Hong Kong's Largest Bank Debuts Mondex Credit Card
By P.T. Bangsberg
Having been beaten into the lead, Hong Kong's largest bank is fighting back
with a card it says is smarter than its rival's in a bid to capture the
cashless market.
Hongkong & Shanghai Banking Corp. last week unveiled Mondex, a point-of-sale
card that can be reloaded with funds. It's described as the first of its kind
in Asia.
As reported, the Hong Kong unit of Britain's Standard Chartered Bank PLC and
the local arm of Bank of China fired the first shots in the battle last August
with a card from Visa International Inc.
A Prime Visa Cash card worth 200 Hong Kong dollars ($25) is bought from any
branch of the participating banks at face value. It is then used in retail
outlets without the need to show proof of identity or "swipe" to check on
available funds.
London-based Mondex International Ltd. is owned by 17 firms in North America,
Asia, Australasia and Europe. Unlike the Visa card, Mondex allows users to top
up the stored cash value from their bank accounts using automated teller
machines.
Users can also transfer electronic cash to and from customers by phone or ATM
and send electronic money to others using Mondex-compatible telephones.
"We see Mondex as being not just a newfangled product, not just a piece of
hip gadgetry, but a development that places Hongkong Bank...at the crest of
the electronic banking wave sweeping the globe," said Hongkong Bank chief
executive David Eldon.
Michael Keegan, chief executive of Mondex, told the formal launch ceremony the
firm is exploring means of payment via the Internet. The chief concern about
payments via the worldwide network of computer sites has been lack of
security, potentially allowing unauthorized people to discover card numbers.
The initial Mondex marketing campaign will be restricted to about 400
merchants in two of Hong Kong's largest shopping malls. Usage will be
broadened next year, company officials said by telephone.
Prime Visa Cash was rolled out with about 1,000 retail outlets. "As the first
reloadable electronic cash card in Hong Kong, Mondex changes money as we know
it, delivering valuable new features which improve on physical cash," said
Alexander Au, chairman of Hang Seng Bank Ltd., a unit of Hongkong Bank.
Features include transfer of electronic cash over a telephone line with the
ability to "lock" the card to prevent unauthorized access, and the maintenance
of an electronic statement of recent transactions.
American Banker: Monday, October 21, 1996
Cybercash Takes Early Lead In Race for New Currency Role
By JENNIFER KINGSON BLOOM
In the foyer of Cybercash Inc.'s office in Reston, Va., hangs a tinsel rocket
ship adorned with paper streamers and the words "Cybercoin is launched!"
It is a hopeful metaphor for the company's mission: to convince bankers and
others that a pot of gold awaits those who find the right way onto the
much-hyped new medium.
Dozens, maybe hundreds, of companies are in the race, and at the moment,
Cybercash seems to be at the front of the pack. The two-year-old company has a
proven leadership team, a jolt of funds from Wall Street, and the confidence
and partnership of a growing cadre of banks.
Cybercash makes software that facilitates Internet payments. At the core is an
"electronic wallet" for buying items with credit cards from on- line
merchants.
Last month, the company enriched its wallet with electronic coins. The virtual
equivalent to a stack of chips at a casino, the Cybercoins are meant to be
spent on things that cost between 25 cents and $10, perhaps news articles,
pictures, or software.
Several powerful banks -- including First Union Corp., Wachovia Corp., and PNC
Bank Corp. -- are planning to offer Cybercoins in pilots. Others, including
Wells Fargo & Co. and BankAmerica Corp., already offer the
Cybercash wallet with its credit card capability.
Cybercash officials hope their early entry gives them an edge. But they are
bracing for competition with "major, well-funded players," said William N.
Melton, chief executive officer and co-founder of Cybercash. "There is not
going to be a single, major, well-funded player that doesn't have its finger
in the pie someplace."
That is good news and bad news, Mr. Melton says: "If we were the only ones
there, you might say we were ill-advised and were pouring money down
returnless holes. But when you have every single major player from AT&T to IBM
to all the card associations playing -- you name it, they're there -- it will
happen."
The "it" is Internet commerce. Bankers, transaction processors, and system
vendors seem viscerally convinced that electronic commerce is poised for
takeoff. They are less sure how the ascent will proceed.
