New York Times, Tuesday, September 17, 1996 Intuit Selling Bill-Processing Unit For $227 Million By LAURIE J. FLYNN Intuit Inc., the United States' leading seller of personal-finance software, announced Monday that it would sell its electronic bill-payment processing business to its main competitor in that field, Checkfree Corp., for $227.6 million in stock. Intuit, which also announced widening financial losses Monday, now intends to focus on its core software businesses, while expanding its services over the Internet. The deal with Checkfree comes as Intuit is under pressure from the banks it works with, which want to expand their options for electronic bill-processing. Currently, banks wishing to provide electronic services to consumers using Intuit's popular Quicken personal-finance software have had to operate through Intuit's bill-processing subsidiary, Intuit Services Corp. Lately, consumers and financial institutions have shown a preference for conducting business over the Internet rather than over proprietary networks like Intuit Services. But while Intuit had come to view bill processing as a costly distraction, Checkfree said that adding Intuit's operations would be a cost-effective way of expanding its own main line of business. Checkfree, based in Columbus, Ohio, markets its electronic transaction-processing services exclusively to banks and other financial institutions. Those customers use Checkfree's services to provide home banking and bill payment to consumers. Unlike Intuit's network, Checkfree's operations will work with a variety of personal-finance programs. With the acquisition of the Intuit Services unit, Checkfree gains Intuit's relationships with 39 banks and more than 300,000 electronic bill-processing customers, bringing its total number of bank customers to 181 and its consumer base to nearly 1.2 million. The companies, both of whose stocks surged on the news, said they expected to close the deal by the end of the year, pending regulatory and shareholder approval. Intuit's stock rose $2.125 a share Monday, to $32.25; Checkfree gained $3.1875, to $21.25. Wall Street analysts applauded Intuit's decision to withdraw from what they said amounted to the back end of the transaction-processing business, at a time when more full-fledged electronic commerce may finally be catching on. In the future, analysts said, Intuit's best on-line opportunities will be in providing a consumer ``interface'' to the Internet, rather than getting bogged down in the pipes and plumbing of transaction processing. And while Intuit remains the leader in its core business - personal financial-management software - the company is facing increased competition from Microsoft Corp., maker of a program called Microsoft Money. Microsoft had agreed to acquire Intuit in October 1994 in a deal worth roughly $2 billion, but abandoned that plan last year under antitrust scrutiny from the justice department. ``It's a strategy shift,'' Lise Buyer, an analyst at T. Rowe Price in Baltimore, said of Intuit's announcement. ``But it's impressive that Intuit is willing to reverse course so quickly.'' Scott Cook, founder and chairman of Intuit, which is based Menlo Park, Calif., said that transaction-processing had become a distraction. ``It was a sizable investment of dollars but also of management time and resources, in a business that is not central to our core competencies,'' Cook said. As a result of the deal, which includes the transfer of 12.6 million shares of Checkfree stock, Intuit will acquire a 23 percent stake in Checkfree. Intuit executives said they planned eventually to reduce the company's share to 19.9 percent, in order to operate as a minority shareholder and not have to carry Checkfree's results on Intuit's books. Intuit also announced widening losses for its fiscal fourth quarter ended July 31, which it attributed to recent acquisitions of companies that included Interactive Insurance Services Corp. Including charges, the fourth-quarter net loss grew to $22 million, or 48 cents a share, from $1.4 million, or 3 cents a share, a year earlier. That was in line with analysts' expectations. Checkfree's chief executive and chairman, Peter Kight, said that his company would lose money in 1997 as a result of the Intuit Services acquisition. But he called it a necessary step, as banks step up their on-line efforts. While the Checkfree acquisition may be subject to government scrutiny, neither analysts nor the companies expect any antitrust delays - primarily because there are other large competitors in the electronic check-clearing business. Last week, for example, IBM added itself to that list, with the announcement of Integrion, a venture with 22 banks to provide electronic bill-processing and other transactions. The Checkfree deal will enable Intuit to concentrate on its growing array of Internet-based on-line services. Bill Harris, Intuit's executive vice president, said Intuit would begin to offer ``front-end'' banking services over the Internet by late next year. American Banker: