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[alzheimer@juno.com (Ronald Raygun Remailer)]

Associated Press 11/19/96

STOLEN COMPUTER HAS INFORMATION ON 314,000 ACCOUNTS  

Credit card holders often worry that some computer hacker will find his
or her way into their charge accounts. One thief took the low-tech route
and simply took an entire computer, its memory holding information on
hundreds of thousands of some of the best-known cards. The personal
computer was stolen earlier this month from a Visa International office
that processes charges on a number of different credit card brands, Visa
said Monday. Its memory included information on about 314,000 credit card
accounts, including Visa, MasterCard, American Express, Discover and
Diners Club, said Visa spokesman David Melancon. Some issuers, like
Citibank, which had about 33,000 accounts  affected, began calling
customers about the theft early last week. Citibank canceled the cards in
question and issued new ones, said spokeswoman Maria Mendler. The
personal computer was discovered missing from Visa's data processing
center at its main office in Foster City, Calif., on the evening of Nov.
8.  


American Banker, 11/19/96

MASTERCARD WILL BUY 51% OF SMART CARD FIRM MONDEX   

MasterCard International said Monday it would buy 51% of Mondex
International and promised significant investments to create a global
electronic cash system. The pending deal -- one of the card industry's
worst kept secrets -- puts MasterCard in the forefront of the smart card
race. Observers had criticized  MasterCard Cash, a smart card system that
was deemed less than successful in its Australian debut. With Visa Cash
in several pilots around the globe and American Express announcing a
licensing agreement last week for the Proton smart card technology owned
by 60 Belgian banks, many industry observers said the dash for dominance
would now begin in earnest. Mondex, developed by National Westminster
Bank of London and owned by 17 banks worldwide, is to retain its board,
staff, and organizational structure, acting as an independent subsidiary.
 


Financial Times: Monday, November 18, 1996
 
Electronic Money Threat to Banks 
 
By George Graham
 
Central banks could lose billions of dollars of revenue if consumers
start to
jettison the traditional banknote in favour of electronic money,
economists
from the Bank for International Settlements have warned. 
 
A report issued today by the BIS, the central bankers' central bank, says
innovations such as "electronic purses" loaded on to a smart card or
"digital
cash" used for making payments over the Internet could erode central
banks'
income from issuing banknotes. 
 
Note issue is a significant source of revenue for many central banks
because
the private sector must in effect make interest-free deposits to obtain
the
notes. 
 
The BIS cites studies estimating the loss of this "seigniorage" at more
than
$17bn (#10.3bn) for its 11 member countries if prepaid cards were to
eliminate all banknotes below $25 in value, although not all seigniorage
comes to central banks. 
 
Central banks could "consider issuing e-money value themselves" as a way
of
offsetting the lost income, the BIS says. Alternatively, it suggests,
they could
increase mandatory reserve requirements, although this would run counter
to
the trend towards lower minimum reserves. 
 
The BIS report appeared as MasterCard, one of the world's two leading
payment card consortia, prepared to expand its efforts to develop a
widely
accepted electronic purse by taking control of Mondex, a UK-developed
smart card.
 
MasterCard will announce today it is taking a 51 per cent stake in
Mondex,
which is currently on trial in Swindon and Hong Kong. Widespread 
substitution of e-money for cash could make it more difficult for central
banks -- by reducing their ability to control the money supply -- to
affect interest rates. But the BIS says this is unlikely to happen.
 
The BIS report warns that if central banks chose to issue their own
e-money, they "could limit competition or reduce incentives to innovate".
While no restrictions are usually imposed on the issue of single-purpose
prepaid smart cards, such as telephone cards, multipurpose electronic
purses, which can be used as money in a variety of places, raise
different questions. 
 
Some central bankers view them as comparable to deposit accounts, which
in most countries can be managed only by authorised banks. Others see
them
as equivalent to travellers' cheques, on which few restrictions are
imposed. 
 
The BIS report warns that any decision will involve a trade-off: "If
issuance
of e-money is limited to banks, the regulatory framework already in place
can
be extended to cover the new products, but competition and innovation
might
be more limited."
 
 

 
 
Washington Post: Sunday, November 17, 1996
 
Smart Cards Deal Simpler Life for Cash-Phobes
 
By Jane Bryant Quinn
 
The next piece of plastic the banks think you ought to keep in your
wallet is a
smart card. These cards come in several varieties, and most aren't yet
ready
for mass distribution. But pilot projects are forging ahead--in Atlanta,
in New
York City early next year, in Canada and in several other countries. 
 
There's no obvious consumer need for smart cards today. But the bankers
believe that you're going to love them anyway. You may even be mailed one
and urged to try it. 
 
