Mondex's Master Card

By Rigby, Rhymer | Management Today, July 1997 | Go to article overview

Mondex's Master Card


Rigby, Rhymer, Management Today


While cash will never be a spent force, Mondex, an electronic purse, has passed its pilot's test.

Most people would probably agree that certain forms of payment are better suited to certain transactions than others. While the corner shop owner understandably balks at a Visa transaction of under [pounds]5, a Michelin-spangled waiter would probably prefer the plastic to a wad of used rivers. But carrying both (and a chequebook, several store loyalty cards, plus a pocket full of shrapnel for parking meters) is inconvenient and the resultant bulges will almost certainly ruin the lines of a good suit.

No doubt the two NatWest employees, Tim Jones and Graham Higgins, had these considerations in mind when they began looking at 'smart' cards back in 1990. 'Smart cards' (as opposed to the cards in your wallet, which are all pretty stupid) are based on microchips rather than magnetic strips. These allow far more information to be stored on the card; Jones and Higgins realised that the greater capacity offered by chips would make a payment card that worked like cash possible. Users would be able to treat the card like an electronic purse, crediting it with, say, [pounds]20 at the cash point and then spending it at suitably equipped retailers.

Development began and NatWest started a trial of Mondex's precursor, a canteen card cleverly called Byte, in 1992. A year later Midland and NatWest announced that, in conjunction with BT, they would be launching a pilot scheme in Swindon. Account holders would receive cards that could then be used at Swindon retailers. The trial, which is still ongoing, duly went ahead. Since then numerous other parties - by and large banks - have signed up to Mondex, and trials are under way in Hong Kong, Canada, New Zealand and at Exeter and York universities. But, perhaps most important of all, in February this year, Mastercard bought a 51% stake in Mondex International, for an undisclosed sum rumoured to be between [pounds]100 and [pounds]150 million.

And it is almost certainly this deal that has secured Mondex's future. Mastercard, and all card issuers, have long been aware of the need to switch from magnetic swipe cards to chip cards. As an ageing technology, magnetic strips are increasingly vulnerable to fraud; while the problem only cost UK banks [pounds]97.1 million last year, it is on the rise. The complexity of the chips, and their inbuilt resistance to tampering, seemed the ideal way to combat this growing problem. Mastercard was looking for what the cognoscenti call a technological platform on which to base its next generation of cards. As Gail Francolini, Mastercard International's vice president of chip card marketing, explains, 'The decision to purchase Mondex International stemmed from exhaustive market analysis: after a year the decision was whether to buy or build the infrastructure. It cost significantly less to buy.' The technological platform, which, unlike Visa Cash, is a universal system, was paramount, says Francolini, though E-cash was important in terms of offering flexibility. 'It's another tool in our tool kit.'

The requisite security technology, points out Peter Hill, Mondex's chief technology officer (and recent Visa deserter) resides on the chip, rather than externally, which allows the safe transfer of funds over insecure networks. The chip's greater capacity also allows 'multiple applications' on one card. An example of this is a debit card, such as Switch, which may also be an ATM card and a cheque guarantee card. Now, if a magnetic stripe card is a three-room apartment, a chip card is the penthouse, with room for many more occupants. Thus, the chipped user could in a single card hold a Mastercard, a Mondex electronic purse, an ATM card, several store loyalty cards and a work access card. Moreover, the Mondex purse can hold five currencies at once.

The Mondex brand functions rather like that of its new parent (ie it's coming to a shop window near you soon). …

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