"Mondex" is a concept for an electronic payment system that provides an alternate to cash, particularly small currency and coins ("micro-payment"). The concept was invented in 1990 by Tim Jones and Graham Higgins at National Westminster Bank (NatWest) in the UK.

In July 1996, initiated by NatWest and Midland Bank PLC, Mondex International Ltd. was officially established by 17 major banks from North America, Asia/Pacific, and Europe, and was granted an exclusive licensing agreement with NatWest for the intellectual property rights to develop the Mondex concept, technology, and brand. In the same year, MasterCard International acquired 51% ownership of Mondex International and fully endorsed the Mondex technology architecture.

In recent years, the financial services industry has undergone ever-increasing change due to the utilization of electronics. Generally speaking, the term "electronic payment" refers to the utilization of electronics in any of the following situations:

• Payments between consumers and retailers (credit card, private label card, charge card)
• Payments between consumers and banks (ATM, home banking)
• Clearing systems among banks (inter-bank transaction)
• Settlement system between commercial banks and the central bank

Among these, the areas that have experienced the most dramatic development are the payments between consumers and banks or retailers. Electronic Data Interchange (EDI), Smart Cards and Internet Commerce are examples of the leading edge in electronic payments. The implication of all of this is recognition that the concept of money is changing.

"Electronic money" has become a relatively common term, and many electronic payment systems have adopted this terminology for their products. However, this term does not necessarily have the same meaning in every case, which can cause confusion. The term electronic money covers a wide variety of payment instruments used by consumers ranging from prepaid cards for low value purchases through products that act as substitutes for checks, credit cards, and account transfer.

Electronic money can be classified along a number of dimensions. In general, it is most often classified in accordance with the technology platform used to "store" the currency. The first type of product introduced to the market was "Smart Card." Smart Card is a cash substitute. Basically, it is a plastic card with an integrated circuit in which the "money value" is stored as bits. The term "smart" refers to the capability of reading and writing to this card. However, not all the cards are "rechargeable," some are expendable. Utilizing another technology, are the Internet based solutions. In cyber-space, there are electronic payment systems which not only substitute for cash, but also for checks, credit cards, or account transfer systems ( known as Electronic Fund Transfer (EFT) ).

Another dimension of electronic money is its transport, or dependence on the banking system/network. Some electronic money systems only operate within the banking network, and accessibility is limited to banking ATMs or POS terminalsæ this is known as a "Closed-type electronic payment system." Other electronic money systems are stand-alone and do not necessarily require interactions with the banking network æ this is known as a "Open-type electronic payment system."

For each of the following common monetary products: cash, checks & credit cards, and account transfer a 2x2 matrix has been developed to illustrate the technology and networking requirements. Each quadrant contains the name of the company (top) and the product name (below). The first exhibit describes cash substitute products, the second describes checks & credit cards, and the third describes substitutes for account transfer systems.

In Exhibit 1 - a number of key players (competitors) are introduced, a brief explanation of the product and company follows:

e-cashæ DigiCash's e-cash online payment system, allows cash to be transmitted as electronic signals. The purchaser stays absolutely anonymousæ e.g. financial transactions are untraceable. Only the identity of seller can be determined. The e-cash inherits a series of mathematical algorithms that use encryption and "digital-signature" technology to make transactions untraceable.

CyberCoinæ CyberCash's CyberCoin is an online payment system, which uses a world-wide license of 1024-bit RSA encryption algorithm. The CyberCash wallet is therefore browser-independent. It offers the first real-time, secure credit card authentication service over the Internet based on "digital signatures."

VisaCashæ Visa's VisaCash is based on Smart Card technology. Value is stored on cards that use the existing and secure financial network of Visa. Ideally, a payer's identity remains anonymous but because the transactions are centralized, anonymity could be jeopardized. VisaCash does not allow transactions between individuals.

Mondexæ Mondex is electronic cash on a card. Mondex value can be transferred between consumers and retailers or directly between individuals. Rather than requiring a physical signature, the Mondex chip card uses an automatic electronic "digital signature" to preserve the integrity of Mondex value and to ensure that any value transferred can only be received by the card for which it is intended. The electronic purse can be locked using a personal code. Mondex works in open, closed, and networked environment, for which specific devices are needed.

While Exhibit 1 illustrated a number of competitive offerings, Exhibit 2 illustrates that Smarts Cards are not substitutes for either checks or credit cards. The substitutes available for check and credit cards are Internet based. The drawback is that these offerings need to circulate within the banking network systems, which jeopardizes confidentiality.

Exhibit 3, pictured above shows that Smart Cards do not offer an alternative for electronic accounts transfer. The only available products are software packages like Quicken or Money that are used on the Internet and need to circulate through the banking network.

Compared with the other electronic payment systems, the characteristics of the Mondex method are summarized as follows.

• IC-based (hardware-based) System: Smart Card
• Micro-payment: Cash substitute
• Anonymity: Yes
• Low Transaction Costs Yes
• Accessibility: Phone, POS, e-wallet, ATM, PC

The hardware-based payment system gives Mondex a security advantage compared to Network-based systems such as e-cash and CyberCoin. The Open-type system ensures Mondexís customers anonymity and lower transaction costs, compared with Closed-type systems. In addition, as shown in Exhibit 2, Mondex has superior accessibilityæ Mondex can be accessible from either Phone, POS, Electronic Wallet, ATM or PC; whereas VISA Cash can be used only through ATM or POS; CyberCoin and E-cash are only through PC network.

According to Mondex reporting, the results from various international pilots have been very favorable. The latest field study from February 13, 1997 in Guelph (Ontario, Canada) found the following: Don Gregg, General Manager, Stored Value Cards at CIBC pointed out that "The 21st century has arrived in Guelph three years early." Through the pilot, residents in Guelph experienced the future of cash. Other comments indicated the sentiment that Mondex is just like cash but with increased benefits of convenience, access and the ability to track spending. Mondex puts more power in the hands of consumers and makes handling cash easier. Other field studies have taken place in Hong Kong (Nov 5, 1996), in Christchurch (Wellington, New Zealand, Oct 25, 1996) and in York and Exeter (UK, Oct 2, 1996) which demonstrate Mondex acceptance.