Smart card promoters make the assumption that you hate to carry cash. You
hate fishing for bills and coins to buy a newspaper or a soda. You'd put
down plastic, instead. 
 
This plastic card has money on it, embedded in a computer chip. A $20
card, for example, will give you $20 in spending power.
 

If you buy a 75-cent newspaper, the seller will put your card in a
special
terminal and drain off 75 cents. No identification or signature is
required. 
 
You now have a card with $19.25 left on it. After spending $1 on a soda,
the
value of your card goes down to $18.25. If you forget the amount, you can
check it with a little portable card reader. Some readers also might list
the
last five things you've bought. 
 
Don't confuse a smart card with a debit card. When you pay by debit card,
money is moved automatically from your bank account into the merchant's
bank account. With a smart card, however, you first move money from your
bank account onto the card's computer chip. When you buy something, the
money moves from your card to the merchant's terminal and then,
electronically, to the merchant's bank. 
 
If every merchant, street vendor, taxi driver and bus accepted smart
cards,
you wouldn't have to carry cash. To some, that would be a huge
convenience; to others, it's a shrug. As long as some merchants took
smart
cards and others didn't, however, you'd have to carry both. 
 
Smart cards come in three varieties, some of them more flexible than
others: 
 
- A prepaid, disposable single-purpose card. Telephone cards are a good
example. You pay $10 or $20 for a card, dial a toll-free number, give the
number of your card and then make your telephone call. Minute by minute,
the cost of the call is deducted from the value of the card. When you've
drained all the money out of the card, you throw it out. 
 
- A prepaid, disposable bank card. You buy the card at a bank and can use
it at any store that has a terminal. 
 
- A reloadable card. When your money runs out, you can take it to the
bank,
an ATM or a special kiosk and load it up again. Visa, MasterCard,
Citibank and the Chase Manhattan bank will jointly test a reloadable card
in
a section of New York City next year. A reloadable card could also serve
as
your credit card, debit card or ATM card. 
 
What's in it for the bank? Eventually (although not at first), the bank
probably
would charge you for the card. There might be a fee when you accessed the
ATM to load it up. The merchant also would pay a fee, in return for
getting
what is presumably a more secure transaction. 
 
What's in it for consumers? A very little bit of convenience. Putting
down a
card is a tad quicker than fishing out cash. You always have the
equivalent of
exact change. You wouldn't have to count your change (but you'd have to
use the card reader to be sure the merchant's terminal deducted the right
amount). You may or may not pay more for the card than it costs to get
cash
from an ATM. 
 
For a while, the smart cards probably won't have any more than $100 on
them, and the limit might be lower than that. So they're strictly for
walking-around money. You'd still need your credit card, debit card or
checkbook for more serious shopping. 
 
If the card malfunctions--say, it registers $14 when you're sure you were
carrying $36--the bank can check the balance on the computer chip, says
Ron Braco, a senior vice president at Chase Manhattan. But if you lose
the
card, it's just like losing cash. You're out the money. 
 
Promoters of smart cards blue-sky a lot of national and international
uses that
aren't yet anywhere in sight. I'll probably wait for them. Banks have a
sales
job to do on people like me who don't find it a nuisance to carry cash. 
 
 
U.S. Banker: November 18, 1996
 
Scott Cook Considers His Next Move 
 
By Joseph Radigan
 
Today's home banking market would be very different -- and a lot smaller
--
without Scott Cook's Intuit. But a stab at processing payments fizzled
out,
and some banks still suspect the company wants to steal their customers. 
 
The message boards at America Online's Motley Fool investment center may
be one of the quirkiest sources for stock tips, but then individual
investors
have always been magnets -- or suckers for unconventional advice. 
 
Anyone who logs on to AOL can find a breadth of opinions on a vast
number of publicly traded companies and funds. But in this forum -- where
sage financial advice often takes a back seat to the cyberspace
equivalent of
a food fight, there are no favorites -- not even Intuit Inc., the company
that
since its formation 13 years ago has quietly, steadily nursed its
innovative
home banking program, Quicken, from a cult classic into a consumer
software powerhouse. While this was taking place, bank after bank was
throwing up its hands in frustration over its inability to convince more
than a
handful of customers to do their banking by personal computer. Clearly,
Intuit founder and chairman Scott Cook, a former marketing guy from
Procter & Gamble Co., understood something about consumers' banking
habits that bankers themselves just didn't get. But lately that hasn't
bought 
the
company any favors with some of Motley Fool's regular visitors. 
 
