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 £5, a Michelin-spangled waiter would probably prefer the plastic to a wad of used fivers. 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, £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 £100 and £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 £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). The underlying structure is a little more complicated. First off, there is Mondex International, of which Mastercard owns a shade over half; the remainder is held by 21 banks including household names like NatWest and Hong Kong & Shanghai. Mondex International is controlled by Mastercard and the brand will be able to tap into Mastercard's 14 million 'acceptance points'. Its role, explains Mondex CEO Mike Keegan, is 'to sell franchises, determine the card's technical specifications and provide services for the franchisees'. To this end, Mondex International has carved the globe up into franchises, so, for example, Mondex UK is owned by Midland, NatWest and Bank of Scotland. 'Once you've bought a franchise,' says Keegan, 'it's yours and can't be claimed back unless you fail to exploit it. It's not for a set period of time.' To date, Mondex International has sold a number of franchises including Australia, Ireland, the US, Cambodia and most of the Asia-Pacific countries.
But, although a fair chunk of planet Mondex has been sold, the time lag between this and being able to buy your newspaper on a card is likely to be considerable. In the UK, explains Ron Clark, head of Mondex UK (and one of the people behind Switch), the roll-out period will be determined by the progress of the now inevitable move from magnetic strips to chips.
'What we'll see in the UK is in 1998-2000, the banks moving cards across to chips, with those more prone to fraud, such as the gold cards, receiving priority. Banks will move their card base across in that three-year window; high-street retailers will need to do the same. Stores converting (to the chip readers) make Mondex in the high street almost an inevitability.
If they're changing equipment, they'll want the capacity to read everything - Mondex will be cheaper than cashing cheques, debit cards and cheaper than cash.'
Whenever they mention time scales, both Keegan and Clark are quick to invoke the tale of the credit card, a wheeze the Bank of America came up with in 1952 when it launched BankAmericard. From its Californian launch, the credit card took 11 years to reach the UK (by which time it had picked up the rather catchier Visa name). Here the franchise was snapped up by a far-sighted Barclays Bank. The UK credit card market didn't mature until the late 1980s. By comparison, Switch, introduced just under a decade ago grew up in a comparatively breakneck nine years. Changes involving millions of people do not happen overnight.
How, you might reasonably ask, will those involved in the Mondex franchises make any money? The Swindon trial is, after all, free to those involved.
The answer to this is two-fold: there will be the traditional card-related money spinners, plus savings brought about by reducing the need to process corporeal cash. Says Clarke, 'Personally, I don't think a card fee is sustainable; the card market in the UK is too competitive - some will give customers a free electronic purse. Then there's ATM reciprocity (charging Midland customers, for example, to use Lloyds cash points) and there are other options. You might be a 25-year-old at the pub, low on cash: you could go to your ATM or spend 5p to get cash over the phone, paying for convenience - as long as the charge is sufficiently small that if it was a coin you wouldn't pick it up.'
It is here also that further significant savings stand to be made. One of Mondex's great selling points is that, with the appropriate card slot, cash can be transferred from bank to account holder over the phone. Equipping a payphone thus costs around one hundreth the price of an ATM; a home phone considerably less. 'Banking today,' says Keegan, 'has an 18th-century distribution structure. All the high-street branches are there to provide cash to customers and merchants. Imagine just using your phone to withdraw cash.'
And so to Swindon, home of the world's first full Mondex trial. Swindon is one of those barometer towns, so representative of the nation as a whole that, one suspects, every other person is an opinion pollster or product trialist.
Still, the Swindonites seem happy enough for their cash registers to sport, alongside Switch, Visa, Mastercard and other sundry logos, Mondex's interlinked three coins. And to be fair, Mondex seems to work as promised: I picked up a notebook at WH Smith, bought a pint in a pub and even paid for a cab with the card. Retailer acceptance seems pretty widespread, although the coffee shop staff two doors down from the Mondex showroom had 'never heard of it'.
The trial has now been running for two years and local retailers remain fairly enthusiastic. Plus points include being able to pay in their electronic takings by transferring them from the till to the card and taking it to an ATM - as opposed to lugging mugger-friendly sacks of cash down the road to the bank.
Swindonite consumers, however, have been slow to take Mondex to their hearts. Richard Jackson, manager of the Victoria News Kiosk in the town centre, reckons to have 'five people using it per day, out of 3,000 customers'.
Brian Lennon Smith, who owns two local McDonald's franchises, praises the card. It helps, he says, overcome problems with forged notes and the odd crew member augmenting wages with takings.
Though usage in Swindon has been relatively low, the much newer Hong Kong project has already eclipsed it, with 45,000 card-holders and supply unable to keep pace with demand. The lukewarm response in Swindon is probably down to a couple of reasons: first, the card's uselessness outside the city limits of Swindon; and then its image - as Lennon Smith says, 'It doesn't have one'. The latter problem has been dealt with: rather like New Labour, new (ie post Mastercard) Mondex has revamped its image, making its new owner's clothes its own. The new logo, with 'Mondex', now comfortably inside Mastercard's interlocking red and yellow circles does have a certain authority which its predecessor lacked.
While Mondex undoubtedly has advantages in the real world (just think how useful a Mondex-friendly parking meter could be), one arena where all its claims seem credible is the Internet. Currently, buying and selling on the net is not an easy business - punters have either to go to the trouble of buying 'cyber dollars' or tap in their credit card numbers and pray that the encryption software works. Here Mondex, with its ability to transfer digital cash direct from card to retailer, shines in the absence of any real competitor. Enthuses Keegan, 'There are people joining Mondex now who are not interested in the physical world; they don't want to do Swindon. They're interested in providing a service to their customers in the virtual world. The beauty of Mondex is that it works equally well in both.'
Non-virtual critics may see few clear advantages for E-cash over its physical counterpart, but in areas such as electronic commerce, it beats cash hands down. Another stumbling block, the public's wariness of unfamiliar products, has largely disappeared with the electronic purse's new-found Mastercard strip. And, while Mondex lacks the absolute reassurance physical cash offers, it will be launched to a public ever more at home with the idea of electronic transactions. Keegan has lofty hopes for his electronic purse. Waving a fiver, he outlines them: 'This chap here's the market leader. For every 10 transactions made in the UK, seven are made with this. Three are made with these' (he flashes assorted credit and debit cards). 'I'm not saying this chap is going to die,' he laughs, 'what I am saying is that if I can capture less than half what this chap does then I'm bigger than everyone else in the market put together.'.