Ghana tries out Mondex

Mondex, the system that hoped to replace cash, has been in the doldrums for several years but its latest venture, with Ghana Commercial Bank and Agricultural Development Bank makes sense for the market, something which its ventures so far have not really been able to do.

Ghana has had an e-cash product before - Social Security Bank launched a system that was basically like Mondex about five years ago but it was withdrawn having made little headway. Mondex has also had market penetration problems in its various endeavours - its first full scale test, in Swindon, UK, was deemed a technical success but customers said they liked the system but didn't really see the point of it - they already had a pocketful of plastic and used cash for mainly small purchases like newspapers where it was easier to toss coins to a vendor than to get out a card and process it in a reader.

Ghana on the other hand has special problems: cash costs the banks a small fortune to process it. But notes rarely make it back to the banks - some 70% of the currency is held in cash. The notes pass around so much, and for so long, that the health authorities issue warnings about disease carried on notes and ask people to carry them in clean places. People don't.

Cash is used because there are few ATMs (and there is little point in installing them) and because out of town there is little access to banks. And because there is little or no consumer credit and, to all intents and purposes, no credit cards. Banks say that their customers view cheques as an advanced payment mechanism.

But at an Anti Fraud Seminar conducted in Accra, Ghana, by The Anti Money Laundering Network for banks, commercial organisations and law enforcement personnel, delegates heard that Ghana would be making big mistakes if it followed the same cheque to magnetic card to chip card already trodden by more developed countries. This is, it was said, because fraudsters and other criminals already know how to abuse such systems and will do so faster than new users can be conditioned to be aware of risks. The move to such low security payment systems will create a field day for criminals, the seminar heard.

Ghana needs, desperately, to get the cash into the banks. It needs to gain control of the economy and it needs to be able to tax effectively.

There is also an imperative to find an alternative to cash for the population, too. This is a simple question of the amount of cash it is necessary to carry. The problem is not one of value but of bulk. Notes are value 1, 2, 5, 10 and 20. Thousand. The smallest note, at Cedi 1,000 buys almost nothing - perhaps a coconut at a roadside stall. One pound sterling buys more than cedi 13,000.

The note most people carry is 5,000. A short taxi ride can cost Cedi 25,000. Inflation, officially running at 30%, is leading to more and more bulk being. A very modest dinner for two . in a Chinese restaurant costs around 200,000. It's cheap by western standards but it takes 40 notes to pay for it. Some alternative to cash is essential.

And this is why Mondex is in the right place at the right time. The market is not ready for credit and debit cards. Cheques are not widely accepted - there is no cheque guarantee system and the inter-bank clearing times are too long for most. Only two years ago, some banks refused, for a time, to clear cheques from other banks.

So, Mondex may at last have found its niche. Launched with the expectation that it would be used as a cash alternative by yuppies, it may well turn into a way of allowing the world's poorest countries to bring themselves into a more manageable economy.

Mondex was launched by National Westminster Bank and Midland Bank, two of the (then) UK's big four banks. Since then, both have been taken over - NatWest by Royal Bank of Scotland and Midland by HSBC. Whilst HSBC and Midland were dancing in advance of the takeover, HSBC became the lead "franchisor" for South East Asia. Even with the backing of such a massive institution, Mondex achieved little success. In 1996, Mastercard purchased 51% of Mondex and since then has acquired the rest.

Getting the brand into poor countries using credit cards will involve high risk. So MasterCard will, if the Ghana experiment is successful, will mean that it may see a way of entering otherwise dangerous markets. The security of the card falls on the user - lose the card and you lose your money.

There is therefore a risk limited market entry for MasterCard, a much needed boost for Mondex, the reduction in unbanked cash which will benefit the economy, an ease of payment which will benefit computers and a vast cost saving for banks in cash handling. Add this to the fact that, unlike other card payment systems, Mondex does not require a communications infrastructure for payment clearance and it is ideally suited to the conditions in Ghana and many other developing countries.

It's a win-win situation that needs only public acceptance.