On September 12th, just days before the company reported its results for
the
fiscal year, one posting exemplified the sentiments of a small group of
AOL
subscribers that had soured on Intuit's prospects: "The party is over,
kids.
There was never a chance that a $ 300-million company was going to
control
a multi-trillion-dollar business. To buy into that was nuts to begin
with. Those
who did, most at more than $ 65 a share, are getting a new lesson in
large-bank thinking today." 
 
To see Intuit trashed in an on-line foram is especially ironic. After
all, it 
was
one of Wall Street's hot software stocks just as the high-tech sector
began
soaring to undreamed of heights two years ago, and, thanks to a marketing
relationship with AOL, Quicken and its no-frills stablemate, BankNow, are
the banking options of choice for the on-line service's subscribers.
Plus,
Quicken has become the preferred financial management software among the

computer-literate, and that was what persuaded nearly three dozen banks
to
sign marketing relationships with the company in the last 18 months. 
 
But the last 12 months have been rough on Intuit's stock. The price
peaked
at $ 89.25 in November 1995, and since the beginning of the year, it's
been
caught in a steady downward spiral. By mid-September, when the company
released the earnings for its July fiscal year, the stock was wallowing
around
at barely $ 30 a share. The price rebounded slightly on the news that
Intuit
was selling its money-draining payment-processing unit, but that momentum
evaporated quickly. 
 
"The Street was clearly dropping the stock over the last six months,"
says
Genni Combes, a securities analyst for Hambrecht & Quist. "The back-end
processing was a big drain, and Quicken sales slowed." 
 
Cook still speaks regularly at trade shows, but his one-on-one contacts
with
the press are not as frequent as they once were. In a recent telephone
interview with U.S Banker, he said the stock's price gyrations had more
to
do with factors beyond his company's control than with the firm's
performance. A year ago, the stock market was caught up in its Internet
hysteria, and this spring, when Intuit's price started sliding, it was
primarily
because investors were finally evaluating on-line stocks with a healthy
dose of
much-needed logic. 
 
Whatever the actual cause of Intuit's share decline, the company still
has
plenty of fans. Most people posting messages on AOL are still bullish on
its
prospects, as are most of the professional analysts that follow the
company
for the big brokerage firms. 
 
"Their cash flow is tremendous," says David Farina, an analyst with
William
Blair & Co. in Chicago. Indeed, although Intuit confirmed some of the
worst
fears of its detractors by losing $ 20 million on $ 552 million in sales
during 
its
July 1996 fiscal year, the company did generate a cash flow of $ 44
million.
An important source of that cash flow is the nearly 10 million customers
of
Quicken, some of whom are almost fanatical in their enthusiasm for the
product. As recently as four years ago, Quicken was the whole franchise,
and while its market is still growing, it is now only 20% of the
company's
sales. Much of the firm's recent growth has come from its diversification
into
new markets. One is tax software. In acquiring the publisher of TurboTax,
the company has a product that now accounts for 30% of revenue. Another
important segment is small business accounting, where the QuickBooks
program contributes another 20%. These products will become even more
important to Intuit because the firm's strategy is to build upon
Quicken's
customer base by selling its regular users other programs like TurboTax. 
 
But in the wake of the announcement that the company was selling its
processing unit, Intuit Services Corp., or ISC (the sale is expected to
close in
December), the Menlo Park, CA, software publisher finds itself at what
may
be one of the most important junctures in its history. 
 
In the last year, Microsoft Money picked up market share against Quicken.
Cook says Quicken has recovered some of the ground it lost, but rarely
does
anyone best Bill Gates in a head-to-head shootout. 
 
Several of the three dozen banks that distribute Quicken have at best a
lukewarm commitment to promoting the software, and some would rather
pursue on-line banking strategies that circumvent Intuit. 
 
The on-line world, including that segment of the population that banks
with
Quicken, is rushing headlong toward the Internet, where only a few
companies have established brand names. Moreover, the companies that are
succeeding on the Internet tend not to be established technology firms
like

Microsoft or IBM Corp., but small start-ups devoted solely to doing
business on-line. 
 
Operating costs are rising faster than revenue. Expenses are not out of
control, but marketing in the on-line world challenges even the most
skilled
players, and that is forcing more software companies to steadily spend
more
on marketing and software development. Intuit is no exception. 
 
Revenues rose a healthy 32% last year to $ 552 million, but that rise was
outpaced by the nearly 40% jump in expenses for customer service,
marketing and research and development. And according to analysts like
Hambrecht's Combes, R&D will continue taking a big bite out of the
company's budget. 
 
