REPORTER'S NOTEBOOK: Europay and MasterCard Barely Civil in Seville

No scriptwriter could have improved on the setting for last week's Europay International membership meeting.

For Europay, the third of the big three bank card organizations after MasterCard and Visa, being in this fabled gem of a city had a delicious, if unintentional, irony.

The meeting, held every two years and bigger than anything MasterCard or Visa does at the international level, had production values, intrigue both onstage and off, and behind-the-scenes gossips worthy of a classic stage play.

If anybody needed prompting to make the connection, Europay included in its show a couple of live-music interludes from the "Figaro" operas that Mozart and Rossini based on plays set in Seville.

The title character, "The Barber of Seville," was a factotum, a servant wiser than his station in life. Europay's preferred notions are "partner" and "partnership," words uttered dozens of times in the formal speeches. Given its willing servitude to member banks it would certainly accept the modified mantle of "The Card-Association Partner of Seville."

But then there came the sequel, "The Marriage of Figaro," morphing now into "The Rocky Marriage of the Card-Association Partners." It was one of the open secrets that swirled around Seville: the strained relations between Europay executives and their counterparts at MasterCard, which owns 12% of Europay and shares its processing systems as well as its brand identities with Europeans.

Hallway analysts read much significance into the absence from Seville of H. Eugene Lockhart, the U.S.-based president and chief executive of MasterCard. The subtext is that MasterCard wanted Europay to bring its multiplicity of product names - they include Eurocard, Eurocheque, EuroTravelers Cheque, and as of last week an electronic purse called Clip - into greater global harmony. That might require the end of "Euro" names, which doesn't go over well in the Europay crowd.

Europay officials confronted the issue publicly. There was no debate - they know exactly what they want.

"Do we have too many brands?" said Marc Temmerman, senior manager of products and brands. "Many think so, but I'm sorry, no." He said Europay's "family of brands" allow for different products to be addressed to different functions, classified as "pay before, pay now, and pay later."

"I am afraid that if we go to a single brand, there would be no business for nobody," Mr. Temmerman added.

One payment-system brand would be easier to manage and less costly than three, "but this is about revenue and the bottom line," said Francis van den Bosch, Europay's director of commercial affairs. "One brand implies merchants will accept all functionalities at one price. That is not an acceptable scenario."

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None other than Ron H. Williams, the just-retired Europay chief executive who allegedly had low regard for Mr. Lockhart, said nice things about MasterCard's Maestro brand, with which Europay has integrated its on- line debit card, EDC.

Given that positive statement and the fact that MasterCard sent a delegation of 11 led by former board chairman Norman Tice and executive vice president Christopher Thom, perhaps hostilities aren't as severe as rumored. But the fact remained that Mr. Lockhart didn't show up to mark Mr. Williams' farewell.

The installation of a new CEO at Europay headquarters in Belgium, former French banker Louis-Noel Joly, might provide an opening for reconciliation.

If tensions are as high as rumored, and if they don't ease, then another scenario might unfold two years from now when Europay takes its act to the film-industry retreat of Cannes, France: "The Rocky Horror Card-Association Picture Show."

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There might be more and less to the gossip than meets the eye, or ear.

Word from within MasterCard is that Mr. Lockhart has other commitments and that these were known to Europay well in advance. Suspicions that Mr. Lockhart was disinvited thus seem exaggerated.

While there was never love lost between Mr. Lockhart and Mr. Williams - they were fierce competitors in previous jobs in London at Midland Bank and National Westminster Bank, respectively - Mr. Williams has recently had a more serious falling out with another MasterCard executive who did snub Seville. (Unbecoming of a respectable business newspaper, this gossip reporting has to stop somewhere. We'll take this story no further.)

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The branding issue aside, Mr. Williams must be steamed about the other big open secret involving Europay's partner across the Atlantic: its negotiations with Natwest concerning the Mondex smart card system.

It has been all over the European banking press and gotten sheepish nondenials from the principals. Natwest is said to be nearing the limit of how many millions of dollars it wants to sink into an innovation that may take years to achieve its goal of serving as "global electronic cash" - assuming it's achievable. MasterCard may view the Mondex technology as useful to its own smart card efforts - none yet out of pilot stages - and it could certainly marshal the financial resources to satisfy Natwest.

There is nothing sheepish about Mr. Williams' opinion of Mondex. He philosophically opposes Mondex's ability to permit person-to-person transactions that cannot be centrally audited, and warns that central banks will reject the system as currently designed.

At a press conference introducing Clip, Europay's entry in the chip card sweepstakes, he made a harsh distinction: "This (Clip) is an electronic purse. It performs the function of coins and bank notes. It is not electronic money.

"We are not in the money creation business. For those who wish to be, that is their privilege. I hope it comes crashing down around their ears."

