Financial Times: Tuesday, November 9, 1996 Visa Set to Test 'Electronic Purse' By George Graham Visa, the international payments card consortium, has picked Leeds for a trial next year of its electronic purse, a plastic card with an embedded computer chip which can be loaded with cash and used for small purchases. The Visa Cash card was launched last year in the US and widely promoted this summer in Atlanta during the Olympic Games. Other pilots have been launched in Argentina, Australia, Canada, Colombia, Hong Kong, New Zealand and Spain. The card will clash directly with the UK-developed Mondex card, another electronic purse about to be taken over by MasterCard. Mondex is currently on trial in Swindon, and at the universities of Exeter and York, and a Hong Kong trial was launched this week. Visa Cash will be launched by Abbey National, Barclays Bank, the Co-operative Bank, Halifax Building Society, Lloyds TSB and the Royal Bank of Scotland. Visa said it did not expect banks to charge customers for the empty card during the pilot. It hopes that 2,000-3,000 merchants will accept the card. Electronic purses are designed to act as a substitute for cash for regular purchases such as newspapers or bus tickets. Because the money is already loaded on the card, a shop can accept it immediately without a signature or a personal identification number, and without a telephone call to the bank's computer for authorisation. That makes them economical for much smaller transactions than a credit or debit card would be used for. But ordinary bank cards will soon also contain a computer chip. The Association for Payment Clearing Services, which runs the UK's payment systems, plans to start chip card trials next October in Bristol, Edinburgh and Northampton. Banks could start replacing the UK's 90m magnetic strip cards with chip cards by next summer. The initial purpose is to produce a card that is harder to counterfeit than today's magnetic strip cards. But extra security features such as electronic signature recognition or even biometric keys -- retina scans or palm prints -- could also be loaded on to the chip. Plastic card fraud losses have halved in the last four years to #83.3m last year, and many banks now doubt whether chip cards will cut fraud by enough to justify their extra cost. But bankers are also intrigued by the potential for using the chip to add extra services to their payment cards. American Banker: Wednesday, November 13, 1996 Mellon Starts Internet-Based Corporate Service By STEVEN MARJANOVIC Mellon Bank Corp. has launched an Internet-based electronic commerce service for its corporate customers. The service, which uses encryption and authentication software from Premenos Technology Corp. of Concord, Calif., lets corporate customers send payments and related information to the bank over the Internet using standard electronic data interchange formats. The deal is a new example of how banks are slowly growing more confident about the security of sending sensitive payment and business information over the public network. Mellon says it is confident it can conduct secure transactions over the open medium after a six-month "testing" phase of Premenos' security features. The goal of the pilot was to "try to kill the software," by cracking its public key-private key data encryption features, said Mauro DeFelice, manager of security and technical services at Pittsburgh-based Mellon. "We wanted to make sure we knew what our risk was," he said. A rising number of banks are looking to use the Internet as a channel for corporate banking transactions. The attraction, according to Lawrence Forman, cash management analyst at Ernst & Young, is that the Internet is much cheaper than alternatives, like the automated clearing house network or value-added private networks. But he said not all banks are comfortable with the Internet yet. Further, he questioned whether Internet security issues have been adequately addressed, and noted that many institutions, like Citicorp, remained "very wary of it." Encryption measures are still relatively new technologies, Mr. Foreman noted, and "as volume picks up, the incentive for criminals to break these algorithms will grow," he said. Several banks send and receive EDI payment transmissions over the Internet, including BankAmerica Corp., and Banc One Corp. Chase Manhattan Corp. recently struck a deal with Premenos to conduct EDI transactions with Diamond Shamrock Inc., an oil refinery based in San Antonio, Texas. Mellon's first customer for its new service is Bell Atlantic Corp. Mellon now issues as many as 10,000 payment and payment-related transmissions daily. The bank receives files via the Internet, processes them with its EDI translation system, and initiates ACH transactions, Fed Wire electronic funds transfers, or issues checks. Mellon has offered customers EDI services using payment formats found on the ACH network for five years. The Internet's advantage, aside from its ubiquity, is cheaper transmission rates. The deal between Mellon and Premenos is mutually beneficial. Mr. DeFelice said the bank, which licensed Premenos' software at a discount, can offer competitive EDI services to a larger market of business customers. Premenos gets access to Mellon's extensive corporate customer base. Bell Atlantic at one point wanted to develop EDI software for the Internet with Mellon. But it scrapped those plans, opting instead to use software Premenos had already developed. Financial Times: Tuesday, November 12, 1996 US Lawyers Turn to Fraud-Busting In murder mysteries, getting rid of the body is the biggest problem. Fraudsters face a different dilemma: they need to lay their hands on the spoils once the hue and cry has calmed. Two American lawyers have set up a company to prevent them doing just that. Mr Irving Cohen and Mr Martin Kennedy believe there are enormous opportunities for recovering money taken illegally. "The US Treasury has estimated that $ 500bn of off-shore funds are assets protected from creditors," says Mr Kennedy, who has worked on bad debt recovery with banks such as CIBC and Bank of Tokyo. The reason the money is not recovered, he says, is because "there is no understanding that deliberately hidden assets can be recovered." Interclaim plans to take advantage of that with a form of global factoring. It is looking for debts worth at least $ 5m, and with an average value of $ 20m. "This is a completely new kind of company," Mr Kennedy says, "but it is going to open up a field where there is going to be competition in five to 10 years." The reasons large sums lie unrecovered are a combination of financial services regulations and psychology. A bank faced with a probable bad debt is legally required to make provisions, but that act moves the debt from a profit centre to the bank's recovery or special loans department. More crucially, once the provision has been made, the bank and its shareholders have already accepted the loss; it is written into the accounts and the impetus to pursue it is lost. "Institutions have lost their faith in traditional methods of recovery," Mr Kennedy say. According to KPMG, the accountants, such methods usually recover 2-4 per cent of the debt; Interclaim believes its recovery rates will be closer to 20 per cent. Part of that success will come from its "find, freeze and settle" philosophy. It aims to find the money and freeze the assets, thus immobilising the fraudster and bringing him to the settle ment table quickly. "These individuals are not interested in complying with the rule of law," Mr Irving says. "And we are not interested in grinding through the legislation for five or 10 years. If we find someone whose 12-year-old daughter has $ 10m in her bank account, we can be sure she didn't get that from a paper round." The philosophy relies on an understanding of the fraudster and his assumptions. He is, says Mr Kennedy, not only cunning but arrogant; he regards his victims with derision. But criminals are also usually pragmatic. So when faced with an adversary who outwits them, they capitulate quickly. Interclaim either buys claims outright for between 0.5 per cent to 6 per cent of their value, or works with the institution in a joint venture. It will spend between $ 250,000 and $ 500,000 to enforce and prosecute a claim, though the cost of recovery bears no relation to the size of the claim.