Hong Kong Bank rolls out commercial Mondex cards

Hong Kong became the site of the world's first commercial Mondex card system on Monday as Hongkong Bank and Hang Seng Bank formally launched their respective Mondex card offerings. Most of the 45,000 Mondex customers who participated in a pilot are expected to apply for the commercial Mondex service, along with about 6000 merchants. But questions have been raised about the cost of entry to the system - and mainland China's banking officials are rejecting Mondex on security grounds.

Hong Kong became the site of the world's first commercial Mondex card system on Monday as Hongkong Bank and Hang Seng Bank formally launched their respective Mondex card offerings. The two banks are part of the Hongkong and Shanghai Banking Corp. (HSBC) Group, which owns a 10% stake in Mondex.

The HSBC Mondex launch marks a substantial expansion over the number of outlets that accepted Mondex cards as a form of payment during the pilot, company officials said. Originally limited to approximately 500 stores in Taikoo Shing and Shatin, more than 6,000 merchants across the territory are now prepared to accept Mondex, says Jan McGrath, manager of the Mondex project at Hongkong Bank.

Most of the 45,000 Mondex customers who participated in the pilot are expected to apply for the commercial Mondex service, McGrath says.

Among local merchants currently signed on to accept Mondex are Park-n-Shop, Watson's, Shell, Caltex, Maxim's, Muji, Taipan and Wilson Parking, McGrath said. While some McDonald's restaurants in the US currently accept Mondex as part of a pilot, local McDonald's restaurants have yet to adopt the system. McGrath confirmed that negotiations are underway with McDonald's, as the fast-food giant wants to be able to integrate the Mondex readers with the cash registers rather than having to use standalone units.

Compared to ATM cards and other smart-card offerings, the Mondex cards will not come cheap. Both Hongkong Bank and Hang Seng Bank are charging customers a HK$100 (US$13) annual fee for the Mondex cards, McGrath said. That fee is double the one-time HK$50 deposit currently being charged for the Octopus card, a local smart card project launched by a consortium of five mass transport companies -- Citybus, Mass Transit Railway, Hongkong and Yaumatei Ferry, Kowloon-Canton Railway and Kowloon Motor Bus. HSBC charges an annual HK$50 fee for its ATM cards.

In addition to the HK$100 fee, Mondex customers wanting to make the most of their HSBC-issued Mondex cards will have to spend more money. A balance reader and an electronic wallet are being offered separately for HK$80 and $800, respectively. According to the application forms distributed by Hongkong Bank, early applicants for Mondex cards will receive a balance reader for free.

Senior executives at MasterCard International, which owns 51% of Mondex, say they have little or no influence on what banks decide to charge customers for Mondex cards.

"Pricing [for the Mondex cards] is left up to the banks," says Robert Selander, CEO of MasterCard. Selander acknowledged that high pricing could affect adoption of the technology and said he would raise the issue in discussions with HSBC executives.

Hongkong Bank officials are defending the card's annual fee as carefully researched and not excessive. Hongkong Bank's McGrath also challenges the view that the annual HK$100 fee would slow adoption of the card among customers. "We did a lot of research on pricing, as you do when you launch a new product. I don't see that pricing will have any effect on the adoption of Mondex by people in Hong Kong," she says.

However, McGrath concedes that pricing for the Mondex card would most likely be undercut by card offerings in Hong Kong from arch-rival Visa Cash. "Charges for Visa Cash will be about the same. But I understand that Visa is planning to subsidise some of that cost [for implementing the smart card system] which has been reduced to around HK$80," she said.

Regardless of the impact that pricing may have upon the adoption of Mondex by Hong Kong customers, Selander sees the territory leading the way towards widespread deployment and use of electronic cash technologies.

However, Hong Kong's willingness to test electronic cash systems like Mondex does not appear to be shared by Mainland officials, regional MasterCard officials admit.

The appeal of Mondex as a form of payment has yet to move beyond the initial stages of interest among China's banking officials, according to Andre Sekulic, deputy vice president of the Asia-Pacific region at MasterCard International and director designate of Mondex Asia-Pacific.

Despite the appeal of an electronic cash system, China's banking officials had voiced security-related concerns regarding the implementation of the Mondex system, Sekulic says. He did not elaborate on the specific issues of concern.

Nevertheless, Selander maintains that the Mondex card is secure. "Thus far, we feel very comfortable with the levels of security that we have built around the Mondex chip. And I would argue that, with the level of investment that we put into cryptography and other things, it will pay anybody who wants to crack a chip a lot sooner to go get somebody else's [smart card chip] first. I'm not saying [Mondex is] unbreakable. Sooner or later, I guess anybody paying enough money and spending enough time could break [the Mondex chip]."

Mondex is currently involved in negotiations on adopting the system with the People's Bank of China, China's central banking authority, McGrath says.

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