Tuesday, September 17, 1996 Rumors of MasterCard's Plans To Buy Mondex Nearing Reality By VALERIE BLOCK MasterCard International is nearing an agreement to acquire Mondex, the stored value smart card technology developed by National Westminster Bank of London. The deal, which has been the subject of months of negotiations and rumors, was hinted at in a speech that MasterCard president H. Eugene Lockhart made in China 10 days ago. Officially, MasterCard and Mondex refused to comment, but sources inside both companies confirmed that a deal is imminent. Mr. Lockhart said in his speech that MasterCard would announce a major acquisition in the chip card sector in the next month. According to Reuters, he said the acquisition "would be global in scope and involve an alliance of 20 major banks." He also said MasterCard would own the "intellectual property rights stemming from the deal." National Westminster spun off its smart card unit in July, creating Mondex International Ltd., a joint venture with 17 bank partners worldwide. With three Japanese banks close to announcing Mondex franchises, the 20 banks referred to by Mr. Lockhart would be accounted for. Mr. Lockhart also told Reuters that People's Bank of China is considering a smart card launch. He may have mentioned the pending agreement to entice the bank. Mr. Lockhart was in China to promote Maestro, MasterCard's on-line debit brand, which will now be available through the Agricultural Bank of China. Industry observers thought Mondex's incorporation in July laid to rest rumors of a MasterCard takeover, which were circulating all summer. But it may have served to make the smart card company more attractive. "Before the announcement, Mondex looked a little tenuous," said a knowledgeable source. "After the (incorporation), it looked like something of value." The source also said that MasterCard's smart card strategy, which began with considerable fanfare more than two years ago, has fallen short of expectations, prompting Mr. Lockhart to seek a remedy. MasterCard's major smart card venture has been a pilot in Canberra, Australia, which started nine months ago. Visa, by contrast, is running several tests of its stored-value system globally. Several executives responsible for MasterCard's early efforts, including Philip Verdi and Robin Townend, have left the company in recent months. The deal would be a boon to both companies, sources said. While Mondex has increased its clout with incorporation, it's still facing "an uphill battle" to achieve worldwide acceptance, said the source. "Distribution is what you could assume Mondex is after," he added. National Westminster retained ownership of Mondex patents and trademark. It stands to recoup its substantial investment in the technology -- on top of a potential $150 million from Mondex franchise owners -- if the MasterCard deal is consummated. The bank remains a minority shareholder in Mondex International. Though the industry pooh-poohed National Westminster's initial efforts to put the fledgling payments system on the map, persistent marketing -- coupled with a strong technological base -- seems to be paying off. Electronic wallets, smart phones, and card-to-card monetary transfers set Mondex apart from some less ambitious smart card programs. With powerful investors like Wells Fargo & Co. in the United States, Royal Bank of Canada, as well as Hongkong and Shanghai Banking Corp., the new brand has gained credibility as a major contender in the chip card market. "Mondex blazed a trail," said Peter Hall, PSI International's managing director of consulting in London. MasterCard would be "buying into a pool of knowledge, buying into the partners," he added. Card industry sources said MasterCard and Mondex have many details to address before they can conclude a deal, including corporate structure and governance. One of the biggest issues will be whether to retain the Mondex trademark or "go with the strength of the MasterCard brand," said a source close to the deal. That decision will be made "down the road," he added. The deal is expected to close within three months. No papers have been signed to date. American Banker: Tuesday, September 17, 1996 Chase to Offer Dealerships Auto Loan Decisions Over Internet By DREW CLARK Chase Manhattan Corp.'s auto financing division has begun using the Internet to provide dealerships with loan-approval decisions. The bank is the first of eight financial institutions that have committed to using the system, developed by International Business Machines Corp. By computerizing loan applications and sending data electronically, Chase officials said the bank can grant approvals in as few as two minutes. "It reduces my costs and adds to dealer satisfaction by getting a quick turnaround," said James B. Brew, president of Chase Automotive Finance Corp. Up to 50% of the division's auto loans will be running through the system within the next 18 months, he said. Chase, the largest car lender not affiliated with a car company, is connected to six dealerships