What was the compelling reason for developing this? An overwhelming consumer need? Not really. It's not like folks are/were clamoring for something that's even smaller and easier to lose. Perhaps the reason was to claim a certain coolness factor in that it could be accomplished. Like making a teeny, tiny credit card that people could lose on a frequent basis.
Perhaps the smaller form factor lowers manufacturing, production, and distribution costs by 60% as well? Or having a different SIM card receptacle in devices would mandate consumers belly up to the bar. Those could be the only other justifications that I could see.