Mondex International is going into the loyalty business.

The London-based smart card enterprise, 51% owned by MasterCard International, is preparing to offer what it calls a "tool kit" that banks and partners in other industries can use to build customer-retention incentives into the cards' computer chips.

The plan, outlined this week during a MasterCard-sponsored press seminar in Paris, addresses what many smart card industry participants view as a "killer app" opportunity, which could help finance and cost-justify the stored value or electronic cash function most closely associated with Mondex and competitors such as Visa Cash and Proton.

Several smart-card-based loyalty programs are under way around the world, and a few are associated with bank payment schemes. This month, Mondex's U.S. franchise started one with Burger King restaurants in a few of New York's Long Island suburbs. For every $1 or fraction spent with a Burger King-issued stored-value card, customers accumulate a point-also tracked on the chip and readable in point of sale terminals-redeemable over time for free meals.

Mondex is throwing its weight behind loyalty both as an enhancement to its payment technology and "to help move loyalty cards to the center of consumers' lives," said Iain Cox, senior manager, new products and ventures.

Indicating Mondex's seriousness in approaching the loyalty business, Mr. Cox said it has extensively surveyed such programs around the world, from elementary paper-based membership systems to successful supermarket card systems like that of Tesco in Britain that has reportedly boosted annual profits by $1.2 billion, to a Shell Oil program, also in the United Kingdom, that uses chip cards and is preparing to include other merchants.

The on-card chip can increase "personalization, flexibility, and uniqueness" and foster "meaningful relationships" with customers, Mr. Cox said.

Anticipating an explosion of loyalty promotions as many consumer- oriented businesses step up their efforts to retain desirable customers, Mondex wants to promote the use of Multos-the multiple-application operating system that was designed to combine cash, loyalty, and other services on a chip.

Nick Habgood, chief executive officer of Maosco Ltd., the company that oversees Multos specifications, said the current generation of card chips, with eight kilobytes of memory, can comfortably accommodate three applications. They might be Mondex cash, the Maestro debit service, and a loyalty program, for example.

He said future Multos cards, holding 32k or 64k, will be virtually unlimited in what they can pull together.

Multos has been put forward as an open standard, available to anyone, in or out of the Mondex circle, for application development. The tool kit described by Mr. Cox is designed to jump-start loyalty.

"Loyalty works differently in different parts of the world," Mr. Cox said. "So our product is not shrink-wrapped. It is a tool kit of features and functions" that can be used as a customer sees fit.

Mondex International plays the role of software developer, but it will develop links to companies in such areas as card manufacturing, personalization, terminals and other hardware, marketing, and data analysis. If a customer so desires, Mondex can assemble a smart card loyalty system by bringing all those components together on a turnkey basis, Mr. Cox said.

He said the system design makes provisions for "loyalty scenarios" in many areas, including gas stations, fast food, supermarkets, and multi- merchant and cobranding settings. There could be sweepstakes, special bonuses based on personal knowledge such as a birthday, tiered rewards based on spending thresholds, and different types of points co-existing.

The Mondex payment and security capabilities make it possible, Mr. Cox said, for an airline frequent flier to make a duty-free purchase in the air and get loyalty credit even though the transaction was not registered on a host computer. If the cardholder tried to take advantage of those points, the card and host would be able to "synchronize."

Mr. Cox said the tool kit will be officially "on the street" this summer. Mondex has already signed up one undisclosed customer that is to have the system up and running by the 1999 first quarter.

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