1

Focus THEME

ity of users to lock their cards. Early in 1992, NatWest began a trial of Mondex in

BY I. CHRISTOPHERWESTLAND. MANDY KWOK, ]OSEPHINESHU, TERENCEKWOK AND HENRYHO, an office complex in London with a 'can- UNIVERSITYOF SCIENCE&TECHNOLOGY. HONG KONG * teen card' known as Byte. The Byte trial is still continuing with more than 5,000 INTRODUCTION I teller cash for a card and uses it until that people using the card in two office res- Asian business has long had a fondness value is exhausted. Visa plans to offer a taurants and six shops. By December of for cash. While the West gravitated toward reloadable card later. 1993, the Mondex card was introduced on purchases on credit - through cards or a large scale. Sourcing for Mondex sys- installments - Asia maintained its passion HISTORY tem components involves more than 450 for the tangible. Four-fifths of all trans- Mondex was the brainchild of two NatWest manufacturers in over 40 countries. In actions in Hong Kong are handled with bankers - Tim Jones and Graham Higgins. October of 1994, franchise rights were sold cash. It is into this environment that They began technology development in to the Hong Kong and Shanghai Banking Mondex International, the London based 1990 with electronics manufacturers in the Corporation Limited to cover the Asian purveyor of electronic smart cards, and UK, USA and Japan. Subsequent market region including Hong Kong, China, In- Visa International, the giant, research with 47 consumer focus groups dia, Indonesia, Macau, Philippines, are currently competing for banks, con- in the US, France, Germany, Japan, Hong Singapore and Thailand. 1996 saw Hong- sumers and merchants, each supporting Kong and the UK refined the practical de- kongBank initiate its launch at two sites, their own proprietary flavor of electronic sign of Mondex card systems. The most one in Tai Koo Shing on Hong Kong Is- commerce. Visa International claims the notable feature of this design was the abil- land and the other in Shatin in the New largest number of operating pilot pro- Territories. Mondex built technical alli- grams, thirteen worldwide, while Mondex ances with CyberCash, and Sun lags with two sites and three more being Microsystems, while Hitachi developed a planned. By the year 2000, the industry " Christopher Westland specialized version of the H8/310 series predicts that Asia will account for one- ([email protected]) is Associate microprocessor to provide an advanced third of the smart cards in global circu- Professor of Information H Systems "attack-resistant" technical platform for lation (Banking Bill). Management at the Hong Kong the widespread introduction of Mondex. University of Science and Ownership of Mondex International was While the Prime Visa Cash card appears Technology, Hong Kong. His current transferred to a consortium of 17 banking to have the edge over Mondex in terms of research interests include the valuation companies in Europe, North America and penetration at the moment, the two sys- of technology investments and Asia. The Hang Seng Bank franchised tems offer substantially different services. information systems. Mondex in 13 markets in the Asia Pacific. This ultimately may be more important in In October of 1996, Mondex was launched Mandy Kwok

Downloaded By: [Schmelich, Volker] At: 10:56 11 March 2010 determining the winning e-cash format. in Hong Kong by HongkongBank and ([email protected]) is a part-time Smart cards are credit-card-sized plastic Hang Seng Bank with 400 retailers accept- MBA student in the third year at the cards containing an embedded microcom- ing Mondex in the Citiplaza shopping cen- Hong Kong University of Science and puter that has been programmed to func- ter in Taikoo Shing and in the New Town Technology. She is sales administration tion as an electronic purse. The Mondex Plaza in Shatin in the New Territories. In manager of Computer H Technologies card sports a built-in calculator, can be November 1996, MasterCard International International Ltd. locked using a cryptographic key, and can and Mondex International announced that be plugged into a computer terminal to Josephine Shu they had signed a letter of intent for be read by Java compatible Internet brows- ([email protected]) is a final MasterCard to acquire 51% of Mondex ers. Mondex cards can be reloaded (with year part-time student for the MBA International, and for MasterCard to adopt cash) through automated teller machines Administration at the Hong Kong Mondex International's technology as its (ATM) or Mondex-enabled telephones. A University of Science and Technology. future of a strategic chip platform. balance reader can be used to check the Terence Kwok value remaining. Transfer between cards Hong Kong Mondex is the first localized ([email protected]) is enabled by an electronic wallet; trans- rollout of Mondex in the Asia-Pacific re- and Henry Ho gion, initially signing up 500 retailers - fer from a bank account to the card-chip ([email protected]), by an ATM machine or by a specially about 75010 of the merchant community at Hong Kong University of Science and equipped telephone. Prime Visa Cash is the two Mondex sites in Shatin Town Cen- Technology less flexible, and works currently through tre and Tai Koo Shing Cityplaza malls. stored value - the consumer pays a bank Mondex issued more than 40,000 smart Focus THEME

