Mondex Takes on All Cash: After Five Years of Development, Mondex, the Smart Card Creation of National Westminster Bank, Is Building Steam

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After five years of development, Mondex, the smart card creation of National Westminster Bank, is building steam

In Swindon, England, people began using a chip card system called Mondex in July. On July 31, 90 Wells Fargo employees began using Mondex cards at seven nearby retailers and at the bank's cafeteria and museum shop. "Mondex is unbelievably fantastic," say consultant Jerome Svigals, who has written 12 books on smart cards and is based in Redwood City, Calif. "It's one of the brightest things I've seen happen in smart cards since the beginning of the game. The bankers who understand this stuff are running like hell to get on the Mondex board."

As of July, National Westminster Bank and Midland Bank in England, Hongkong and Shanghai Banking Corp., Canadian Imperial Bank of Commerce, Royal Bank of Canada, and Bank of India had committed themselves to Mondex. National Westminster Bank, and Marine Midland Bank in the U.S. were rumored to have made agreements with Mondex, but they would sy publicly only that they were considering it. Mondex said it was talking to seven U.S. banks.

Quest for a business case

Mondex was born in 1990 at National Westminster Bank in London, one of the five main "clearing" banks in England, with relationships with about a quarter of the country's population of 55 million.

A team of employees spent several years looking for a clear business case for replacing the magnetic stripes on the bank's cards with chips, to no avial. They investigated using the chip to guarantee checks, but concluded that the mag strip could do that more quickly. They knew the magnetic stripe would be compromised one day, but for the time being it was still functional.

Then Tim Jones, who now heads up the Mondex division, thought if they could develop a chip clever enough to handle cryptography, they could trust true money on the chip, and thus save money on cash handling and ATMs. In the United Kingdom, physical cash costs banks two billion pounds and retailers two-and-a-half billion pounds a year in overhead. Mondex hopes to cut the use of cash, and thus those costs, in half.

Phones become ATMs

In the Mondex system, any Mondex-compatible phone can be used to withdraw or deposit electronic cash instead of an ATM, which would cut down the expense of ATM maintenance and make far more cash points available to customers.

NatWest currently has a network of 10,000 ATMs. When British Telecom is through retrofitting its phones, 300,000 public phones will accept Mondex.

"All of a sudden instead of saying, 'Come and try and find us in 10,000 places,' we can say, 'Come and try and find us in 300,000 places'" says spokesman David Morton. That should give NatWest and its Mondxe partner, Midland Bank, a real edge over their rivals.

"If you're with Lloyd's Bank or Barclay's Bank at the moment, you can't get a Mondex card," Morton says. "You're standing in the rain one night on a Welsh billtop, and there are no ATMs on Welsh hilltops. You get your mobile phone out and you draw on 50 pounds and put it on your NatWest Mondex card and you smile at the friend who's backpacking with you and say, 'Do you fancy a pint?' Whose bank wins?"

Going to a pay phone or using one's own mobile phone to withdraw electronic cash is safer than going to an ATM, "which is a bit like carrying a flag saying, 'I'm going to get some cash out of this, please mug me,'" he says.

Who pays for what

The customer pays his bank a small monthly fee (about one and a half pounds or about $2.40) for the use of a chip card that accommodates all currencies, a "personal balance reader," and a "wallet." The balance reader can hang on a keychain and lets the customer see how much money he has left on the card. The wallet lets him see his last ten transactions and transfer or receive money form someone else's card, to pay a daughter's allowance, for example.

The benefit to the banks of participating in Mondex, to which they pay a royalty fee for the chips they use, is that along with the long-term cost savings of reduced cash handling and the monthly fee they receive from customers, they have a tool that should help attract and retain customers. …

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