currently using the system and will establish connections to 100 dealers with the official introduction in October. Other financial institutions planning to use the on-line system include NationsBank Corp., Charlotte, N.C.; GE Capital Auto Financial Services Inc., Barrington, Ill.; Regions Financial Corp., Birmingham, Ala.; and Citibank Puerto Rico. The auto finance program, residing on the dealer's personal computer, features a user-friendly screen display with step-by-step instructions and error checks. Auto dealers can manually override the screens. The dealer's computer is connected to the Internet through the IBM Global Network, which is also used to retrieve an encrypted report from a credit bureau. The dealer's pre-established "key" decodes the report and causes the screen to display one, two, or three stars - representing poor, fair, or good credit. This gives the dealer an idea of which financial institutions are most likely to approve the loan. "If the consumer is looking over the dealer's shoulder, they don't see the word 'loser' flash on the screen," said Neil Lustig, manager of the project for IBM, explaining the rating system. Although Chase currently is the only bank with a direct Internet connection to the system, the dealer can still send loan applications to other institutions by adding their fax numbers to the screen display. "We piloted this in our Saturn dealership, and it lent to the customer- friendly atmosphere perfectly," said John Burns, a dealer in Hempstead, N.Y. The system costs about $700 a month, but it can also replace existing printers and fax machines. "The old system involved faxing applications which came back with the credit worthiness in a few hours," Mr. Burns said. Now, "the information is going in immediately and is analyzed immediately. If there is a glitch, you can discuss it." IBM said it plans to extend connections for peripheral services like auto insurance and extended warranties. In about a year, the company plans to publish a World Wide Web site offering auto insurance directly to individual customers, said Mr. Lustig. "When enough people use the Internet, the economic model will change," he said. "If we did that today, we would just disintermediate the dealerships." News Release (Wired): Tuesday, September 17, 1996 Citibank's Retired CEO Walter Wriston on the Future of Money SAN FRANCISCO Though he's in his 70s, Walter Wriston may be the world's most wired banker. As chairman and CEO of Citibank in the '60s, '70s and '80s -- a time when money began turning itself into digital bits and bytes and flowing around the world via satellite transponders and fiber-optic cables -- Wriston was a major force in the creation of the modern, global, technological financial system. Wriston retired in 1984, but his vision of banking is still cutting-edge. In an interview with Thomas Bass in the October issue of Wired, Wriston talks about digital money, the new economy, and prospects for the nation-state in an increasingly borderless, networked world. During Wriston's reign, Citibank became the banking industry's technology leader, guiding its customers away from the local teller window toward a new way of banking -- automated, online, checkless, and international, based on distributed networks of computers and ATMs. When Wriston retired, Citibank was the largest bank in the country, and its investment in computer hardware and software approached US$1.75 billion. In a revealing exchange, Wriston doubts whether banks will be running the financial supermarkets of the future as they continue to lose ground against non-bank financial powerhouses, such as Merrill Lynch and General Electric. Wriston says the future of cash lies in smartcards. Already in wide use in France, Japan, and Germany, smartcards can be secure and rechargeable, protected by digital photographs or DNA signatures. According to Wriston, the creation of an international standard for encryption is inevitable "because it's necessary for the safety of the world." What about the export controls on strong encryption imposed by the U.S. government? Wriston says to lift them: "You can buy better stuff in Europe than you can here. We don't have a monopoly on brains." As for censorship on the Net? "There is no way on God's green Earth the government can exercise censorship of the Net in any meaningful way." On the nature of markets, Wriston believes the spread of economic freedom leads to the spread of political freedom. "Markets are self- correcting. That's why I trust markets more than governments. Governments usually aren't self-correcting, until it's too late." Find out why the value of money is hooked to nothing other than the information that flows through it -- in the October issue of Wired. Thomas Bass is the author of "The Eduaemonic Pie." His latest book, "Vietnamerica: The War Comes Home," is published by Soho Press. Wired 4.10 is available on newsstands for US$4.95, by calling 800/SO WIRED, or by sending email to subscriptions@wired.com. Fortune: September 30, 1996 What's New About