Seventy miles west of London, in the middle-class urban community of Swindon, the future of electronic money is being tested in drug stores, parking lots, and telephone booths.
Nearly 10,000 Swindon inhabitants and 750 merchants have begun to use the Mondex smart card, which is issued by a joint venture of National Westminster Bank and Midland Bank in conjunction with British Telecom.
Created to appeal to the growing "swipe and run" segment of an increasingly technology-dependent society, the Mondex card's microprocessor chip is one of several electronic cash products vying to shape the future of money.
I am convinced, having viewed the experiment firsthand, that this technology will eventually transform the way that currency acts and moves.
The Mondex card is indistinguishable from an ordinary credit card but for the gold chip on its upper left face and a notch on the lower right corner to assist the visually impaired.
On our recent trip, my wife and I were given small card readers attached to a key chain. Alternatively, we could have inserted the card into the back of a hand-size electronic wallet to check the value it contained.
The plastic wallet, which clicks open and shut, houses a keypad and looks like a calculator. With this wallet, we could transfer value from one card to another or electronically lock our cards with a single keystroke so that, if the cards were lost, no one else could use them.
The Mondex card uses an electronic digital signature to preserve the integrity of the value and ensure that the amount transferred can only be received by the card for which it is intended.
Like most initial forays into the world of technology, this one requires an understanding of what appear to be complicated instructions, such as those alongside public telephones. But once our guide explained what needed to be done and we had completed our first transfer, the directions seemed clear and the procedure entirely friendly.
We wanted to try it again, but there were other tests awaiting us.
We dipped our cards into our portable readers, confirmed the transfer of value between the two cards, and moved on with a sense of instant gratification to other stops.
At a drug store, our purchase was completed in about 10 seconds, complete with the printout of a cash register receipt. In fact, what had occurred was the following:
1. Information from our card was validated by the store's card, which is inside its Mondex terminal, and vice versa.
2. The store's terminal transmitted to our card a request for payment with a digital signature, causing each card to check the authenticity of the other.
3. All procedures being satisfied to this point, our card sent the appropriate value with its own digital signature attached.
4. The store's card checked the digital signature and sent an acknowledgment with a digital signature.
5. The value was transferred from our card to the store's card.
While use of Mondex today in Swindon free, eventually the card will cost the equivalent of about $5.25 a month - which Mondex market research indicates is within the range of consumer acceptability.
The most popular use in Swindon so far appears to be in the parking lot, or "car park."
At one we visited, we simply dipped our smart card, transferred the value, and then verified the transfer by dipping our card into a portable reader. Britons will no doubt prefer the simplicity and convenience of smart cards to coins and notes.
After an afternoon of spending, we were able to dip our smart cards into an electronic wallet, telephone, or automated teller machine for a display or printout of the last 10 value transfers by name and number.
While this record-keeping feature was clearly important, it has obvious implications for the auditing capability and anonymity of electronic money. We wondered who else could access this information. The balance between the legal, financial, and regulatory problems that electronic money raises seems to be a matter that Mondex is well prepared to master.
In many respects, these early-generation smart cards look like they aren't doing much more than debit cards. But they do, and this is only the beginning.
In the initial stages, smart cards will carry only limited amounts of value and confidential information.
Future generations of the card will be smarter and have greater chip capacity to provide more functions and include greater amounts of confidential information about their users.
Cryptography, which safeguards the privacy of electronic data, will become a higher-stakes science even more than it is today as the quality and quantity of such data increase.
The Mondexes of the world will have to be able to raise the security bar for each new generation of technology to make the cost and challenge of compromising the system steep enough to discourage electronic data pirates. Indeed, concerns that renegade governments will devote unlimited resources to data espionage and information warfare against the major industrialized countries makes security an ever-increasing challenge.
Mondex security begins with the hardware of the chip in the card, the software that controls the movement of value between cards, and a classification system that puts limits on the values and uses for certain types of cards. The combination of these elements allows only certain users to communicate or transmit certain information and value in certain currencies so as to provide a verifiable audit trail and a safety net to control and limit the adverse effects of security breaches when (not if) they occur.
While the period of consumer adaptability and acceptance unknown, companies like Mondex appear prepared to bide their time and nurture consumers, even if it takes as long or longer than it did for ATMs to become as universally accepted as they are today.
During that time, as smart card systems develop and consumer acceptance improves, the technology will be put to more and better uses. Smart cards will eventually contain not only value, but also personal information, medical benefits privileges, telephone calling features, and a vast array of related capabilities.
More than 30 million people in the United States receive government assistance, and they may shortly be propelled into the world of technology as their benefits are distributed by the government through stored-value and smart card technologies. What's to stop the government from programming a smart card to be able to spend value for food and medicine, but not for liquor or entertainment?
Equally intriguing is the use of electronic money on the Internet, where Mondex can also play a role. Card readers connected to a laptop computer anywhere will allow users to peruse the Net; locate a product, service, or information; insert the Mondex card; and make a payment from stored value.
When electronic cash of this or other brands is solidly in place, it will transform the Internet from an information bulletin board to an international retail and wholesale bazaar where sales involving just a few cents or thousands of dollars can be completed.
If there were a billion users on the Internet, just 0.0001% of them willing to purchase a vendor's product or information for 10 cents would produce $100,000 in revenue - with no charge cards, paper invoices, or waiting for the value to arrive.
It is through these types of transactions on the Internet that the implications for the banking business become most intriguing.
Is electronic money a form of legal currency? Will the Internet become an alternative payment system that doesn't need commercial banks? Where is the money that underlies smart card value and who is responsible for its loss?
Will archaic laws like the Stamp Payment Act of 1862 be used to thwart these technological developments? Or will Congress jump in and begin to define the parameters of technology in the financial world?
The legal issues seem endless and will require a balanced sense of banking precedent and technological literacy to resolve.
Meanwhile, back in London, Mondex chief executive Tim Jones suggested other technological frontiers. He asked if I could imagine walking to my office while dialing my bank on a new cellular phone. Once connected, he suggested, I could download $500 from my bank account onto my card and then, with another call, transfer that value to a relative or to my stockbroker.
I could pay my bills over the phone without speaking to anyone or breaking stride.
This could represent a revolution in the ways we shop, bank, communicate, and exchange value. The business opportunities will attract new and different entrepreneurs who through technology will begin to blur traditional lines of business.
Indeed, what's to stop my lumber yard from issuing a smart card and lending me value to use on it?