cards in Hong Kong by March 1997. Since low transaction overhead and risk. Most PAYMENTSAND MICROPAYMENTS the program is still in pilot testing, Mondex debitlcredit card transactions involve at The typical payment is small. has limited the maximum stored value on least five parties - purchaser and bank, Average Mondex payments are less than a card to 3000 Hong Kong Dollars (1 US$ retailer and bank, and the settlement , US$ 7.50, typically spent at news stands, = HKD 7.73). The average transaction has agency. Mondex enables chip-to-chip pay- fast food outlets, and on public transport been around HKD 60 (Banking World Hong ments between buyer and seller, without systems. Higher-value transactions occur Kong) but the potential is huge, consider- the need for a separate settlement func- in supermarkets and petrol stations (Brown). ing the HKD 370 billion that Hong Kong tion. This allows person-to-person trans- Mondex is designed to provide an alter- people spend annually on retail (Brevetti, fers of cash, and the system is portable native means of payment to cash in the 1997). Hong Kong residents use cash for and decentralized. Mondex provides a glo- physical market place. Merchants in Hong 80% of all transactions, accounting for bal, multicurrency system, which has dis- Kong frequently describe Mondex's pri- almost 70% of the money actually spent tinct advantages for the multicultural com- mary advantage being the speed of check- (this results in persistent queues at ATM munity of Hong Kong over the single out, and the ability to download withdraw- machines, which are located at regular currency stored-value cards. What is hap- als directly from the bank, lowering cash intervals in malls and train stations). Hong pening in Hong Kong is a microcosm of handling costs. Kong offers an ideal location for Mondex's the way the competition and the payment Asian rollout, with its flourishing retail system will evolve worldwide as e-cash Mondex also offers the Internet user a community and consumer-oriented, cash steadily supplants currency. payment option that meets a growing need based society. in the virtual marketplace. Hong Kong's 6 million residents are connected to the Standard Chartered and the Bank of China REFERENCES Internet through over 50 Internet Service launched Mondex's competitor Prime Visa Providers. They have one of the highest Banking Bill (Amendment) 1996, Cash on August 1, 1996. By November penetration rates of computer and com- LegCo Paper No. CB(1) 2035/95-96(01). they had issued 200,000 cards and logged munications technology in the world. 250,000 transactions, an average of 2,500 Banking World Hong Kong Internet service providers are now charg- weekly with the average charge between "The Stakes are high in the newest ing US$ 0.01 and less per for pic- HKD 5 and HKD 10. The card is accepted card game in town ", tures, sound and other intellectual prop- at the over 1,000 ATMs of Standard Char- Banking World Hong Kong, June 1996. erty. Because Mondex security is tered and Bank of China. Prime Visa Card implemented at the chip level, overhead Brevetti, F. " Flows ", has the backing of Jetco, the region's larg- costs associated with the central account- The Securities Journal, March 1997, est network with ing systems of traditional credit cards do http://www.netvigator.com/~na/securityl. 47 member banks and 1,300 ATMs in Hong not exist. This means that Mondex trans- Kong and Macau, a number that is impor- Brown, D. 'Approaches and Markets for action charges of fractions of one cent be-

Downloaded By: [Schmelich, Volker] At: 10:56 11 March 2010 tant in a community that deals in cash Electronic Cash ", London: Ovum Ltd. come viable. Currently, around 45% of and that expects to find an ATM on every smart card transactions in Hong Kong are Cypherpunks Current Archive: Re: block. In contrast, HongkongBank's between about US$1.50 and US$7.50 - too "When did Mondex ever claim to be Mondex program has only two pilot small to be economically feasible on a anonymous? ", Hallam-Baker. projects up and running, clearly far be- centralized credit card system. Transac- hind the local Visa effort in penetration Fung, N. "Reaching for the 'Net"', tion of this size are managable with at the moment. Both companies have been Banking World Hong Kong, January Mondex because the marginal cost of a trying to enlist the metro train systems, 1996, pp. 12-20. transaction is vanishingly small. vending machines and recreational facili- Hettinga, R., Daguio, K. "Is Ecash a ties into their system. Hong Kong will soon A Mondex purchase begins with placing Governmen t-Killer? ", be introducing new parking meters that the Mondex card into a terminal. Several Tuesday, March 11, 1997. will take the Prime Visa Card. Both groups steps insure that the transferred value are talking with the manufacturers of the Banking World Hong Kong reaches the correct destination and that terminals and telephones to encourage "Small transactions face a change fraud does not take place. them to develop devices to support their of heart ", Banking World Hong Kong, 1. Registration: Information from the cus- payment systems. September 1996, pp. 14-1 7. tomers chip card is validated by the shopkeeper's card stored in the Mondex Mondex International Magazine Despite Visa's very strong introduction, terminal, and vice versa. "The history of Mondex ", Mondex maintains a crucial advantage 2. Value Transfer: The shopkeeper's ter- Mondex International Magazine, (I :I). over traditional credit and debit cards - minal requests payment of a certain Focus THEME

