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, HONG KONG 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 credit card 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, VeriFone 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 choice 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 smart card 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 access 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. "Electronic Cash Flows ", has the backing of Jetco, the region's larg- costs associated with the central account- The Securities Journal, March 1997, est automated teller machine 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.