The fundamentals favor success for Mondex smart card system.

Many observers of bank card and payment system developments seem quick to dismiss Mondex, the smart card system that National Westminster Bank of London is selling as a substitute for cash.

I say, not so fast. Some of the criticisms overlook some basic facts.

Take the article in the Nov. 7 edition of American Banker's Management Strategies by Diogo Teixeira, "Mondex Devices Too Costly to Replace Cash in Short Term."

Mr. Teixeira listed at least four challenges facing Mondex: the time and money needed to change consumer habits; consumers' likely reluctance to bear the costs of the new, high-tech cash; the likelihood that banks will not reduce their cost base; and the system's "anonymity," which complicates record keeping by financial institutions and governments.

The article omitted several critical points about how cards function, even those of the stored-value variety.

First, cards don't provide receipts. Automated teller machines and point of sale terminals do - and they can continue to do so with Mondex payments, if required.

My guess is that small transactions, say, under $25, will be treated like vending units, and mass-transit ticket dispensers will not require receipts.

Also, cards do not capture data. ATM and POS units do, and this function, too, can continue. The Mondex "electronic wallets" record transaction sources and can provide an audit trail to settle a claim, if legally required.

Cards don't deliver cash. The consumer has to find a suitable ATM. Mondex cards allow cash value to be transferred over a telephone.

While the system may remove transactions from branches and conventional payment terminals, the card-loading feature should encourage remote banking from homes or offices.

And while card-driven ATMs take cash out of the bank, Mondex keeps funds in the bank, though in a different, bank-managed float account, that promises greater income for the institution. Cash in the bank cannot be stolen. Claims on it can be validated and traced.

The following opportunities for added income should raise bankers, interest in Mondex: the value of float, the multicurrency feature that generates foreign exchange transactions, service and convenience fees or balance requirements to cover transactions away from bank premises, cost reductions from lower branch and ATM traffic, and reduced communications and central computer costs as on-line transaction volumes decline.

As for consumers' supposed resistance to change, consider the ATM. In two decades, the industry has installed more than 500,000 ATMs and cash dispensers which can be activated by almost 2 billion magnetic-stripe cards.

Consumers relatively quickly latched on to the notion of seven-day, 24-hour, self-service banking.

Mondex stands to get a free, quick, and rewarding ride on the consumer's willingness to change.

In the sense that it is a "universal" payment system akin to cash, Mondex also offers banks direct access to the unbanked population and, thus, a broader market than that of any consumer banking service.

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