American Express Co. and Visa International have pushed the smart card world closer to a shakeout by investing in one of the industry's leading technologies.
Each of the rival card companies announced Wednesday that it had bought shares in Proton World International, a spinoff of the Belgian consortium Banksys, which launched the Proton smart card program three years ago and has licensed it in 15 countries.
The companies declined to disclose terms of their investments, which are said to be minority interests. Sources said Banksys retained 51%. ERG Ltd., an Australian telecommunications and card systems provider, also bought a piece.
But the technological and competitive repercussions are likely to be more significant than the dollars. Proton adds its 30 million stored value cards to the majority around the world that have been rallied under a Visa- supported technical standard called Common Electronic Purse Specifications.
Part of the left-out minority, which according to Visa and Proton comprises 10% of electronic purse cards, is Mondex, the smart card venture affiliated with MasterCard International Inc.
Yet the loyalties in these, as in many technological joint ventures, can be fluid. American Express, a Proton licensee and now investment partner, also supports and intends to use Multos, the operating system associated with Mondex.
And there was no flinching in the MasterCard-Mondex camp as the news filtered out Wednesday from Banksys' base in Brussels. Mondex International chief executive officer Michael Keegan in London said he read the Proton announcement as a vindication of his organization's interoperability principles.
"I still don't understand Visa's strategy," he quipped. "It's all over the map and this announcement won't change that."
But the Visa gang-already sizable last month when the organizations responsible for the Geldkarte electronic purse in Germany and Visa Cash in Spain endorsed the common specification initiative-has gotten bigger. Virtually all of continental Europe's electronic purses are on board.
In his moment of triumph, Armand Linkens, the Banksys executive and smart card advocate who was named Proton World's managing director, suggested that the momentum toward standardization could become irresistible.
"If MasterCard were to call me, I'd be on a plane right away," Mr. Linkens said in a telephone interview.
At an earlier press conference, Mr. Linkens added, Hans van der Velde, Visa's regional president for the European Union, "made absolutely clear that was Visa's position also."
In a prepared statement, Mr. van der Velde hailed the "solidified" support for a common standard and said it "will bring interoperability and will protect the investments and interests of our members around the world . . . . We can look forward with confidence to the continuing growth of the electronic purse and, with that, the introduction of true, multifunction smart cards."
Given the hardening of some philosophical positions on both sides, the phone call from MasterCard is not expected soon.
Visa senior vice president Gaylon Howe said it is important to differentiate two aspects of what was announced Wednesday: the ownership positions in Proton World International, and the support for electronic purse interoperability.
He said the focus on the latter-chip cards used for small-value payments-is a "different discussion" from the contest between Visa's Open Platform, based on the Java programming language of Sun Microsystems Inc., against Mondex's Multos operating system.
American Express is essentially straddling that gap, saying it will take advantage of Multos' "openness" to put a Proton service on that system.
"There will be still other operating systems and we will look at and use those as appropriate," said Andrew Bartels, vice president in American Express' electronic commerce group.
He said American Express generally agrees on the need for standardization-over time, when the technology matures and "it is clear that we have the best of what is available. Today, we don't yet know what is best."
San Francisco-based Visa, which along with American Express was long rumored to be considering a stake in Proton, was motivated to invest by a strategic bias toward "open standards, platforms, specifications, and the enabling of infrastructures," Mr. Howe said.
Visa's Open Platform framework and the Common Electronic Purse Specifications, or CEPS, are now "elements in Proton World International" that in turn can help boost Visa's global ambitions.
"This is a banding together to further the cause of commonality," Mr. Howe said. "It is an attempt to get the technology issues out of the way to achieve interoperability among the various schemes." The CEPS support from American Express and Proton is "a major step," the executive added.
"Everybody is adhering to the Visa-CEPS standard and we are going to help with that," said Mr. Linkens. "They are also saying that Proton is probably the best technology, and we want to be involved serving as a platform for them."
Mr. Linkens said the standardization movement will inevitably require a single company to "implement CEPS solutions," and he wants Proton World to be it.
Much of the discussion revolves around Europe for two reasons: it is where the preponderance of purse cards have been issued; and a single currency, the euro, is to be phased in over the next four years.
Linda K.S. Moore, a Paris-based payment systems consultant, said the European Central Bank may want to have a hand in chip card policy as it relates to the euro, and Proton World may be in a position to influence or implement such a standard. But Ms. Moore said it is not yet clear how, or if, the central bank will intervene.
"People in, say, Germany will have to be confident they can use their purse cards in Belgium as merchants sell things in euros," Mr. Howe said.
But interoperability and euro-compatibility will not happen overnight.
MasterCard and Mondex executives leveled a frequent criticism-that even within the Visa Cash and Proton brands and systems, compatibility is lacking. Mr. Keegan of Mondex International predicted "it will take many years and board meetings to work all that out."
MasterCard senior vice president Richard Phillimore said he "can understand Proton's motivation" in trying to spread its wings, which he sees as akin to the Mondex consortium's invitation to MasterCard to take a controlling interest in 1996. He questioned whether Visa can wield the influence it seeks with a less than 50% stake.
"It will take a huge amount of effort for them to get from where they are now to where they interoperate," Mr. Phillimore said.
He said today's technical hodgepodge is a result of European banks' country by country rush to put cards out in competition with earlier entries by telecommunications companies. One of MasterCard's selling points is that any chip introduction is "globally interoperable from day one" and will not require a "reinvestment" later.
Mr. Howe acknowledged that "we still have a long and arduous road," but getting the initial consensus is a major accomplishment and the publication schedule of CEPS is on target for yearend. He also said he expects some holdouts, many of them in Asia, to endorse CEPS within the next couple of months.
Mr. Linkens said there will be more owners of Proton World. The four charter shareholders prefer not to call attention to their percentage holdings because they will get smaller over the next six to 18 months, he said.
Mr. Linkens said he sees little reason to fuel the Java-Multos controversy, though Proton is firmly pro-Java and sees Multos as "an intermediate step. We hear Multos will support Java," he said. "Fair enough. But the debate is irrelevant to us."
Mr. Howe said the operating-system debate is likely to continue, but he sees the electronic purse standard gaining further momentum and views Mondex as marginalized in that context.
"That's reality," he said. "The world has not migrated to the Mondex electronic purse. People want accountable (auditable) schemes like the CEPS approach. A lot of work and money will be needed to put Mondex in place globally, and who is going to do that?"
Both Geldkarte, at 40 million cards, and Proton, at 30 million, outnumber Visa's 22 million smart cards, eight million of them Visa Cash purses. Mondex banks are still under one million but the yearend projection is for two million-fully interoperable.