amount, and transmits a digital sig- Mondex's competitor Prime Visa Card step forward in the descent of cash with nature with the request. Both cards bases its e-cash on different and incom- the appearance of e-cash. check the authenticity of each other's patible technology platforms and business message. models. Visa plans to offer smart card The significance of this evolution has its 3. The customer's card checks the digital technology on three kinds of digital cash hazards, a point not lost on Hong Kong's signature and, if satisfied, sends the cards: savvy monetarists. The Monetary Author- amount, with its own digital signature 1. Immediately disposable (one-time use) ity of Hong Kong maintains a close inter- attached. At this point, the value is 2. Standard stored-value card est in developments in electronic cash deducted from the total value on the 3. Two-in-one cashlcredit card cards for three reasons: customer's card. 1. The Monetary Authority must ensure 4. The chip card in the shopkeeper's ter- Hong Kong is already familiar with stored the soundness of the issuer, as well as minal checks the digital signature and, value cards, as these are widely used for the soundness of the instrument itself. if satisfied, sends acknowledgement, gate payments on Hong Kong's metro Hong Kong's own currency is issued again with a digital signature. trains - the Mass Transit Railway and the by three private banks, and is 100010 5. Only after the amount has been de- Kowloon-Canton Railway. Credit cards are backed by US dollars held in the Ex- ducted from the customer's card is widely used in Hong Kong, though not as change Fund. value added to the card in the shop- widely used as in the West. The Prime Visa 2. Hong Kong's monetary policy is en- keeper's terminal. This prevents the Card is issued jointly by two of the three acted by a currency board arrangement possibility of duplication or unauthor- note issuing banks in Hong Kong - Stan- whereby banknotes are issued and re- ized creation of value. The digital sig- dard Chartered Bank and Bank of China deemed against the US dollar at a fixed nature from this card is checked by Group (Gypherpunks Current Archive). The rate of about 7.8 HKD to 1 USD. The the customer's card. If valid, this ends Prime Visa Card is a disposable HKD 200 presumed convertibility of banknotes the process. card similar to those offered for the metro into dollars is an important anchor for 6. If at any point a check fails, e.g., be- trains. No application is necessary for its currency stability. Mondex's ability to cause of a power failure, the protocol use, and there is an expiry date after which store value and purchase goods in is designed to continue automatically the card is voided, with any remaining value multiple currencies presents a poten- and complete the transaction if possi- that is unused being non-refundable. There tial long-run challenge to this system ble, e.g., once power is restored. If this is no charge to the retailers. PIans are be- 3. The third area of interest concerns the is not possible it automatically records ing made to make it reloadable and to seigniorage of legal tender. Banknotes a detailed log of the failed transaction. combine cash and credit in a single card. may be viewed as non-interest bearing liabilities on the balance sheet of the Fraud involving banknotes and coins can Exchange Fund. The Fund earns inter- take place through the use of adequate est on the corresponding US dollar as-

Downloaded By: [Schmelich, Volker] At: 10:56 11 March 2010 forgeries produced with relatively inex- Electronic cash is the latest progeny in an sets backing the banknotes. To the ex- pensive technology. With Mondex, a per- evolutionary line extending back over tent that cash cards may reduce the use fect forgery of the card and its resident man's history. Early cash was typically a of banknotes, this profit would be re- information is required. If a forgery of portable commodity of value - salt, gum, duced (Fung, 1996). the Mondex chip or the cryptography is precious metals, gems and scents. These not perfect, it will fail. Mondex's system were superceded, first in ancient Greece, As a result of these concerns, Hong Kong's for completing person-to-person digital by minted gold and silver coins in stan- Legislative Council passed the 1996 Bank- cash transactions assures that it is nei- dard weights. The importance of bullion ing Bill to control the possible misuse of ther necessary nor possible to track and grew over the centuries, reaching extremes electronic cash (e.g., the default of the card record details of personal transactions. in Eighteenth-Century colonial economies issuer, money laundering, possible impact Users are assured a level of privacy simi- dependent on a steady flow of bullion from on the Exchange Fund, and so forth). The lar to currency-based transactions be- distant shores. It was during this time that legislation regulates the issue of multi-pur- cause Mondex does not track the move- Adam Smith recognized the importance pose stored value cards, equating them to ment of e-cash after it is issued to of a nation's productive capacity, and set issuance of banknotes (legal tender in consumers. Its decentralized chip-on-card the basis for widespread circulation of Hong Kong). system allows essential information to be paper and coin backed by the credit of a kept on the card, and out of central data- nation. At each stage, the ubiquity, utility This is significant. To date, only the Bank bases, insuring a high degree of privacy, and portability of currency improved, to of China, Hong Kong and Shanghai Bank, portability and security. the benefit of its users. New demands for and Standard Charter Bank are authorized global portability are initiating another to issue currency in Hong Kong. Issuers Focus THEME

