MasterCard International said Monday it would buy 51% of Mondex International and promised significant investments to create a global electronic cash system.
The pending deal - one of the card industry's worst kept secrets - puts MasterCard in the forefront of the smart card race. Observers had criticized MasterCard Cash, a smart card system that was deemed less than successful in its Australian debut.
With Visa Cash in several pilots around the globe and American Express announcing a licensing agreement last week for the Proton smart card technology owned by 60 Belgian banks, many industry observers said the dash for dominance would now begin in earnest.
Mondex, developed by National Westminster Bank of London and owned by 17 banks worldwide, is to retain its board, staff, and organizational structure, acting as an independent subsidiary.
With at least 39,000 cards issued, Mondex is being tested in England, Canada, the United States, New Zealand, and Hong Kong.
"We're very pleased to acquire (a product) that leapfrogs us toward the future of money," said H. Eugene Lockhart, MasterCard's president and chief executive.
He compared the planned transaction to the 1988 acquisition of Cirrus System Inc., which he said has become the largest automated teller machine network in the world.
The size of the Mondex deal was not disclosed, but Mr. Lockhart strongly denied reports that MasterCard was paying $150 million. Based on previous disclosures, 50% of Mondex International would be worth about $75 million to $80 million. A knowledgeable source said MasterCard would make its contribution through expenditures on the project over several years, rather than paying a lump sum.
The card association would put "substantial technical and financial resources" behind Mondex, Mr. Lockhart said, to accelerate the growth of a company that has already exceeded industry expectations.
Mr. Lockhart characterized Mondex as "the only (system) with global scope." He said "no product in the marketplace is as well developed."
Michael Keegan, Mondex International's chief executive, said: "Mondex's technology, combined with the distribution and marketing muscle of MasterCard, will make us the de facto chip and electronic cash standard."
Dudley Nigg, executive vice president of Wells Fargo Bank and chairman of Mondex USA, said the entire ownership group is "very much behind" the MasterCard transaction. In an interview during an American Banker conference in Scottsdale, Ariz., Mr. Nigg said he was not concerned that Mondex USA's equity interest in the international venture would be halved.
"We'd rather have 50% of a big thing than 100% of a small thing," he said.
Also in Scottsdale, Citibank vice president Henry Lichstein, said Mondex is contributing to chip card momentum. "Based on what MasterCard is doing with Mondex, Citibank would have to take a look at it," he said.
The deal would give MasterCard member banks less expensive licensing arrangements, branding power, and global standards at the point of sale.
Michael Beindorff, a Visa executive vice president, called the announcement "a clear endorsement of stored-value cards by a couple of prominent industry participants," which he said "is good for the entire industry." He promised that "Visa will compete aggressively" but also cooperate "to ensure interoperability and widespread acceptance."
Mr. Lockhart said at least 10 years would pass before chip cards become the payment standard worldwide.
One point of controversy for Mondex has been its anonymity, allowing money to be transferred between cards and not monitored by a network. Mr. Lockhart said the system could be adjusted in any country whose rules require greater auditability.
William Barr, executive director, information networking, at Bellcore, and vice president of the Smart Card Forum, said, "The marketplace is still in trial phase." The recent flurry of activity "sets the stage to allow the players to focus on the consumer rather than the technology," he said.
Jeffrey Kutler contributed to this article.