS AND THE ROMANIAN MARKET

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