Visa International has signed a memorandum of understanding with the Chinese central bank to assist in the development of smart card standards.

Dennis M. Goggin, president of Visa's Asia-Pacific region, said the agreement underscores China's commitment to modernize its payment systems and solidifies Visa's role in the program.

The deal is not necessarily exclusive. Both Visa and MasterCard International have been active in the Golden Card Project, a series of regional efforts coordinated in Beijing to create a nationwide, cashless payment mechanism with potentially hundreds of millions of cards.

MasterCard thus will continue to be consulted on chip card movements, but it has not gone as far as Visa has in signing a formal memorandum of understanding, a MasterCard spokeswoman said last week.

"Both associations have been invited into the process and are exchanging information" with People's Bank of China, the spokeswoman said.

In all cases, the People's Republic is intent on managing payment developments to its own tight specifications, which include not ceding control to foreign entities. Visa, in fact, has recast its technology strategies to accommodate countries such as China that will not permit it to play a direct processing role, but would consider drawing on the card association's resources and expertise.

"The chip card is the most advanced financial product in the world (and) a key component of the Golden Card Project," said People's Bank vice president Chen Jing. China is aiming to "set up regulations and standards for the development of the chip card industry and to lay technical foundations for interoperability across industries and regions, as well as for the sharing of the infrastructure."

Visa said banks in China have issued 700,000 chip-embedded cards on an experimental basis, accelerating the need for national technical standards and issuing guidelines.

The Golden Card Project has a goal of 200 million payment cards by 2000, but Mr. Goggin said it could far exceed that. Beginning with its "clean slate" and recognizing the costs involved in printing and distributing currency across its vast territory, the biggest of all developing economies could quickly leapfrog "many Western countries by embracing the integrated circuit card," Mr. Goggin said.

In other words, China would not have to take the interim step through magnetic stripes-the current card-encoding standard that the United States, for one, is finding difficult to get beyond.

"With the proper infrastructural development and the use of chip card technology, Visa believes that within 10 years there could be 500 million payment cards in the hands of the Chinese people," Mr. Goggin said.

The Singapore-based executive said Visa's memorandum of understanding will help push that process forward. It hits on two of the "strategic drivers" identified by Visa International president Edmund Jensen and his management executive committee: the migration toward chip-based cards and the role Visa wants to play in assuring standardization and interoperability.

Visa has been vocal in its support of EMV, the chip card specifications it agreed to with MasterCard and Europay International, and of SET, the MasterCard-Visa Secure Electronic Transactions protocol for Internet transactions. Last week, Visa handed over its proposed marriage of the two, the Chip Electronic Commerce Standard, to the EMV working group.

Visa has also criticized MasterCard's Mondex subsidiary for lagging on interoperability and moving away from the desired convergence on standards. Mondex has denied the charge and said Visa can be accused of having several uninteroperable versions of the Visa Cash stored value card.

That argument holds little water, Mr. Goggin said in a recent interview. Current stored value programs are "domestic cash" with no need for cross- border interchange. But it is inevitable, he said, that "convertibility is coming."

As China moves ahead, Mr. Goggin said, standards "will play a significant role in China's efforts to link up with international payment systems and join the ranks of countries with highly advanced financial systems."

Across the strait in Taiwan, Visa's Asia-Pacific region had other electronic payments news to report: 13 institutions in that country began an SET pilot June 11, the first to use Chinese-language software.

The test, which began with a demonstration by Industrial Technology Research Institute chairman Sun Chen, "will benefit not only Taiwan users but also the many Chinese communities across the world that are more familiar with Chinese than other languages," said Mark Cullimore, Visa Asia-Pacific's director of electronic commerce.

The software was developed by the research institute, Systex Technologies, and International Business Machines Corp. In the first phase of the pilot, one of four for Visa in Asia, 240 cardholders are able to make purchases from nine merchants. These numbers are expected to rise to 10,000 and 30 by yearend.

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