The growth of e-commerce, large government projects and growing security apprehensions are stimulating interest in smart cards, says the research.

The Europe, Middle East & Africa (Emea) region is at the forefront of smart card readers/terminals deployment, states the report. In 2006, the Emea region is expected to account for 46.6% of the total market, followed by North America at 32.5% and Asia Pacific at 20.9%.

"New thresholds in smart card price/performance, credit card issuer specifications to combat fraud, greater emphasis on IT security, and the introduction of merchant loyalty programmes are catalysing smart card technology and application development in the Emea region," explains Anoop Ubhey, smart card industry analyst with Frost & Sullivan.

Reader manufacturers enjoyed strong growth in 2001, states the report, as Gemplus retained its position as the leading market player. SCM Microsystems also put in a strong performance ranking second, followed by Omnikey in third place.

Deepening consolidation defined the POS terminal market over the last few years, with the creation of Thales e-Transaction and the acquisition of IVI Checkmate by Ingenico notably illustrating this trend. Ingenico was the market leader in both the total POS terminal market as well as the smart card POS terminal market in 2001 with an impressive 79 per cent of its global terminals smart card-enabled, states the report. Hypercom and Verifone ranked second and third, respectively, in both the total POS and smart cards terminal market.

The increasing integration of smart card readers into PCs is likely to further boost deployment levels, believes the consultancy. Efforts by leading OEMs such as Hewlett-Packard, IBM, Compaq, Dell and Acer to provide bundled functional offerings are transforming smart card readers into an essential part of the PC. Declining hardware costs are expected to prompt mass installations of readers into PCs and notebooks.

Ubhey adds: "With payment associations, Visa and MasterCard, playing a significant role in the development of the financial smart card and smart card POS terminal markets, the Europay MasterCard Visa (EMV) mandates and the liability shift timelines will become the most critical reasons for regions to begin migration to EMV compliant smart cards and smart card terminals."

The high cost of upgrading legacy payments infrastructure is acting as a significant restraint to growth, however. "While smart card costs have been declining, the expenses accrued in distributing the cards to the target base has been substantial. Compounding matters is the fact that enormous outlays are required to upgrade terminals to smart card-ready ones. This has slowed the pace of smart card growth in the banking sector and adversely impacted related terminal upgrades," Ubhey explains.