Natwest Group announced the formation Thursday of Mondex International Ltd., a 17-bank joint venture and governing body for the smart-card-based electronic payment system.
Touted as a landmark in Natwest's six-year-old drive to create a "global alternative to cash," the move reduces the London-based originating bank to a minority shareholder and distributes control among institutions with franchising rights in at least 15 other countries.
The structure gives Mondex USA - initially Wells Fargo Bank, AT&T Universal Card Services, and Natwest - the biggest portion of Mondex International's capital, at 39.2%.
That will fall to 30% when the rest of Mondex shares are parceled out, probably to banks in Europe and Japan. But the U.S. holding will still be greater than that of any other country or regional grouping. With each 5% entitling its owners to a board seat, U.S. participants would control six of the 21 Mondex directorships (Natwest will have a permanent "inventor's" seat) and the opportunity to wield an influence comparable to what they have on the international MasterCard and Visa boards.
The U.S. and Canada together start with more than 50%, coming down to 40% when all shares are issued.
"We were anxious to make the Mondex International structure reflect the importance of each economic area," said Tim Jones, the Mondex co-inventor and chief executive officer during its launch phase. "The United States, as the biggest economy in the world, should have the largest single stake in Mondex."
"We are a nation of early adopters," said Dudley Nigg, the Wells Fargo Bank executive vice president who is spearheading its Mondex involvement. "Everyone involved in Mondex International fully expects the U.S. to take a leadership role."
Mr. Nigg joined a parade of senior bankers from around the world issuing statements in praise of Mondex and its implications. Mr. Nigg said it marked the start of "a viable global electronic-cash infrastructure.
"With the formation of Mondex International and investment by a worldwide group of prestigious organizations, global electronic cash is now a reality."
Derek Wanless - who as group chief executive of Natwest approved and supported a risky, entrepreneurial project that broke the traditional banking mold - said he felt vindicated by the quality of partner banks. They range from Wells Fargo to Hongkong & Shanghai Banking Corp. to the two largest in Canada, Royal Bank and Canadian Imperial.
"We are confident that the combined abilities of these participants will help give Mondex a decisive competitive edge in the electronic cash marketplace," Mr. Wanless said.
"Its ability to be used on-line, on the phone, and at the shopping mall makes it the most useful and exciting payment system in the world," said David Hunt, president of AT&T Universal Card Services, referring to Mondex's recent demonstrations of value transmissions over various types of networks.
Mr. Hunt and Hans Hawrysz, executive vice president of electronic commerce at AT&T Universal, spoke of the Mondex investment as a "logical step" for their parent company. Going beyond its potential integration with credit cards, a card enhanced with computer-chip memory could spur an explosion in secure electronic transactions.
"As we think about multiple-application chip cards, electronic cash may be one of the first uses," said Mr. Hawrysz. "That will mean, over time, a lot of sending and receiving, uploading and downloading. That will all be done over networks, and that helps our core business."
Thursday's announcement touched off a wave of optimism and eloquence - Tim Jones spoke of "the end of the beginning and an important new beginning," Hongkong Bank general manager Chris Langley of "the most exciting development since the invention of the coin." But there were also notes of realism.
"No one is kidding themselves - there is a great deal of work to be done," said Mr. Jones, who is returning to Natwest Bank in London as managing director for electronic markets, though he will remain in close touch with Mondex and sit on the international board.
"This product is in its infancy," said Mr. Nigg, also a Mondex International director. "There is still a perfectly valid alternative out there, known as cash, and we have to develop a compelling case for consumer and merchant acceptance."
He said he expects this year and next to be devoted to testing and proving the technology, in part through a pilot at Wells Fargo headquarters in San Francisco involving 20 nearby merchants, 500 bank employees, and eventually non-employees. He predicted 1998 would be "the year of major effort for a broad-based launch."
For all the fanfare surrounding the Mondex incorporation, there were no surprises in the ownership lineup. All 17 banks (or quasi-bank, in the case of AT&T Universal) had been publicly associated with Mondex.
Hongkong & Shanghai signed on as a licensee for about a dozen Asian countries in October 1994. Its parent, HSBC Holdings of London, also owns Midland Bank, co-owner with Natwest of the Mondex UK franchise that started the system's first full-scale pilot a year ago in Swindon, England.
The Canadian franchise was announced in May 1995, and a Swindon-like experiment is slated for this fall in Guelph, Ontario. Ten of the Mondex partners are in Australia and New Zealand, which formed the Australasian franchise last month.
The makeup of Mondex USA, though an open secret in card industry circles, had not been officially acknowledged until Thursday. Its short member list is widely seen as a drawback, which Mr. Nigg is intent on rectifying.
Speaking in his capacity as a charter organizer for the first time, Mr. Nigg said in an interview that "acquisition of further equity partners" is an immediate priority. Without being specific about goals, he said the group will be "fairly small, to be fast-moving and responsive to the marketplace."
He said the U.S. owners are likely to include technology companies as well as banks, which may set it apart from other Mondex regions. "Each national franchise gets to make these decisions itself, and technology is seen as critical to the U.S.," Mr. Nigg said.
Below the equity partners will be an unlimited number of licensees issuing Mondex and supporting acceptance by merchants. "It will be a completely open environment," the Wells executive said.
He did not want to discuss details of Mondex USA governance. Formation of a board will await approval of Mondex-related applications to the Office of the Comptroller of the Currency.
At the international level, Mr. Jones has been succeeded as chief executive officer by his deputy, Michael Keegan. The rest of the staff is intact.
Midland Bank executive David Mills was elected chairman of Mondex International. Prominent in retail banking and credit card circles, Mr. Mills is a director of Europay International, a MasterCard affiliate offering a competing chip card.
Even as Natwest relinquishes 100% control, it could profit handsomely if Mondex succeeds. Initial capital, when fully subscribed, will total about $150 million, Mr. Jones said. A majority of that will go to Natwest to compensate for development costs, and the rest will be working capital. Having licensed its intellectual property rights to Mondex, Natwest will get deferred payments based on performance.
Mr. Jones also revealed that discussions are progressing toward a Japanese franchise with three banks: Asahi Bank, Sakura Bank, and Industrial Bank of Japan. But no word yet on the other major void - Europe.
"Overall, it's a plus for Mondex and a major move forward for the (smart card) marketplace," Potomac, Md.-based industry consultant Dan Cunningham said of the spinoff. "It shows a group of banks around the world can get together on a common mission."
"This is a good move," said smart-card consultant Jerome Svigals in Redwood City, Calif. "It sounds like Wells Fargo is exerting itself, and it suggests the real action is away from the U.K."