of cards would need either to be banks, or action) (Banking World Hong Kong). And trouble accepting that technical protocols would need to apply for authorization as David Carse, the Hong Kong Monetary may replace law, tradition, and trust. Gov- a restricted license bank for the specific Authority's deputy chief executive, sug- ernments' and traditional financial insti- purpose of issuing the cards. Non-bank gests that e-cash might ultimately relegate tutions' roles will not be swept away by a companies - transport or telecom organi- banks "to providers of commodities with technological and social whirlwind." zations or card issuers such as Mondex or the high value activity being conducted Visa - need to apply for authorization as elsewhere" (Mondex International Maga- Electronic cash poses a serious challenge deposit-taking companies in order to is- zine). Kawika Daguio of the American to the role of banking institutions. Elec- sue cards. The legislation would not ap- Bankers Association (Hettinga and Daguio tronic cash will ultimately reduce bank ply to single-use cards, which are consid- 1994) in Washington, is more specific: customers' dependence on bank branches, ered "prepayments" (Hettinga et al., 1997). a weaning process for both customers and "Technology alone won't provide partici- the banks themselves. Caution may be Though Hong Kong is bullish on e-cash, pants sufficient security for e-commerce warranted, but may arise too from the there are discordant notes among the to flourish. Law, tradition, good reputa- normal resistance seen when new tech- songs of praise. Cash is anonymous, di- tions and technology give rise to trust ... I nologies shift wealth and power from one visible, and usable anywhere - from street think we agree that if society isn't careful group to another. The broad consensus hawkers to the upscale retailers. Cold cash about the development of e-commerce, seems to be that electronic cash shifts can be a hard act to follow. On one hand some electronic transactions could be power to the hands of the consumer. This the anonymity of Mondex transactions has made without the protection of statute or alone would be a deserving reward, how- been called into question (as has anonym- they could be covered by rules or laws ever Hong Kong's financial elite struggle ity of most other modes of electronic trans- which aren't easily enforceable ... I have to adjust to the realities of the digital age.

EC IN KOREA. Although there is no universally accepted definition of EC, by putting essential fea- tures together we can identify a working BY EUN KIM AND PILKY HONG, NATIONAL COMPUTERIZATION AGENCY. KOREA * concept of EC as 'an IT-based transaction practice among organizations that hopes Electronic communication has been used The use of EDI, the precursor of EC, has to supply and/or acquire goods and serv- fairly long in business transaction. Let alone contributed both to reducing data entry ices'. The business relationships related to with Telex, which has been in use since errors, time, and cost, and to enhancing EC can take many forms. Business-to-busi-

Downloaded By: [Schmelich, Volker] At: 10:56 11 March 2010 1940's, Electronic Order Entry and ED1 efficiency in several aspects. As the use of ness, business-to-consumer, business-to- (Electronic Data Interchange) technologies advanced IT accelerates, EC is expected to administration, and consumer-to-admin- were also under consideration in limited make a tremendous impact on the com- istration are the typical types of such areas back in the 1960's. Such applica- petitiveness of firms and the structure of relationships (ESPRIT, 1996). tions as ED1 for the transportation indus- markets and industries (Malone et al. 1987; try, EFT (Electronic Fund Transfer) in the BenjaminlWigand, 1995). Korea, of course, The business-to-consumer type is ofken banking industry and CRS (Computer Res- cannot be an exception. In this report we classified as 'electronic retailing, where the ervation System) in the airline industry will briefly review the current state of EC customer is an ordinary consumer rather started their operation in the mid 70's. The in Korea and its impact in her economy. than another company'. In this type, Elec- concept of IOS (Inter-organizational In- Additionally, the role of the government tronic/Cyber Shopping Mall based on the formation Systems) and the use of elec- and the various related activities will be WWW technology on the Internet com- tronic media for business transactions were discussed. poses the major part. Advertising and topics discussed widely among research- transactions of such digital products as ers and practitioners throughout the 80's. 'Eun Kim ([email protected]) software, music, publishing are being tried Now, since the early go's, the Internet is and Pilky Hong ([email protected]) on the Internet. Complete transactions used for commercial activities, and is ex- work both for the Information should be supported by electronic payment pected to gain growing popularity. Reflect- Society Research Division of the systems. ing these expectations, EC (Electronic National Computerization Agency Commerce) over Internet is being discussed of Korea. Another major part of EC is transaction more seriously from various perspectives. based on ED1 technology to accommo-