Exactly a year passed between the start of the Mondex trial in the southwest England town of Swindon and the creation of Mondex International, the banking consortium that hopes to use the smart card system as the basis for a global alternative to cash.
That was fast according to the calendar. It was also an eternity.
During those 12 months, National Westminster Bank, the new payment technology's inventor and champion, rode a roller coaster between self- congratulation and a skeptical press, between the celebration of an unprecedented accomplishment and a storm of criticism from within its own industry.
Even with the formation July 18 of Mondex International, enthusiastic backing from banking powers as diverse as Wells Fargo Bank and Hongkong & Shanghai Banking Corp., and the current cloning of Swindon in the Canadian city of Guelph - it relates locationally to Toronto as Swindon does to London - the Mondex eternity continues.
The emotional pendulum still swings at Natwest Group headquarters in London. And emanating from Natwest and from within the Mondex project is a mix of messages that underscores how truly groundbreaking is their attempt.
Win or lose, whether or not they are understood or praised by their peers, the founders of the Mondex project have risen above the almost weekly cycles of technological change and quarterly pressures on earnings with a longer-term perspective antithetical to the traditional ways of bankers and the banking industry.
"Natwest recognizes that Man does not live by short-term profits alone," group chief financial officer Richard K. Goeltz said in a recent interview with American Banker. "There are things we have to bequeath to our successors."
Mr. Goeltz - who moved to New York this month as chief financial officer of American Express Co. - and others close to Mondex want the world to recognize how far they have come in a year.
But the Mondex promoters are quick to point out that it is actually Year 6 since Natwest began to fund them. Today they look at a 10- or 15-year horizon.
(Natwest will recover most if not all its development cost by issuing about $150 million of stock in Mondex International. The bank expects to collect further royalties as the system rolls out. Partner bankers do not begrudge Natwest its return for risk taking.)
One gets the sense that Natwest's leaders were so well primed for the long haul that it would take more than a few technical glitches and negative newspaper stories to get their goat. Mr. Goeltz dismissed the sniping from more tradition-bound competitors as "slings and arrows" that never hit their mark.
Mr. Goeltz and other insiders knew, long before the Mondex International membership roster became public, that the concept was attracting interest. "Broad-scale cooperation" was a prerequisite, written into Natwest's business plan, and 16 other "global founders" who came forward July 18 found the case compelling enough to want to join in the marathon.
"This is a process of change management - it's not like flicking a switch," said Roy S. Pratt, deputy chief general manager of Mondex UK Ltd., the British franchise co-owned by Natwest and Midland Bank Ltd.
"Our job is not to say, 'This is how it will be.' It is about trends and responsiveness. To say anything is cast in stone at this point would be presumptuous."
Mr. Pratt, 49, spent 31 years at Midland Bank before being "seconded" to Mondex UK in 1994. His banking jobs were in treasury, asset/liability, and portfolio management. He said his nontechnological background enabled him to see the complexity of the phenomenon, to confront necessary questions about the known and unknown quantities of a reinvented payment system.
"People always want to ask about take-up (acceptance) rates, how fast this will happen, but I am reluctant to make blanket statements," Mr. Pratt said. "Mondex will mean different things to different people. It will not be the same at Exeter University (where it is being introduced this fall) as it is in Swindon.
"There is not one proposition or growth rate. What is a critical mass for one segment will be different in another. A carpark will not be the same as a bus. You might call each a micro-Mondex economy.
"This is a change process that will be based on value exchange on a just-in-time basis," Mr. Pratt continued. "It is not a product like a loan or deposit package, or even a payment mechanism. It is not mono- dimensional.
"And it's not just an issue for bankers. We respect the integrity of the payments process, but we also have a responsibility to society."
Such words are hardly bankerly.
To be sure, Mondex has rigorous underpinnings. The bankers' thought processes are logical. The strategic plans passed muster with "some of the most sophisticated, hard-nosed bankers in the world," Mr. Goeltz said.
"Mondex does have tremendous social implications, not least in terms of what it can do for welfare payments and pensions," Mr. Goeltz said before his recent departure for American Express. By automating cash "it reduces friction in the economy.
"But the implications for society were not the motivation for Mondex. It was to serve customers better and generate a return for shareholders.
"What's interesting about Mondex was not the technology," Mr. Goeltz went on. "The technology was a facilitator. This is one of the few products I've seen in which all three participants in the value chain - banks, retailers, and customers - benefit."
The enthusiasm carries over to outsiders - even some who have been lumped among the critics - to a point.
"The richness, the robustness of the technology, is fantastic," said H. Eugene Lockhart, president and chief executive officer of MasterCard International. (MasterCard held negotiations with Natwest to buy into or participate in Mondex, but at the same time its European affiliate, Europay International, was developing the competitive Clip electronic purse system.)
For more than two years, Mr. Lockhart has insisted on seeing smart cards' "business case," and even as MasterCard launches experiments around the world he is still not completely satisfied.
"Let's assume there is a business case," he said. "The opportunity is that we have this new technology platform that can do a lot of things, stored value being only the first manifestation.
"But there is a big problem: How on earth do you grow that system in millions of other cases just like Swindon?"
Swindon, for now, is "the case."