"No one knows who's going to win this thing," said Michael P. Duffy, group
executive of direct marketing operations for First USA Paymentech. "There's a
keen amount of interest, but the public hype is probably out in front of
what's actually happening."
First USA Paymentech, one of the leading processors of card transactions for
merchants, is handling payments for Cybercash. But there is no exclusivity:
First USA also has processing agreements with First Virtual Holdings and Open
Market, two competitors in Cybercash's realm.
Paymentech chief executive Pamela H. Patsley described her company as the
leader in the "non-face-to-face market."
"It's our strategy to work with several of the leading solutions that are
coming to market," she said. "Certainly, Cybercash is a leader in this
industry."
First Data Corp., which also does processing for Cybercash, shares the
philosophy of backing any product that shows promise of acceptance.
"This is a new thing, there's nothing out there filling that role, and this is
the first one to market," Chuck White, a First Data senior vice president,
said of Cybercoin. "I think the banks are essentially in the same position we
are: they want to make sure they are providing the support that the market
needs."
Banks, too, are working with multiple partners, seeking as much insight as
possible on a business full of question marks.
"It's easy and smart to have partnerships with these competing ventures," said
Martha C. Campbell, until recently a senior vice president at BankAmerica. She
helped bring Cybercash's wallet to the bank.
"My sense is that we're still so early into this market . . . that it's really
hard to tell who's going to be a keeper and who's not," Ms. Campbell said.
"Some of them may become the standard providers and survive, but I think it's
quite likely none of them will."
Like BankAmerica, Wells Fargo is offering the Cybercash wallet for credit
cards, but has not yet decided on Cybercoin.
"We're aware of it and we're looking at it - we're looking at all options
available to our customers," said Debra B. Rossi, Wells' senior vice president
of electronic payment solutions.
Cybercash's own strategic partners include Mondex International, the smart
card developer, and Verifone Inc., the transaction automation pioneer Mr.
Melton founded in 1981. Ironically, Verifone is promulgating its own scheme
for Internet payments and has its own set of bank and technology partners
(some also allied with Cybercash).
Hatim A. Tyabji, Verifone's CEO, resigned from Cybercash's board this year to
avoid any conflicts of interest. Even so, executives at each company say they
do not intend to step on one another's toes; Verifone's systems are geared
toward larger-ticket items than Cybercash's.
"When we're mature and running, we would anticipate that probably 40% to 50%
of our corporate income will come from the coin product," Mr. Melton said.
Another 30% to 35% would come from an "electronic check" the company plans to
add to its wallet in early 1997. The virtual check would draw against a
consumer's bank account when a purchase was made.
Only 15% of income is ultimately expected to come from credit card payments.
"The biggest opportunity for us will be digitized goods that will be sold for
a small amount of money," said Gene Reichers, Cybercash's chief financial
officer. "Some of our overseas partners think the single biggest market will
be electronic games."
First Union buys into Cybercash's notion that there is "an interest in paying
for small things as you go," said Parker Foley, vice president and director of
electronic commerce.
Beginning in November, First Union customers will be able to download a
bank-branded wallet and experiment with micropayments among 25 to 30
merchants. The pilot will last three or four months, Mr. Foley said.
"There is a niche that Cybercoin fills nicely, where credit cards aren't
really efficient because the transaction is so small," Mr. Foley said.
"We don't believe it would be in our customers' best interests to lock
ourselves into one payment system," Mr. Foley said. "Right now, Cybercoin is
really the only coin product that's actually going to be nationally available,
outside of a couple of very controlled pilots in almost proprietary systems."
He was referring to Ecash, the Internet coin system of Digicash Inc. that Mark
Twain Bancshares of St. Louis is testing.
Digicash is often mentioned in the same breath as Cybercash, but its Internet
payment scheme is a different breed and has not caught on in U.S. banking.
This has not stopped Digicash from criticizing Cybercash.
"Their definition of cash -- it's not cash," said Daniel M. Eldridge, vice
president of Digicash. "Cash is a bearer instrument. Theirs doesn't sound like
a bearer instrument to me."
