The U.S. Congress faced a British invasion last week, but hardly anyone saw it.

Hardly anyone from officialdom, at any rate.

Mondex, the electronic payment system developed by National Westminster Bank of London, had star billing at the third in a series of House Banking subcommittee hearings on "the future of money."

Wells Fargo Bank executive vice president (and British expatriate) Dudley Nigg brought along enough Mondex smart cards and equipment for members of the subcommittee on domestic and international monetary policy to put their hands on.

But only a few representatives were in their seats for any part of the three-hour session. Though it looked encouraging at the beginning when Banking Committee Chairman Jim Leach sat in, the Iowa Republican departed after making a few remarks. At times Rep. Michael Castle, the subcommittee chairman, presided only over himself.

Rep. Castle, a Delaware Republican, apologized in advance to Mr. Nigg and several other invited panelists for the sparse attendance. Busy schedules often prevent many members from attending such hearings. There may have been consolation in the fact that the proceedings became part of the congressional record.

As time grew short, some members grew more curious and said they would submit written questions to solicit further information from the witnesses.

Also, the spectator seats in the House Banking Committee hearing room were full.

But the low turnout of elected officials surprised and disappointed one lobbyist in attendance.

"Here was a perfect opportunity for them to have the whole subject laid out in one easy lesson," he said. "And I would have thought they'd come out to see Mondex. Gadgets usually get their attention."


The Mondex gadgets clearly did fascinate the small audience Mr. Nigg played to. He climbed the risers to where Rep. Castle and Rep. Floyd Flake of New York, the panel's ranking Democrat, were seated, and demonstrated how the card can store and transfer value.

Typical of people encountering the electronic purse for the first time, the congressmen were intrigued by how two cardholders can exchange funds as privately and anonymously as if they were passing paper currency.

Mr. Nigg invited the subcommittee members to bring their cards to San Francisco to test out the Mondex system that Wells Fargo has licensed for an employee trial with 25 participating merchants.

"What happens if you lose the card?" he was asked.

"If you lose it, it's like cash," Mr. Nigg responded. "But in practice, banks will insure their customers for amounts they say they lost on a card - within reason. They wouldn't be allowed to keep coming back repeatedly."


With few lawmakers in attendance, and with Rep. Castle reiterating from hearings last July and October that his purpose was "not to rush to pass legislation regulating these new technologies," there seemed little danger of the intervention new-money advocates fear most.

Virtually all the speakers last Thursday - including Mr. Nigg, Huntington Bancshares chairman Frank Wobst, Wilmington Trust Co. vice president Richard Wilhide, and a few nonbankers - explicitly warned against regulating prematurely.

"Historically, regulation is necessary to maintain safety and soundness," said Mr. Wilhide, who is overseeing a smart card project in Rep. Castle's home state. "However, stored-value cards are in their infancy. It is not possible to determine what regulation is appropriate at this time."


The bankers turned the agenda their way with a pro-consumer message. Mr. Nigg, James S. Mahan, and Michael Karlin - the latter two representing Security First Network Bank, which Cardinal Bancshares of Lexington, Ky., established on the Internet - argued that electronic delivery systems would make banking more economical and therefore more accessible by more people, including the poor.

Mr. Nigg, speaking for the alternative retail delivery committee of the Consumer Bankers Association, called attention to cooperative and self- regulatory efforts by industry groups in such areas as electronic security, privacy, ensuring "that all segments of our customer base have access to enhanced banking technologies," and "making the technologies work for all customers."

Rep. Flake, a strong Community Reinvestment Act advocate, made a couple of mildly skeptical statements in response to the bankers' cost-cutting optimism. But those merely invited more consumer-friendly flourishes.

Mr. Wobst said telephone banking in effect extends electronic access to poorer neighborhoods, as have scaled-down minibranches and low-cost basic checking accounts.

He said electronic cash systems like Mondex will bring "greater convenience for consumers and small businesses, higher levels of security, and much lower costs."

Mr. Nigg said Wells Fargo's "technology-oriented" supermarket branching strategy will result in the opening of three locations this year in South Central Los Angeles, where the bank historically had none. "Lowering costs allows us to dispense these services more, and we are very motivated to do so," Mr. Nigg said.


When Rep. Jack Metcalf, R-Wash., asked if electronic innovations might be loosening the Federal Reserve's grip on the money supply, Mr. Wobst replied, "I think it is premature to worry too much about it yet."

And when Rep. Bob Ney, R-Ohio, asked Mr. Wobst if all payment service providers should be regulated as banks, the Ohio-based banker said, "Generally speaking, probably yes. But this whole area is in such a state of flux ...

"For the time being, just sit back, watch developments, and you'll find the banking industry is as interested as you are in a system that is safe, sound, and protective of the consumer's interest."


Mr. Wobst shed some light on a behind-the-scenes technology research effort within the Bankers Roundtable, the elite Washington trade group open only to the 125 largest U.S. banking companies.

Mr. Wobst said the roundtable's technology task force, of which he is chairman, aims to help the membership "sort through the various issues associated with the advance in technology."

He suggested top executives in banking are increasingly concerned about their ability to deal with both technological change and associated changes in the competitive landscape.

"The challenge for the banking industry and public-policy-makers is to assure that banking is not inhibited in meeting that competition and fulfilling user needs by outdated or ill-conceived legal and regulatory constraints not applicable to other providers," said Mr. Wobst's written testimony.

He said the roundtable discussions could "lead to cooperative industry action," such as security and privacy guidelines and other ininitiatives that might require consultations with other industry organizations and regulatory agencies.

Mr. Wobst said no more, but it is known that the Boston Consulting Group is contributing its vaunted strategy skills to the bankers' deliberations.


A second panel at the hearing consisted of nonbankers such as James Brown, a consumer advocate from the University of Wisconsin, who agreed that relatively poor and unbanked populations would find stored-value smart cards attractive; and Jerome F. Page, from the New York City transit system, which is trying to prove that point.

New York subways and buses began gradual implementation of an automated fare-card system two years ago. The city has begun negotiations on expanding it into a more diversified, multiapplication payment program, presumably with a bank as a partner, said Mr. Page, general counsel and vice president of business development for the Metropolitan Transportation Authority.

"Our research indicates that more than 25% of our subway and bus customers do not have depository account relationships with financial institutions," he said, adding that even many bank customers do not habitually use credit and debit cards.

"Obviously, to the extent that financial institutions focus their delivery of a stored-value product solely on their deposit account customers, they have limited interest in serving the unbanked population."

Mr. Brown, citing research of his own, said the anonymity of stored- value-card payments would appeal to the unbanked. He said the biggest question mark is banks' willingness to provide the service.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.