Having struggled to justify the costs of smart cards for stored value payments at points of sale, the banking industry should turn its attention to establishing a digital cash system for the Internet, a leading smart card company executive said Wednesday.
Michael Keegan, chief executive officer of Mondex International Ltd., said that contrary to industry assumptions and past behavior, an Internet cash system will gain acceptance faster and more profitably than the more conventional stored value electronic purse cards.
In anticipation of an explosion in electronic commerce, and heeding surveys showing that most Web surfers are reluctant to transact business virtually, Mr. Keegan said success with an Internet payment system based on smart cards would likely spill over to the physical world. "A simple method of handling transactions for the digital economy" is lacking, he said, adding that banks are in the strongest position to provide it.
"If banks don't step in to fill the gap, somebody like Richard Branson or Bill Gates will," Mr. Keegan said, referring to the chairmen of Virgin Group and Microsoft Corp. as representative of a new class of nonbank competitor capable of moving in on banks' turf.
To be sure, one aspect of Mr. Keegan's message to the Cartes '99 conference, an international smart card industry gathering, was promotional. London-based Mondex, a 51%-owned subsidiary of MasterCard International, has long been selling the idea that electronic cash should be fully fungible and transferable between the physical and virtual worlds. Though Mondex is widely perceived as a stored value system for smart cards -- a type of application that banks have widely tested and found hard to cost-justify -- Internet commerce has always been part of its program.
But on a more philosophical plane, Mr. Keegan contended that throughout history, from barter-based economies forward, payment systems have only become more numerous, complicated, and difficult to manage. The Internet has put another level of complexity on top of credit cards and other options.
"People will need an easy payment option for a very complicated world," he said. "In the past, smart cards were a technology looking for an application. With the Internet, that application is here."
"Richard Branson or Bill Gates" may not yet have made the leap to offering a digital cash program, but companies such as Cybergold and Beenz.com are marketing currency-like alternatives for digital commerce. Mr. Keegan said they could emerge as threats to banks but lack the safe and sound reputations of "trusted third parties" that banks enjoy.
The emphasis on Internet cash -- a concept that neither Mondex nor technology innovators such as Cybercash Inc. and Digicash Inc. have yet been able to sell beyond pilots -- goes against the grain of the smart card establishment. Another member of Mr. Keegan's panel at Cartes '99, Pierre Fersztand of the French consortium SEME, strongly disagreed that Internet usage will grow ahead of physical electronic purses. Many Europeans, in fact, are opposed to other aspects of the way Mondex operates, particularly the lack of auditability of some of its transactions. But Mondex designed its system that way to minimize costs, which Mr. Keegan said makes Mondex a more viable option.