Digital Cash? By Justin Fox E-money is coming, and it's about time. The advance of "smart cards," digital checks, and Internet cash will change how people shop and do business. Banking should become more efficient and less aggravating. It may even become possible to make money on the Net. But don't let all the conferences, cover stories, and alarmist pronouncements on the subject get you too excited--or scared. E- or no e-, it's still just money. For currency traders and others dealing in huge sums, who have long been able to zap billions of dollars across the globe in seconds, money as electrons isn't anything new. Nearly 90% of the money that changes hands in the U.S. every day does so electronically. It's that other 10%, which slouches along in the form of cash and checks, that e-money promises to change. And why not? Would anyone wax nostalgic about today's unbearable slowness of check clearing, in which banks that do their bookkeeping on computers hire fleets of airplanes to fly bundles of paper checks around the country every night? It will be years before the planes are grounded, but there are already signs of hope. Lots of regular transfers, like paychecks, are already handled electronically; banks are offering checklike debit cards; and Visa is testing utility bills that are sent out and paid online. Visa, Mastercard, and a British multibank venture called Mondex are rolling out chip-based smart cards that can store digital cash. The card companies, banks, and assorted startups are on the verge of making it easy and (relatively) safe to pay for things over the Internet. These e-money peddlers smell huge opportunities in the $ 4 trillion of U.S. consumer purchases that are still paid for each year with cash and checks. "If we can just electronify a small percentage of that, you can see what that will do to our business," says Carl Pascarella, CEO of Visa USA. A few problems need solving before e-money achieves ubiquity--like fraud and consumer resistance. But credit cards overcame similar problems in the 1960s, and like credit cards, e-money is too compelling not to take off. E-money costs much less to handle than paper cash or checks, and it offers consumers the ease and safety of credit cards without many of their limitations. (Credit card transaction costs make small payments uneconomical; they can only be used to buy things from merchants who are part of the card network; and they do not offer the protection of anonymity.) When e-money does hit it big, it will profoundly change--and greatly expand--electronic commerce. Software could be paid for on a per-use basis--a tenth of a cent a time, say. Journalism could be bought by the article. Anybody could set up an online business and instantly rake in revenue. What e-money probably won't do, however, is fundamentally transform the nature of money, although a lot of technoprophets think it will. Auguries tend to vary on a theme: Money and central banks as we know them will disappear, national currencies will become extinct, etc. A particularly alarming Web tract on the topic predicts we'll all be tattooed with something akin to a universal pricing code to make sure we're not using someone else's smart card. Hidden in the code will be the numbers "666." And we all know what that means. Mainstream economic theory has no answer for the 666 contention, but the other concerns (or hopes, depending on who's talking) are pretty easily dismissed as overheated hoo-hah. The one truly revolutionary change in money over the past couple of centuries has been the switch from coins made of precious metals to notes made of paper. It was in 1971, when the world's major currencies threw off their last remaining shackles to gold, that money became imaginary stuff, its value derived purely from trust. Compared with that, switching from paper imaginary money to digital imaginary money simply isn't that big a deal. It won't expand the money supply. It won't of itself make national currencies irrelevant. Digital money can indeed move faster, over mountains and across borders, than paper checks or cash--hence reducing governments' ability to control its flow. But the big money started moving this way in the 1970s, at the time setting off all sorts of alarms about the loss of central bank power. "The striking parallels give the distinct impression that 'we've been here before,' " Fed governor Edward Kelley said at a recent conference. "Then as now, the potential impact on monetary policy of new electronic payment products has been greatly exaggerated." Fed governors can be wrong, of course. But since much economic activity will remain forever off line, it's hard to see how e-money could entirely supplant national currencies in the real world. Unless technology makes it possible to digitally pay for and deliver, say, a pizza. When that happens, there will be no denying it: E-money (and e-anchovies) will have transformed the world. --Justin Fox --- Dr.Dimitri Vulis KOTM Brighton Beach Boardwalk BBS, Forest Hills, N.Y.: +1-718-261-2013, 14.4Kbps