Financial Times: Friday, November 8, 1996 Credit Card Group Set for Control of Mondex By Tim Burt MasterCard International, the credit card consortium, has stepped up its bid to take a leading position in the embryonic cash card business by agreeing to acquire a majority stake in Mondex International of the UK. Mondex is a leading developer of "electronic purses" -- plastic cards with memory chips that can be "loaded" with cash and used for small purchases. The deal is expected to give MasterCard 51 per cent of Mondex, set up by National Westminster and Midland of the UK but now jointly owned by 17 banks. Under the agreement, MasterCard would promote the Mondex electronic cash card through banks which carry its franchise. The Mondex system has been piloted in Swindon, Wiltshire, and Hong Kong. It works by storing cash on a microchip card, which can be loaded using automatic telling machines or specially equipped telephones. Cards -- including credit, debit and store cards -- are used for payments worth an estimated #2,000bn a year. MasterCard believes Mondex could give it a greater share of that market, although some industry observers doubt the appetite for such electronic cash cards. The acquisition could exacerbate tensions between MasterCard and Visa, its main rival, in attempts to establish an industry-wide standard for chip cards. Visa has already done pilot tests of its electronic purse at the Atlanta Olympic Games last summer and in Spain, Australia and Argentina. It is understood Mondex would become a free-standing subsidiary of MasterCard, and its existing management is expected to remain. Banking analysts said the deal could signal an admission by MasterCard that trials of its own electronic purse had not proved an unqualified success. Yesterday, however, MasterCard said it would be conducting a full-scale trial of its own smart card in New York next March. Electronic purses are undergoing trials elsewhere in Europe and North America, and some of Mondex's rivals claim it does not conform to the international standards for chip cards developed by companies such as Visa and Europay. Mondex has had a mixed reception among UK customers and retailers but said this week that it had been received enthusiastically in the Far East. In Hong Kong -- where Mondex was launched last month in conjunction with HongkongBank and Hang Seng Bank -- more than 20,000 customers and 400 stores have signed up to join the scheme at the two malls where it is being tested. The card is also being tested in Canada and is expected to be launched in Australia next year. Financial Times: Friday, November 8, 1996 World Tries Out New Electronic Purse Systems By George Graham Ever since inventors figured out how to implant a miniature computer chip in the thickness of a standard payment card, banks have been toying with the possibilities opened up by this extra memory and processing power. Top of most lists is the electronic purse: a way of loading money on to the card so that it can be used as a direct substitute for cash in small transactions such as buying a newspaper or a bus ticket. Mondex is among a host of electronic purses now on trial around the world. Originally piloted in Swindon, England, it is also being tested in Canada and was launched this week in Hong Kong. The arrival of MasterCard, the international payment card consortium, as its prospective majority shareholder will give Mondex the opportunity to move beyond local and national trials to, potentially, worldwide use. MasterCard had run trials of its own electronic purse in Canberra, though reports that these proved unsatisfactory would appear to be borne out by its imminent new link with Mondex. But Mondex is not alone in the electronic purse contest. Visa, MasterCard's great rival, piloted its Visa Cash electronic purse at the Atlanta Olympics, and in such countries as Spain, Australia, and Argentina. It will be launching a trial in the UK next year. Europay, despite being MasterCard's partner in Europe, has already launched its own purse called the Clip. Other national electronic purses range from the disposable Danmont card in Denmark -- sold for face value and thrown away when used up, like a phone card -- to the reloadable Quick chip in Austria, which is integrated into the customer's regular cash card. The most heavily used electronic purse so far, and arguably the only one that can yet claim to be a commercial success beyond a closed circuit such as a university, is the PMB card in Portugal. It has 170,000 cards in active use, and an expected 50,000 point of sale terminals installed by the end of this year. But no winner has yet emerged. "The reason for all of these pilots is that no one has proven the business case. I'll be really interested to see if anyone makes money out of this," Mr Eugene Lockhart, president of MasterCard International, said earlier this year. Banks generally like the idea of an electronic purse, which cuts out the risk they run on a credit card payment of not getting paid. It is also cheaper to operate than a debit card: because the money is already loaded on the card, there is no need for each transaction to be authorised by a central computer. 'The reason for all these pilots is that no one has proven the business case' weighs particularly with late night shops and with bus and taxi drivers who do not want to have to carry change around with them. But they do not want to install new card terminals until they are sure what the standard will be. The gains are much less obvious for consumers. To compete with cash, an electronic purse has to be not only free but very widely accepted. That threshold has so far been crossed usually in very limited geographical areas, such as the Sydney suburb where an electronic purse accepted at petrol stations, shops and fast food outlets has been successfully married with a bus pass. Mondex's technological features make it a closer replica of cash than most competitors. Mondex money moves anonymously from one person to the next, and can even be transferred to another individual's Mondex card, instead of only to a shop with a special terminal. In most other systems each transaction ends up being processed through a central computer. That leaves more of an audit trail -- a plus point with police. But Mondex's biggest shortcoming has been that it stood alone, raising questions on whether it would gain acceptance beyond the confines of Swindon. Rivals say it does not conform technically to the international standards for chip cards developed by Visa, MasterCard and Europay, although Mondex officials have demonstrated its cards will work in standard terminals. Mondex took a big step towards wider acceptance this summer, when National Westminster Bank, its creator, sold control to a broad international consortium of banks. With MasterCard expected to take control, the Mondex card has will be crossing another threshold toward worldwide acceptance.