Mr. Eldridge also denigrated Cybercash's $34 million initial public offering
as "puffery . . . They have no earnings and no revenue."
The boom that benefited Cybercash and other hot Internet IPOs is over, but Mr.
Melton is unfazed.
"The analyst models on the Street at the time of the IPO said we would do
almost no revenue in '96, a fair amount in '97, and would go up rapidly in
'98," he said. "Those models are tracking, so there are no surprises. We did
tell the Street that the major thing to look for this year was new strategic
relationships.
"We said this would be a year of building infrastructure, and I think that is
happening."
Cybercash has about 200 employees, most of them in the Reston headquarters or
Redwood City, Calif.
Mr. Melton, who established his payments credentials in the start- ups of
Verifone and Transaction Network Services Inc., founded Cybercash with Daniel
C. Lynch, Bruce G. Wilson, and Stephen D. Crocker.
Mr. Lynch brought on board Magdalena Yesil, a consultant and engineer whose
specialty was the commercialization of the Internet, as a co-founder.
"Bill knew that Dan was an Internet guru, and Dan knew that Bill was a founder
of Verifone," Ms. Yesil recalled. "Bruce was Bill's due-diligence guy in his
investments, and Crocker was the security expert."
Barely a month after Cybercash was incorporated in August 1994, Visa and
Microsoft issued a joint announcement that they were working together toward a
secure Internet payment system. That could have spelled disaster for the
upstart, but its leaders were heartened.
"It shone the limelight right in our area, the turf we had just carved out for
ourselves," Ms. Yesil said.
As Cybercash's chief spokesman during its infancy, Ms. Yesil said her job was
"to articulate the vision in just a few words, and never be too tired to give
yet another speech, to talk to another reporter."
"Early on, we were very much bunched with First Virtual and Digicash, and I
think that has changed significantly," said Ms. Yesil, who left Cybercash two
months ago to start her own Internet company.
"I tip my hat to them -- they've got to be months, possibly a year ahead" of
the competition, said Scott Smith, an analyst at Jupiter Communications in New
York and a former banker at Wachovia Corp.
Mr. Smith said the Cybercash wallet, once viewed as a proprietary innovation,
has set a standard that will heighten the company's appeal to banks.
"Cybercash has got an edge because they've been out there making alliances
with banks and processors," Mr. Smith said. "They want to be seen as
bank-friendly."
With organizations as varied as Digital Equipment Corp. and Microsoft in the
Internet payments mix, how long Cybercash's prominence will last is open to
debate.
"Cybercash is in a position of benefiting from the early excitement," said
Michael Gould, an analyst at the Patricia Seybold Group in Boston, who
recently completed a report on secure Internet payments.
Cybercash and others have filled a void "as more conservative financial
institutions are sitting back, watching, and waiting," he said. "Over the long
term, however, I think in some manner the role that Cybercash is playing will
end up being subsumed by some of the larger organizations."
Another obstacle Cybercash faces -- as do other purveyors of Internet-based
applications -- is that its wallet remains hard to use.
A prototype that consumers can download free from Cybercash's Web site is
difficult to install for anyone who is not highly computer literate. It cannot
be used with Macintosh computers and is just becoming available through
America Online, the most popular on-line service.
Mr. Melton said these kinks will be ironed out. The existing wallet, he said,
is more a proof-of-concept than a final product. The ultimate goal is to offer
the wallet directly to consumers through their banks, which will brand it and
present it in an easy-to-use way.
"One thing we've done better than anybody else is design our system to be
integrable with banking back-room systems," said Larry Gilbert, Cybercash vice
president and general manager of coin services. "We made a conscious effort
from day one to build a system that was easily adopted by banks, that used the
types of systems they were accustomed to. We know how difficult it is to make
that change."
Mr. Melton says the only thing holding back electronic commerce is the time
and effort to get new technology in place.
"Fear of safety, lack of technology were last year's barriers," Mr. Melton
said. "Most of those issues have either been put to rest or are now being put
to rest.
"Any banker today has a very full plate," he added. "He's got to bring this
technology into the suite of offerings he brings to his merchants. He's got to
have the operations manuals that go along with that, he's got to build it into
his systems."