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Mr. Williams' opposition to "money creation" may help explain why Digicash Inc. is complaining it was disinvited as an exhibitor.

David Chaum, chairman and chief executive of the Amsterdam-based company, received a letter (which was passed to American Banker) saying Europay had deemed Digicash to be "in direct competition," so its presence in Seville would have been "a conflict of interest."

Best known for E-cash, a virtual currency system for Internet payments, Digicash is also in the smart card business and has done contract work for MasterCard, which may have made Europay doubly uncomfortable with it.

Europay did admit more than 50 exhibitors including itself, a list approximating that of a credit card or card technology conference in the United States or elsewhere. They included processors like First Data Resources and CCN Group; terminal manufacturers like Verifone and Hypercom; and a full complement of smart card and chip suppliers - Groupe Bull, Gemplus, Giesecke & Devrient, Orga, Philips, Schlumberger, Solaic, and Siemens.

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Many of the exhibitors were partners with Europay in the creation of an elaborate demonstration of the Clip purse outside the theater - a "model town" that looked like a Hollywood set.

Each conference delegate was given a chip card with 1,000 pesetas (about $8 U.S.) of stored value. It was real money which could be spent for real goods at a bakery, a newspaper kiosk, an ice cream stand, a gift shop, and vending machines, and its value could be replenished or augmented at a Thomas Cooke currency exchange.

The idea was "to see it, touch it, and feel it," demonstrating that the technology "is here now," Mr. Williams said. The system was so real that if a cardholder's purse still had value in it by the close of business Friday, it could be redeemed for cash. Unspent funds left on cards were donated to charity.

Mr. Williams and Europay's senior manager of chip business development, Richard Phillimore, were at least arguably correct in claiming that Clip breaks new ground in multicurrency and multiapplication features, though Mondex may differ. With the assistance of International Business Machines Corp., they also showed that value could be transferred across electronic networks.

On one point they are sure to be uncontested: Clip is the only purse product built to the latest specifications of Europay, MasterCard, and Visa, known as EMV-3. They haven't even been published yet.

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Among those openly impressed with Clip was Alex W. Hart, the past president of MasterCard who is chief executive officer of Advanta Corp.

"Some things are happening faster here than in the U.S., and I think we have to take note of that," Mr. Hart said after the product's unveiling. "In many ways, the Europeans are more sophisticated about payment systems."

Mr. Hart enjoys the status of "special friend" of Europay. He became MasterCard's CEO in 1989, when its relationship with European members was at a low ebb. By the time he gave way to Mr. Lockhart in 1994, Europay was formed out of the merger of two organizations with overlapping ownerships - Eurocard and Eurocheque - and the trans-Atlantic alliance sealed by MasterCard's equity investment in Europay.

Mr. Hart said he looks back on the Europay deal as one of his top accomplishments. He said Europay enjoys a level of trust and loyalty among its member banks that will make it hard for Visa to make further inroads, particularly in the debit business. Debit is more critical in Europe than in the United States, and Europay is already dominant in it.

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The hoopla and the backbiting subsided for a tribute to Mr. Williams and the formal transfer of power to Louis-Noel Joly.

Europay chairman Kurt Richolt, a former executive at Germany's Commerzbank, said Mr. Williams had all the competitive, hard-driving, results-oriented qualities the board was seeking for Europay's first four years.

But Mr. Richolt's serious praises came only after Mr. Williams had been duly roasted - by a mock CNN bulletin about the departure of yet another world figure; and by the master of ceremonies. Dutch television personality Ivo Niehe, who made fun of Mr. Williams' blustery and sometimes impatient demeanor.

In brief remarks before emotions got the better of him, Mr. Williams mentioned only a few people especially important to him - including Mr. Hart and Mr. Tice, who helped get Europay off the ground.

All the parties seemed somewhat nostalgic for those days. Mr. Tice stood up to thank the group for its support of MasterCard and express hope that the partnership would continue. Ben van Eldik, the retired Dutch banker who was Europay's first chairman, suggested privately that some of the qualities Mr. Hart brought to the early negotiations are missing today.

Mr. Hart said he is aware of the heightened MasterCard-Europay sensitivities, but doesn't know the details and hasn't volunteered - or been asked for - advice or other assistance.

He did predict Mr. Joly would be a plus for Europay and MasterCard. Besides being steeped in bank technology and payment systems, he was active in Visa while at Societe Generale in Paris. His credibility could help Europay attract banks from the Visa camp, Mr. Hart suggested.

Mr. Joly gave a "vision" speech, mentioning few policy specifies and harping on the importance of partnership and the need to "accommodate different points of view."

He said "cooperation and understanding are keys to success" but are difficult to attain because "the natural state of the world is aggression and secession." His advice to members: "Let everybody not expect (to get) everything, but everybody contribute something."

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