MasterCard International is nearing an agreement to acquire Mondex, the stored value smart card technology developed by National Westminster Bank of London.

The deal, which has been the subject of months of negotiations and rumors, was hinted at in a speech that MasterCard president H. Eugene Lockhart made in China 10 days ago.

Officially, MasterCard and Mondex refused to comment, but sources inside both companies confirmed that a deal is imminent.

Mr. Lockhart said in his speech that MasterCard would announce a major acquisition in the chip card sector in the next month. According to Reuters, he said the acquisition "would be global in scope and involve an alliance of 20 major banks."

He also said MasterCard would own the "intellectual property rights stemming from the deal."

National Westminster spun off its smart card unit in July, creating Mondex International Ltd., a joint venture with 17 bank partners worldwide. With three Japanese banks close to announcing Mondex franchises, the 20 banks referred to by Mr. Lockhart would be accounted for.

Mr. Lockhart also told Reuters that People's Bank of China is considering a smart card launch. He may have mentioned the pending agreement to entice the bank.

Mr. Lockhart was in China to promote Maestro, MasterCard's on-line debit brand, which will now be available through the Agricultural Bank of China.

Industry observers thought Mondex's incorporation in July laid to rest rumors of a MasterCard takeover, which were circulating all summer. But it may have served to make the smart card company more attractive.

"Before the announcement, Mondex looked a little tenuous," said a knowledgeable source. "After the (incorporation), it looked like something of value."

The source also said that MasterCard's smart card strategy, which began with considerable fanfare more than two years ago, has fallen short of expectations, prompting Mr. Lockhart to seek a remedy.

MasterCard's major smart card venture has been a pilot in Canberra, Australia, which started nine months ago. Visa, by contrast, is running several tests of its stored-value system globally.

Several executives responsible for MasterCard's early efforts, including Philip Verdi and Robin Townend, have left the company in recent months.

The deal would be a boon to both companies, sources said. While Mondex has increased its clout with incorporation, it's still facing "an uphill battle" to achieve worldwide acceptance, said the source. "Distribution is what you could assume Mondex is after," he added.

National Westminster retained ownership of Mondex patents and trademark. It stands to recoup its substantial investment in the technology - on top of a potential $150 million from Mondex franchise owners - if the MasterCard deal is consummated. The bank remains a minority shareholder in Mondex International.

Though the industry pooh-poohed National Westminster's initial efforts to put the fledgling payments system on the map, persistent marketing - coupled with a strong technological base - seems to be paying off. Electronic wallets, smart phones, and card-to-card monetary transfers set Mondex apart from some less ambitious smart card programs.

With powerful investors like Wells Fargo & Co. in the United States, Royal Bank of Canada, as well as Hongkong and Shanghai Banking Corp., the new brand has gained credibility as a major contender in the chip card market.

"Mondex blazed a trail," said Peter Hall, PSI International's managing director of consulting in London. MasterCard would be "buying into a pool of knowledge, buying into the partners," he added.

Card industry sources said MasterCard and Mondex have many details to address before they can conclude a deal, including corporate structure and governance.

One of the biggest issues will be whether to retain the Mondex trademark or "go with the strength of the MasterCard brand," said a source close to the deal. That decision will be made "down the road," he added.

The deal is expected to close within three months. No papers have been signed to date.

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