The Mondex New Zealand consortium has until the end of the year to present a final business proposition to its member banks. The proposition will formalise policy on disclosure, liability and “exceptions” and “incursions”.
One major policy is already agreed among the banks. They will undertake to honour the value issued on cards in the event of an “incursion” into the Mondex system.
This is inevitable, given that the underpinning of any electronic cash system is the issuer’s pledge to buy back electronic cash with “real” cash on demand.
Mondex New Zealand chairman Jeremy Deane says the banks “must underwrite or support legitimate Mondex value”. But the problem is that if the system can be compromised to the extent that “illegitimate” value is created, it is indistinguishable from the real thing. Which value to honour?
Ken Warren, a senior Mondex security official based in London, told a Toronto Star business reporter recently that no system was foolproof but drew comparisons with the credit card industry, where the cost of fraud is in the 2% to 3% range and that cost was borne in the same way as grocery store prices were set a little higher to take into account the cost of shoplifting.
Deane says there is no policy yet on “exceptions” such as the “broken card” issue which arose in the first Mondex trial, in the UK town of Swindon in 1995, and has yet to be convincingly answered.
Because Mondex permits offline chip-to-chip transactions which do not have to be centrally cleared, the issuer cannot know for certain what the cash balance on any card is. This is a problem when a customer comes in with a broken card and asks to be reimbursed with the value the card had held. In Swindon the informal practice was said to be to pay out the claimed balance once, and to refuse to pay if the same customer reported a broken card again.
Deane says the banks are working on such issues on a global as well as a territorial level, “but there’s no way the banks are going to allow customers to suffer unreasonably in the event of a scheme incursion.
“Those issues will be clearly disclosed, and we’re working with people like the Consumers Institute to make sure we get that right. I’m not sure if we’ve spoken to the Consumers Insititute yet, but we’re certainly talking to the Reserve Bank.”