New Zealand banks opt for reality check on Mondex

Breaking from their Australian cousins, and their own professed strategy, the six banks in the Mondex New Zealand consortium have decided they will not, after all, jointly launch the e-cash system in which they joyfully bought equity in 1996. The only bank to actually conduct a Mondex trial, Westpac Trust, is not committing itself to anything. Is this a debacle? Probably not. A reality check? Certainly. Local Mondex interests are arguably only now understanding the industry they seek to enter.

Breaking from their Australian cousins, and their own professed strategy, the six banks in the Mondex New Zealand consortium have decided they will not, after all, jointly launch the e-cash system in which they joyfully bought equity in 1996.

Talk of a big rollout of Mondex stored-value cards in October of this year has been dropped, and the only bank to actually conduct a Mondex trial, Westpac Trust, is not committing itself to anything.

Meanwhile, Telstra ignores the banks in Australia, puts its own smart card-based scheme into hyper-drive and issues more cards every four hours than Mondex has issued worldwide since its launch in 1993.

Is this a debacle? Probably not. A reality check? Certainly. Local Mondex interests are arguably only now understanding the industry they seek to enter.

The New Zealand banks, with the encouragement of Mondex International Inc., seem to have believed they could establish the technology by collective will. If they all launched Mondex cards and crossed their fingers, then surely it would happen. It seemed an awful lot of effort and money to put into a product which would, essentially, cannibalize their existing businesses in Eftpos and credit cards.

It also assumed that stored value would be amenable to being bank-driven in the same way that earlier card products were. Nothing could be further from the truth. A smart card with stored value or loyalty applications is only useful if you have places to use it.

Banks, as they disappear from the high street, have no presence and no infrastructure to issue cards. Customers want to be able to obtain and use cards and applications as they go about their business; businesses investing in card schemes may want to issue them under their own branding.

The assumption that the new technology could simply be imposed on retailers, at whatever cost might be entailed, has been challenged by the British Retail Consortium. As a recent survey by the consortium shows, retailers want to play, too. Any stored-value system has to allow for nonbanking applications and for cards issued by retailers. The banks have been, the consortium notes, designing it all to suit themselves.

Furthermore, the major stored-value trial conducted in New York in recent months has shown that stored value may ideally occupy a niche well below that of existing card products -- more phone card than gold card -- and that a large chunk of its market is "unbanked" and out of the reach of any products the bank might wish to offer.

The lack of a low-cost disposable card product remains a big hole in the Mondex strategy. The Mondex banks are also now becoming aware that their more important asset may be Multos, the multiapplication operating system on the cards, and not the Mondex e-cash scheme itself, which is still the subject of legitimate concerns over security and utility.

Major card vendors such as Gemplus SA have had proprietary equivalents for years, but Multos will be the first "open" system to hit the market, offering the ability to load and securely use a range of third-party applications on a chip card. It will certainly not be as "open" as solutions based, like Visa International Inc.'s, on Sun Microsystems Inc.'s JavaCard API, but it has a significant window of opportunity.

So what does all this signify? That nobody has all the cards, so to speak, and this winter will be a season of alliances. The Mondex New Zealand consortium has gone from behaving like a private club to actively approaching potential partners such as New Zealand Post.

This initiative on the part of the local Mondex banks is a good thing. For most of the time since they bought equity on in Mondex in June 1996, they have kowtowed to a Mondex International board which, as Computerworld revealed last year, has done and said some questionable things in support of its brand.

It seems that little initiative will be forthcoming from Mondex's 51 percent owner, Mastercard International Inc., which, in contrast to its rival Visa, has let its subsidiary run off with the brand and the mind share. Having gone to the expense of sponsoring this year's Cards 98 conference, Mastercard put in an extremely lackluster performance.

In his keynote, regional vice president John Verco was in danger of putting his audience to sleep. But that's okay. For all Mastercard's talk about the international span of its technology, what's likely to make smart-card schemes work is local savvy.

Both Visa and Mastercard will eventually stick chips on their cards to enhance security and functionality. But we could see applications based on well-tried proprietary card systems rolled out before grander open systems get to market, and we'll certainly see important partnerships struck.

The partner everyone wants is New Zealand Telecom. Telstra, which has made what seems to be an excellent bet on the Dutch-developed Chipper system -- paying for its infrastructure from day one, yet leaving it open for use by the big "open" players -- has invited Telecom to play its game. Telecom has responded with what seems like its customary dithering, although it is undoubtedly discussing its partnership options behind the scenes.

Given the decisive, clear-headed direction at Telstra -- some of it, ironically, from former Telecom man Grant Burtenshaw -- it could do worse than follow the Aussies.

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