Natwest makes 1st major sale of smart-card payment system.

National Westminster Bank has made its first big sale of Mondex, the multinational, electronic system it is promoting to replace cash.

Hongkong and Shanghai Banking Corp. announced last week that it will acquire the rights to franchise Mondex throughout much of Asia.

The move gives Mondex, a smart-card-based system that many bankers were inclined to dismiss as too radical to succeed, a credibility that London-based National Westminster would have struggled to achieve on its own.

And since both Natwest and Hongkong Bank have sizable affiliates in the United States, a U.S. franchise for Mondex is beginning to take shape.

Tim Jones, the co-inventor of Mondex and chief executive of the venture, said New Jersey-based National Westminster Bancorp is sure to be one of the five or six partners being sought for the U.S. Mondex corporation.

That corporation, supervised by the Federal Reserve System, would control the issuance of dollars into Mondex cards and "smart wallets," and in turn would license other banks to participate.

Marine Midland Banks Inc. of Buffalo, N.Y., the U.S. part of the $300 billion-asset Hongkong and Shanghai empire, is seen as likely follow into Mondex, but no formal agreement has been made.

Perhaps even more significantly, Mr. Jones revealed in an interview last week that he has preliminary commitments from two of the largest U.S. banking companies.

Their names will not be announced until the U.S. franchise plan is more complete, Mr. Jones said. Some European banks, he said, are also close to announcing their commitments.

On Friday, when he took a detour from meetings in New York to visit the annual conference of the Most automated teller machine network in Williamsburg, Va., Mr. Jones basked in the glow of his breakthrough.

He said Hongkong and Shanghai Bank will go a long way to helping Mondex live up to its promise of being "the worldwide alternative to cash."

he quickly pointed out, however, that the signing of Hongkong Bank came four and a half years after the Mondex program was launched.

It is not the overnight accomplishment that it might appear to U.S. bankers who may have heard of Mondex for the first time only weeks or months ago, as Mr. Jones and his U.S. marketing chief, Ralph Browning, began focusing their energies here.

Mr. Jones added that unlike many high-tech phenomena, Mondex faces a "maturity cycle" that could last 15 years from the first implementation, because of the complexities of introducing "electronic cash" in many countries and cultures.

But given the Hongkong Bank signing and Mr. Jones' statements about progress in Europe and North America, Mondex is shifting into high gear.

In addition to working with Midland Bank of London -- also a Hongkong Bank affiliate -- and several major technology companies on a test of Mondex in England to begin next year, National Westminster has a powerful Asian ally promoting the concept in some of the world's most attractive markets.

"This is not just a minimal test," Mr. Jones said of Hongkong and Shanghai. "They are off and running."

The Hong Kong-based bank, the 39th-largest in the world, with $146 billion of assets, is expected to sign partner banks to help it launch Mondex in the two most populous countries -- China and India -- and in the fast-growing economies of Hong Kong, Singapore, Taiwan, and Thailand.

Also in Hongkong and Shanghai's Mondex territory are Indonesia, Macao, the Philippines, and Sri Lanka. A subsidiary, Hongkong Bank Malaysia Berhad, owns the rights in that country.

"It is a significant development in modern banking," John Gray, chairman of Hongkong and Shanghai Banking Corp., said of Mondex.

"The creation of a major global payment system will bring wide benefits to our customers around the region and we are determined to be involved from the outset."

Mr. Jones said the Asian giant is "a major force in the world's banking community" and its involvement "highlights the significance of the Mondex scheme."

With an array of technology providers that includes British Telecom, Hitachi of Japan, and Texas Instruments of the U.S., Mondex hopes to prove its feasibility in a test scheduled to begin in the third quarter next year in Swindon, England.

Natwest and Midland Bank, the co-owners of Mondex U.K., expect to have 40,000 consumers and most of the town's 1,000 retailers using and accepting smart cards in place of cash. British Telecom is converting pay telephones, and AT&T Global Information Solutions is configuring ATMs, to accommodate the cards that carry computer chips inside.

Mr. Jones emphasizes the simplicity of Mondex. He often says, "Mondex is money," to drive home the point that it works exactly like cash in one's purse.

Value can be-transferred onto a smart card from a bank account via phone or electronic terminal, or from an intermediary store of value called an "electronic wallet."

At least two Mondex features have raised eyebrows and caused controversy: its ability to store and transfer multiple currencies, which might appeal to international travelers; and its ability to transfer value not just to and from stores and banks, but between individuals, anonymously and unaudited, just like cash payments.

A tireless champion and salesman of his brainchild, Mr. Jones passed some of his enthusiasm on to several dozen of the electronic banking executives who heard him speak in Williamsburg. Said one afterwards, "I am going to mark my calendar. This is the day we heard about what money in the future will be."

Critics and skeptics have raised questions about security, the lack of audit trail, and central banks' ability to keep a rein on the electronic cash.

On the security issue, Mr. Jones points to partners like Hitachi, which is developing a special chip for Mondex, and British Telecom, "which knows a bit about security and cryptography."

He says the anonymity of person-to-person transfers is essential to Mondex's retaining the character of cash. And he claims to be getting support and understanding from the Bank of England and other central banks, though discussions with the Federal Reserve Board are "ongoing" and will have to be concluded by the eventual Mondex U.S. group.

"We can take 90% of the 300-year-old rules for physical money and drop them right on top of Mondex," Mr. Jones said. He sees no difference between a central bank's creation of physical money and electronic money. And he doesn't see Mondex as a boon to money laundering because there will be a dollar limit on card-initiated transactions, and their size -- though not payers' identities -- can be tracked by law enforcement authorities.

Hongkong and Shanghai may provide insight on these issues. It performs central bank functions for Hong Kong.

The MasterCard and Visa associations have been a counterweight to Mondex, questioning the auditability policy while pursuing chip-card standards that would not be compatible.

Mr. Jones, noting that executives of his parent bank are influential in both MasterCard and Visa, said Mondex is different from, and complementary to, the associations' payment cards. As electronic cash, he said, "Mondex is the ultimate mass product."

Holding to Natwest's policy of not disclosing how much it has spent on Mondex, Mr. Jones did say that creating the multicurrency capability required a relatively insignificant "marginal cost" of $7.5 million.

"We knew that if we were committed only to sterling, we would be going down a blind alley," he said.

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