Mondex UK's overly optimistic projection of 40,000 cardholders in the city of 190,000 people set off the bad press. In reality, the 10,000 that signed up within 12 months weren't bad news at all. That's almost 25% of the combined Natwest-Midland customer base in the area.
Mondex said its surveys showed 66% of the cardholders said they preferred Mondex to cash. Average card loads were the equivalent of $35 to $45, and the majority of transactions were under $7.50.
Perhaps more to the point, it is hard to find a storefront, public phone, or any type of payment device in the commercial center of Swindon that does not accept Mondex. The banks signed 600 merchants, double the number accepting MasterCard and Visa, which stands to reason for a cash replacement.
"You can actually go cashless," said Mark Gordon, Mondex International's head of marketing. "It's not a big deal when you present Mondex at the tills."
While Mondex has been selective in its data disclosures - no one denies that its transactions are a small percentage of the Swindon total - Mr. Gordon and his team have been more than hospitable in letting the world come view Mondex. Banker delegations are commonplace, often gathering at the "Mondex Store" in the town center before setting out to observe and test merchant acceptance.
Hardly a day goes by without the visit of a television crew. Many come from Asia, where Mr. Gordon believes "Mondex will really fly." (A Hong Kong pilot is set for late this year, and smart cards of various kinds are already prevalent in Singapore, Taiwan, and elsewhere in the region.)
"They see this as a city of the future," he said, "like something out of 'Blade Runner.'"
The Mondex staff tries to keep the visits unobtrusive, but some of the merchants were willing to pay the price of unanticipated stardom.
"Our town center store is small," said Bob Upshall, manager of the Sainsbury supermarket, part of one of Britain's biggest chains. "Having Mondex raised our profile and provided a morale boost."
At the corporate level, Sainsbury was eager to participate in Mondex because "it didn't want to be left behind." So the smaller, convenience- oriented Swindon outlet, which otherwise might have relied for years on older computers and point of sale equipment, got an upgrade on a par with many "superstores," and Mr. Upshall said, "My staff loved it. A positive staff is a plus for customer take-up."
Sainsbury, a Midland Bank customer, invested 45 minutes per cashier in Mondex training and found the system was so easy to grasp that it didn't have to deploy, as anticipated, demonstrators in the checkout lanes.
Mondex volumes were running at less than 0.5% of sales at the three Swindon stores - slightly lower in the town center location than at the larger branches on the outskirts of town. Mr. Upshall said an incentive offer in May and June of a five-pound voucher (about $7.50) for every 50- pound ($75) shopping trip brought in transactions well above the average ticket of five pounds in-town and 30 pounds ($45) elsewhere.
"Whether smart cards will be in Mondex or other forms, they are here to stay," Mr. Upshall said. He gauged customer reaction as "very positive," though mainly among early adopters. He himself likes Mondex as a consumer - "I use it in the canteen all the time" - and as a merchant, because it streamlines the cash-handling tasks that require two to three full-time positions in the supermarket's back office.
Nearby in McElroy's, a local department store, Vince Ayris accepts and encourages Mondex payments at his shoe repair and key-making stand. Mr. Ayris has been in the business 17 years, is a well-known man about town, and so strongly believes in Mondex that he essentially sold it to the local rugby club, where "we use it quite a lot. I find I'm more careful about spending money (with Mondex) than with cash, and it's easier than small change."
Mr. Ayris admitted to being "a bit skeptical at first," but he has become so strong a booster that Mr. Gordon felt he had to deny that Mr. Ayris is in Mondex's employ.
"I don't give money away to a bank like I do with a MasterCard or Visa discount," the merchant said. "There is no problem with fraud or counterfeit.
"I have more over-ring errors on the till than on Mondex terminals. Every transaction is documented so disputes are more easily resolved" than with cash.
And because the Mondex terminal is smaller than a cash register, "I have more room for selling product."
Mondex is also proving itself at a multiplex movie complex, part of the MGM chain that Virgin Enterprises recently acquired. John Keil, the manager, said he "needed no convincing" to accept Mondex at every point of sale. "We saw the benefit immediately. Any way at all to take cash out of the system, the better.
"The bigger the business, the more problem cash is," Mr. Keil went on. "Any major company sees the benefits in the technology."
Like the supermarket, the MGM outlet easily won staff support. "Most of them are into gadgetry," Mr. Keil said.
It also encouraged sales by cutting Mondex users' ticket price to about $4.90 from $6.80. The transactions are still a small portion of the 30% of in-person box-office sales done on plastic cards. (Another 30% are advance sales by phone; Mondex has not yet been accepted that way.)
Mr. Keil said he is looking forward to having "one box" that can accept all cards. Even so, he said Mondex was "very flexible, requiring no change whatsoever to our system. It was slotted right in ... They made their system fit ours."
"I think the system will take off eventually," Mr. Keil said. His only regret is that because he doesn't live in Swindon, he can't use Mondex more than he does.
It is as if Mondex has succeeded at recruiting its merchants as change agents. Time will tell if they are still on board when Mondex begins costing them something.
"The chip brings a fundamental change," said Mr. Pratt of Mondex UK. "You feel as if you are shaping the future.
"When the market begins using it to create its own needs and to solve its own problems, that's when the real thrill will come - and a surge in usage."