Mr. Melton predicts the logistical problems will be worked out over the next
year, yielding an electronic commerce system controlled by the banks.
"Who are the winners going to be?" he asked. "Obviously, in any mature market
there's not going to be a single winner. There are going to be multiple
winners.
"But we've made our bet," he said: "on the banks."
News Release (Visa International): October 17, 1996
UK Consumers Demand Electronic Banking
Nearly two out of three people in the UK would like to check their bank
balances and pay bills via a home computer, and nearly three-quarters believe
that new technologies, such as the PC and the Internet, will continue to
change the way in which we work and live.
These are just some of the findings revealed in a survey commissioned by Visa
UK Limited into the British public's views of the impact of new technologies
on their lives in the future. The survey was conducted earlier this year by
Gallup among a representative sample of over 1,900 men and women throughout
the UK. Its findings are included in a special report called "The Way Ahead",
published today by Visa.
According to the survey, 56 per cent of UK residents believe the pace of
technological change will increase dramatically over the next ten years.
Interestingly, this pace of change is most clearly recognised by those aged
between 35 and 44 -- two-thirds of this age group think so, compared with just
over a half of 16 to 24-year olds.
The survey also reveals the British public's views of technological and
financial developments in the 21st century. For example:
- 88 per cent of those questioned expect many more homes to have a personal
computer - 62 per cent foresee an increase in home shopping via a PC or the
Internet
The primary use for PCs in 21st century homes will be to "pay bills and manage
bank accounts" (70 per cent), and "working from home" (69 per cent). The third
most popular use will be to use a PC to "shop from home" (62 percent).
Fiona Wilkinson, general manager of Visa UK Limited, says:
"The survey confirms our view that consumers want easy-to-use and
easy-to-access electronic systems to help them manage their financial affairs,
as well as purchase goods. That is why we are currently developing, in
partnership with our M-ember financial institutions, a number of leading edge
electronic systems, such as remote banking and chip based payment cards. These
will enable Members to offer their customers access to information or use
their money at any time, wherever they happen to be."
The Impact of New Technologies According to the survey, 56 per cent of people
in the UK believe the pace of technological change will increase dramatically
over the next ten years. Interestingly, this pace of change is most clearly
recognised by those aged between 3 5 and 44 -- two-thirds of this age group
think so, compared with just over a half of 16 to 24-year olds.
Given the opportunity today to use a home computer to "obtain information and
advice or communicate with others", the top choice by far (63 per cent of
people) is to check their bank balances and pay bills. The second most popular
choice (51 per cent) is to help educate children, while 39 per cent want to
use technology to discover more information about their general interests.
Electronic Shopping Latest reports from Romtec, the computer industry analyst,
indicate that over six million households in the UK (equivalent to a quarter
of all homes) now have a PC. It is estimated that this figure will rise to at
least 14 million households by the turn of the century.
Given the opportunity today to use a home computer or a similar device to buy
things rather than go out to shop, 36 per cent of those questioned said they
definitely would buy goods electronically. Typical reasons given were "it'S
simpler, easier and less effort" (30 per cent); "it's more convenient" (21 per
cent); and "it saves time and is quicker"' (17 per cent).
Men appear to be more willing to use a PC to do the shopping than women
-- 40 per cent of men compared with 32 per cent of women. This apparent t
greater willingness of men to experiment with new technologies supports the
view of an almost equal proportion of men and women (12 per cent of Men and 14
per cent of women) who think that men are more comfortable using new
technology than women.
When asked which goods or services they would consider buying or looking at
using a computer, top of the list was "checking what on and where" (54 per
cent), followed by "choosing a holiday or flight" (46 per cent). The third
most popular choice was "choosing a new car" (29 per cent).
Future of the UK Banking Industry Commenting on the implications of the new
technologies for the banking industry, Fiona Wilkinson said: "Financial
institutions that embrace the latest technologies and offer services such as
remote banking and electronic commerce will attract a growing segment of
innovative customers -- those who want to save themselves time and trouble in
managing their financial affairs.
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Dr.Dimitri Vulis KOTM
Brighton Beach Boardwalk BBS, Forest Hills, N.Y.: +1-718-261-2013, 14.4Kbps
