Mondex in Japan

The launch of Mondex's Japanese franchise had been discussed since last year; realization of the goal has been delayed, however, mainly because Mondex has not succeeded in obtaining strong support from Japanese financial service institutions or the Ministry of Finance. Computing Japan spoke with Michael Keegan, CEO of Mondex International, during his visit to Tokyo in the spring about the company's planned activities in Japan and its relationship with Japanese manufacturers.

interviewed by Noriko Takezaki

Michael Keegan: Because Japan is a very attractive market, one with high cash usage, high potential to adopt new high technology, and high costs associated with the handling of cash for financial institutions and other businesses. In addition, mobile phone usage is high in Japan. Telephones are a critical distribution tool as a channel in the world of Mondex, through which you can get your money out of the bank. Mobile phones can also become mobile cash dispensers in the world of Mondex. For all those reasons, we think Mondex has an opportunity to fill a real need in Japan.

Is formation of Mondex Japan a must for Mondex International?

Keegan: I think it's highly desirable. Obviously, there are many markets in the world where Mondex and the technology around Mondex will be adopted at a time that is suitable for them. In the Japanese market, I think that time is right now. Therefore, I'm optimistic about our future here, particularly when you consider that so much of Mondex came from Japan in the first place. It was the alliance and partnership between those of us in the UK who had the idea for Mondex, and the Japanese manufacturing industry which brought the electronic cash systems. I feel Mondex owes a lot to Japan because companies such as Hitachi, Dai Nippon Printing, Oki, and Matsushita did so much to create the technology for electronic cash.

Are you still working on the establishment of Mondex Japan?

Keegan: I've been talking to a number of Japanese banks, and I hope that this is something that will come to pass in the near future, although we haven't reached any conclusion yet. Since we are now a part of MasterCard, one of the largest and most successful organizations in the world, and since MasterCard products are available in Japan and used by many Japanese consumers, this will make our negotiations [with the Japanese companies] easier. We are working with MasterCard International's office in Japan very closely to bring a number of their card issuers into the Mondex Japanese market.

Do you feel the Japanese attitude has changed since MasterCard has announced the acquisition of Mondex?

Yes, the attitude of a number of the Japanese financial institutions has changed. It [the announcement of MasterCard's acquisition of Mondex] made Mondex identified clearly as a world leader of electronic cash business. Certainly, around the world, the interest in Mondex has also dramatically increased as a result of MasterCard's acquisition.

Also, we continue to have discussions with Japanese ministry officials and regulators to give them information about how electronic cash works, and how Mondex works as a product of electronic cash systems. We are very satisfied and pleased with the way those discussions are coming.

Since Mondex is now part of MasterCard, it will be available through the 23,000 MasterCard member companies worldwide. MasterCard has 13 million acceptance locations worldwide and some 380 million payment cards in the marketplace today; that gives a sense of the opportunity Mondex now has as part of MasterCard.

Do you think that the Japanese ministry officials and regulators are generally positive about the use of electronic cash in this country?

Keegan:Our assumption is that they now feel more comfortable with electronic cash systems, such as Mondex. Mondex has many features designed to be appealing to the regulatory community. Every Mondex card has a limit, and every Mondex purse has a unique identification number, which provide very powerful controls for the product in the marketplace from a regulatory point of view.

How much are you requesting potential members to pay to join Mondex Japan? I heard that Mondex originally charged a very high amount to prospective members and upset Japanese financial institutions. Are you considering lower fees than the original plan?

Keegan:That is very sensitive commercial information, and I'm not in a position to disclose it. But since the market value of Mondex has increased substantially, we have not found it difficult to sell Mondex franchise participation around the world. I think everybody realizes that Mondex has better technology and is a better product.

If you look at the number of banks committed to Mondex now around the world, it is a very interesting list: Chase Manhattan, First Chicago NBD, and the Hongkong and Shanghai Bank. Mondex is a valuable product; it has value for customers and retailers, and also value for banks. We are interested in successfully having a Japanese grouping take Mondex, and we are sensitive to the marketplace conditions here.

