Not-so-smart card will flop, says City

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The Independent Online
MONDEX, the revolutionary plastic card being developed by National Westminster Bank to replace cash, looks set to become an expensive flop, say its critics.

NatWest has sunk up to £100m in the project, but City observers predict it will be overwhelmed by products from card networks such as Visa, MasterCard and Europay.

Mondex uses smart-card technology, in which a computer chip is embedded in a plastic card. Funds are transferred to the card from a bank machine for use in specially equipped shops.

Last week Mondex opened an outlet to promote the scheme in Swindon, where it will hold its first trial this summer with an estimated 40,000 customers and 1,000 retailers. But critics say the scheme is fundamentally flawed.

"No individual bank is big enough to orchestrate a global payments system," said one expert in the field. "Unless you get a significant critical mass of customers all you've got is an extended phone card. As soon as the mainstream card schemes come in, they'll be blown away."

Visa said last week it will run pilot projects in cities around the globe over the next two years, including one with a million customers in Atlanta, Georgia by the time the Olympics open there next year. MasterCard will reveal its new cash card in Australia next week. Four other national cash card systems have been launched in Portugal, Spain, Belgium and Denmark.

While the credit card companies have established a common standard and signed up dozens of banks to issue their cash cards, Mondex is going it alone; its only confirmed outside support will come from Midland Bank and its parent, HKSB.

Tim Jones, chief executive of Mondex, agreed that participation from international banks is key to his project's success. To attract new partners, the company is offering seats on the board for a share of the development costs.

The company is counting on its ability to recharge cards at specially equipped pay phones and cell phones and to make transfers between individuals. It also claims market research shows customers are willing to pay more than £10 a year for its card as long as they can use it in four or five locations a day.

Its main technological weakness is that it does not leave an audit trail, so customers are not protected from theft or fraud as they are with debit and credit cards, or the cash cards being issued by its competitors.