Is Mondex cash? The CEO of Mondex International says it is--and claims to have won the UK Trading Standards case taken against such claims. Oddly enough, the law professor who brought the case claims he, too, is the winner.
The new Trustbank-Westpac trial of the Mondex stored value card is only the third in the world, and the speed with which the local banks have been able to get to trial stage has been applauded by many observers, including Mondex CEO Michael Keegan.
"Mondex," declared Keegan in a speech at the high-powered launch of the trial, "is cash." (See Mondex smart cash.)
Or is it? The response to the Trading Standards complaint by Essex University professor Simon Davies is more a study in the difficulties posed for regulatory bodies by new technology than a ringing endorsement for either side's view.
Bromley Area Trading Standards officer Robert Gilham recently wrote Davies lamenting the slow progress of his inquiry. This was partly down to a delay of months in gaining Internet access--which was crucial in that the claims in question are made on Mondex's Website.
Gilham noted that Mondex had replaced the word "anonymous" in its literature with "private", which "seems to have more appropriate meanings than anonymous", reflecting the limited access to information, equating with the privacy of a (pocket) wallet where the information is not for third party consumption, but is available to unauthorised people.
"Checks and balances" within Mondex limit the availability of information, says Gilham. "The potential exists for unauthorised use of transaction information by banks, traders or third parties, but no evidence is available that this stage has been reached." The issue has been referred to the office's City of London branch for "negotiation and discussion" with Mondex.
Whatever the eventual upshot, Keegan insists that "we have a much better product as far as privacy is concerned than any of our competitors. In Mondex the actual data is held in the card and it belongs to you, the customer. So it's not a question of clearing and settling each individual transaction, so the banking system can come along and have a look whenever it wants to. There are very defined circumstances in which the banks can get access to that information."
So his interpretation of Gilham's letter is that the company is now free to tell the world "Mondex is cash"?
"Yes, absolutely. We're through that."
Keegan says financial self-interest will be as much of a disincentive as anything else to banks creating regular audit trails of Mondex transactions.
"There's no requirement from Mondex International for this to be a fully accounted product. So any audit trail really comes off the locally held records on the card. Our view is that the customer interest in privacy is a very strong one. It is possible to construct an audit trail, but why would you do it? Because all you do by creating an audit trail is to make the economic proposition that much worse--as well as getting yourself into a whole lot of customer issues which will be very damaging to the product."
Mondex retailer terminals can, however, store records of up to 300 transcations.
"The retailer terminals store the amount of the transaction and the unique identification of the customer, but that at the end of the day is a set of numbers. And it's very difficult for the retailer to be able to piece that together, unless they have the customer's consent to do so."
But the franchise-holding banks can do it without the customer's consent?
"The customer will have applied for a card from the bank, and given consent then. The customer will go to Trustbank and say, I'd like a Mondex card, and the bank will issue them with a card and have a note of the number of the card. They'll be assigned a card limit, the customer will use that card, the retailer will be able to record, if they so choose, the unique 16-digit number recorded. They won't be able to match that up with your name."
Would Keegan expect retailers to tell customers whether or not their transactions are being recorded?
"I think that's something that we cover in the cardholder terms and conditions. But a retailer will not be to be able to contact you on the basis of you having transacted with Mondex and I think that's the killer point.
"I think the Reserve Bank would regard a totally off-line, no audit trail product with a limitless amount of funds as potentially a systemic risk to the banking system. So what you have in Mondex is a sort of compromise. You have an audit trail, but you control it. The bank can only access it under some very extreme circumstances, or with your consent.
"That's where we've chosen to position ourselves in the market. Some of our competitors are offering a very different product-- fully accounted, fully online, fully cleared and settled and fully archived. Which I think from a regulatory point of view is belt-and-braces. Although I believe that with a sensible card limit on each Mondex card, the risks are minimal. The economics of fully accounted systems are just prohibitive, and the credit card/debit card would have gone right down to the very low values 20 years ago if the economics backed that up."