MasterCard Buys Control of Mondex

MasterCard International's decision to take full ownership and control of Mondex, the London-based developer of smart card payment technology, is aimed at making smart cards a part of MasterCard's overall service offerings, thereby inducing member banks to issue them.

MasterCard is buying the 42% of Mondex it doesn't already own from some 17 financial institutions, among them J.P. Morgan Chase, Bank One, HSBC and Wells Fargo. It will also assume direct control of Mondex's operations and management. Financial terms weren't disclosed.

Some six million cards containing the Mondex chip have been distributed by 75 issuers around the world, but MasterCard would like to see those totals rise.

The move "gets the organizational strength and member relationships of MasterCard behind Mondex," said Art Kranzley, senior vice president, global e-business and emerging technologies at Purchase, N.Y.-based MasterCard International. "One of the first things we're going to do is integrate it in the sense that we'll be able to use the MasterCard sales organization."

"It's very important," he added, "that we consolidate all the expertise in chip throughout the MasterCard organization."

Bank owners were pleased with the arrangement, which takes responsibility for R&D and security issues out of their hands.

"This agreement will streamline the governance and management of Mondex's products and services, providing greater flexibility to meet the needs of Mondex franchise holders," according to David Mills, general manager at Hong Kong-based HSBC.

Mondex will continue working with the group of software developers that manages Multos, an open platform, highly secure multi-application operating system that enables debit, credit, e-cash and loyalty programs to reside together on a single card. Some 50 applications have been developed for Multos, Kranzley said.

The Mondex e-cash application provides cashless settlement of low-value transactions on the Internet, in mobile environments and physical locations. Value transfers take place anonymously, making the system the electronic equivalent of cash. Using special card readers, cardholders can load cash value onto their cards and transfer value from one card to another.

Mondex, which will remain in London, will continue managing e-cash and the Mondex certification authority, which controls the distribution of e-cash and other Mondex technology to franchisees.

Located in a secure facility outside London, the certification authority handles issuance of certificates globally for Mondex e-cash, M/Chip (MasterCard's debit/credit application for chip), and the mechanism for loading and deleting smart card applications. The authority, which maintains best-in-class security and operations, manages a well-established process for chip security and analysis.

Most of the Mondex cards issued to date have been in the Asia/Pacific region. In France, 100,000 cards and 1,700 card readers have been activated.

The Mondex technology is licensed to franchisees, who develop and promote the Mondex e-cash service in their area.

Within the last year, franchises have been awarded in Mexico, Venezuela, France, Japan, Norway, Africa and the Philippines. Mondex will continue providing ongoing service and support to franchisees.