CGAP IT Innovation Series - Smart Cards

This paper studies the case of using Smart Card technology in financial services, especially microfinance. It suggests that microfinance institutions (MFIs) seeking to automate transactions, or attempting to reduce the usage of paper in operations, may consider using smart card readers for scanning Smart Cards; these Cards, though, find more effective usage in conjunction with technologies such as the automated teller machines (ATMs) or the personal digital assistants (PDAs).

The note informs about:

• The technology behind Smart Cards;
• The cost and benefits associated with the Smart Card technology;
• Requirements for Smart Cards, which include:
  • Reliable electrical power for card readers;
  • Facility to periodically update central processing site;
  • Processes, policies, and staff resources for handling lost/damaged cards and enrolling clients;
  • Software integration between cards, readers, and central management information system (MIS).

Further, the paper presents the cases of Prodem FFP (Bolivia) and SKS Microfinance (India) to illustrate the potential of the smart card technology in microfinance.Finally, the paper lists several questions for MFIs contemplating a smart card program, and also mentions the following points:

• Quantify expected benefits that the technology will provide;
• Conduct phased implementations to evaluate client comfort with the technology, loan officer adaptation to new processes, and cultural or environmental factors.