Is Mondex Japan going to be similar to Mondex franchises in other countries? For example, can Japanese credit companies join?

First of all, we need to have a group of founding institutions here in Japan; we would then work out our franchise structure with them. Since we have implemented Mondex successfully in a number of countries now, such as the UK, US, Australia, New Zealand, and Hong Kong, it is likely that the structure of the Japanese franchisee will be similar to the franchise structure we have developed in other countries.

Surely, there is strong interest in participating in Mondex Japan from Japanese card companies as well as financial institutions. That is something we will need to work through over the coming months how best it [Mondex Japan] should be structured.

Hitachi has been a key promoter of Mondex in Japan. How do you evaluate such Hitachi's efforts?

Keegan:Hitachi's efforts are outstanding. Hitachi has been a very strong and valuable supporter of Mondex for many years, and we highly evaluate Hitachi's contribution to Mondex. I think Hitachi is also happy to be active about promoting Mondex in Japan and in other countries, and will continue to be active. Hitachi does not only provide silicon itself but also, through its subsidiary, it provides systems integration for banks that wish to offer Mondex to their customers. Also, Hitachi is providing devices like balance readers, POS (point of sale) terminals, and telephones that are Mondex devices as well.

I've heard that Mondex subsidized Hitachi's development of the chip for the Mondex card.

Keegan:Our initial arrangement with Hitachi was just to ensure the proper supply of silicon for Mondex. There wasn't anything particularly unusual about that. Currently, we are not providing money to Hitachi for Mondex product development. Mondex has been implemented in many countries around the world, such as the US, Canada, and UK, where we are finding manufacturing communities for developing our devices. So, Mondex International does not have to pay money anymore for manufacturers to develop the devices on our behalf. Mondex International provides specifications to the manufacturers, then they can make devices which are Mondex compatible. The manufacturers will contact the banks and retailers who wish to offer Mondex services, and they will choose products to sell for themselves.

Are you planning to involve more Japanese manufacturers in Mondex?

Keegan:We are expanding the number of Japanese manufacturers who are involved in manufacturing devices and solutions for financial institutions. This is because Japanese manufacturers see the market not just here in Japan; they see markets around the world, and therefore are keen to take advantage of that. There are some major Japanese companies who are showing a great deal of interest in getting the Mondex specifications to develop Mondex goods and services that can be offered to banks and retailers in other countries.

This means that you are not going to depend on Hitachi only?

Keegan:We have an open supplier policy. Hitachi is a very important strategic partner, but it is not the only partner for Mondex. It is a competitive marketplace.

Are there plans to modify the Mondex hardware system to accommodate the Japanese market and for the usage of the Internet?

Keegan:There are no specific hardware requirements that are unique to the Japanese market. But for the Internet, we are certainly developing Mondex services for this purpose; we will be launching it this autumn, starting from the US. We've spent a lot of time making sure that Mondex can work on the Internet. We are publishing Internet protocols that we have been developing for a number of leading platforms for the launch of Mondex as a commercial service using the Internet.

Will the Mondex system be compatible with Internet appliances other than computers?

Keegan:Getting Mondex working on the Internet is very simple in concept. There are two implementation options that we are currently examining: either putting a card into a card reader attached to a PC, or using a PC with a smartcard reader embedded in it. Then the customer can send money from the card to the merchant's website on the Internet. It will effectively conduct micropayment of value transaction. Mondex card holders can receive information directly from the PC as to whether merchant has received the customer's payment.

Japanese manufacturers, including Hitachi and Oki, have been involved with manufacturing hardware for Mondex. Are you going to ask Japanese manufacturers to handle the new hardware development, too?

Keegan:Currently. we are working through the hardware development issue with our partners in the US. But, there is no reason why Japanese companies could not be involved in the manufacturing, since Japanese companies have provided a lot of hardware implementation devices for Mondex.

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