Virtual cash, straight to your mobile phone

`E-cash', which stores money as digits on smart cards, could soon make credit and debit cards look outdated. It is already used in Swindon, and Charles Arthur, Science Editor, says it could soon come to a mobile phone near you.

If visiting the cash machine is becoming too much effort - the walking, the queues, and the risk that it may have run out of cash - then help is on the way. Getting your hands on some money could soon require nothing more than dialling a few digits on your mobile phone - where the money will be sent directly.

Cellnet, the mobile phone company, has teamed up with the "smart card" payments company Mondex International to develop a system that will let you withdraw cash, in the form of encrypted strings of digits, directly from your bank account, and store it on a computer chip slotted into the back of a mobile phone. That can then be used with a suitable card reader to pay for items costing from 1p upwards.

Any of Cellnet's 1.4 million customers with a digital GSM phone could use the system, which could also be used to deposit cash. The greatest benefit would be for getting money for transactions of pounds 5 or less, which are too expensive to carry out with credit or debit cards. When a transaction takes place, a complex calculation takes place and the digits on the buyer's card are de-incremented, while those on the seller's card are incremented. The digits correspond to money; at any point they can be transferred to the owner's bank account for suitable credit.

The scheme could be in operation within a couple of years. The technological obstacles have largely been overcome - particularly relating to security of data transfer - because digital mobile phones can't be cloned. The principal problem is to ensure that the phone's chip is credited when the bank account is debited. "We want to take the maximum care, because this is people's money," said a Cellnet spokesman. Cellnet already offers Barclays customers remote access to their account details, but without money transfer.

Other phone companies are likely to be in hot pursuit. Cellnet admitted that "any forward-looking mobile phone company would examine this area."

Today's announcement extends Mondex's pilot project which started in July 1995 in Swindon. There, "smart cards" - credit cards with an embedded microprocessor - were introduced for use by the general public. Though the initial reaction was lukewarm, other Mondex projects have followed in the UK and other countries. By the end of this year Mondex expects to have produced more than a million reloadable "e-cash" cards.

Earlier this year the credit card company Mastercard bought 51 per cent of Mondex, and both Mastercard and its competitor Visa have begun issuing "stored value" credit cards which contain electronic cash.