"It takes tremendous tools to design products for the Internet, and you
have
to spend money on employees," says Combes. "Those costs have been
grossly underestimated" throughout the software industry. No Show
Stoppers None of the challenges confronting Intuit is a show-stopper --
and
some opinionated AOL subscribers notwithstanding, the party is definitely
not over but 1996 had more potholes than anyone could have predicted. The
more than $ 30 million spent on repairing ISC's operations was a big
drain on
management. Another problem has been the indifference, if not downright
hostility, displayed by some banks toward promoting Quicken. Cook now
says that in the wake of the ISC sale, that attitude is changing. Yet
there are
still banks that consider the company a threat. 
 
"The jury is still out on whether the consumer puts more value on the
software or the bank," says Tom Kunz, vice president for electronic
banking
at PNC Bank Corp. 
 
It's probably impossible for a final verdict to ever be reached on this
issue,
but because it's still undecided, some banks have ventured into
electronic
banking very gingerly. This unknown was at the heart of many banks'
suspicion of Microsoft's motives when it tried to buy Intuit, and it is
still
lurking as a possible scenario should cable TV firms and regional Bells
enter
the home banking market. Should banks surrender that brand-name
identification with their customers in some on-line markets, the fear is
that 
the
loss will snowball and lead toward depository institutions becoming mere
payment-shuffling middlemen. 
 
The desire to retain customers' loyalty has been behind some bankinspired
on-line ventures, such as the Internet bank, Security First Network Bank;
the
five-bank partnership that purchased Meca Software Inc. from H&R Block
Inc. and the announcement in September by 16 banks that they would
process home banking payments in a joint venture with IBM Corp. 
 
With Quicken, banks can promote their logos and brand names, but only
after a customer has intentionally purchased the package from a local
software store or bought a new computer with a copy of Quicken
pre-installed. Soon after a customer starts using the program, she can
establish an on-line connection between the bank and her home computer,
provided her bank has a marketing agreement with Intuit. In the last 18
months, some three dozen banks and thrifts have done so. Another 12,000
or so haven't. 
 
The objection bankers like PNC's Kunz have had is that even after the
on-line connection between the bank and the consumer is in place, the
consumer's electronic sessions still begin with them looking at a Quicken
logo. That has always raised the unwelcome prospect that customers would
show more brand-name loyalty to the software than to the bank, and so
even
some of the banks that have marketing contracts with Intuit are only
promoting Quicken half-heartedly. PNC, for example, makes the software
available only to customers who specifically ask for it, and Mike King,

director of alternative banking for Michigan National Bank in Farmington
Hills, MI, says his institution, despite its signing of a processing
agreement 
last
year, "didn't aggressively promote either" Quicken or Money. 
 
"You go into some banks and you have to practically put a gun to their
head"
to get a copy of Quicken, says Meca's president Paul Harrison. The reason
for that reluctance is that the banks that market Quicken are "clearly
cutting
themselves off from any cross-sell opportunity. You open the Intuit box,
and
you have to fill out the form, and the other side of that is an
application for 
an
Intuit credit card," issued by the Travelers Group's bank unit. 
 
Harrison is a direct competitor to Intuit, so it doesn't hurt him one bit
to 
point
out any disagreements between Intuit and the banks. But his point is also
borne out at the Internet site for the Quicken Financial Network, where
all of
the banks and brokerage firms that process payments through ISC are
listed,
although the listings are presented in a manner that doesn't distinguish
any one
bank from the others. Here too, along with lines for Chase Manhattan,
Citibank and Wells Fargo, there's a line for the Quicken Credit Card from
Travelers Bank and a second line for Travelers Bank. 
 
This credit card isn't all that significant, believes Jim Grant, a senior
vice
president for First Chicago NBD Corp. There are so many card offers from
so many issuers, and Intuit's is just one more. A technology company
could
hijack customers' loyalty, Grant allows, "but I just haven't seen any of
it."
He's felt for some time that the fears about Intuit's motives border on
paranoia. 
 
In the last two years, this issue of branding and positioning seemed to
have
become as much of a sore point for Cook as it has for the bankers who
accused him of hogging the market. Whenever he demonstrated Quicken at a
press briefing or a trade show, he was quick to point out the bank's logo
on
the computer screen. 
 
Cook readily acknowledges that Intuit is still trying to hang on to some
brand
name recognition, but he said that it's something of a false issue to
argue that
the Quicken logo should permanently evaporate once a customer has
selected a given on-line banking option. After all, brand names are
routinely
shared in more familiar markets.
 
"When customers walk into McDonald's, they know they're ordering
Coca-Cola," Cook says. What's so bad about applying the same logic to
on-line marketing? 
 
Cook also pointed out that if banks are hesitant to have direct marketing
relationships with Quicken because there are three dozen other banks
whose
names appear on the software program's menu, then those reluctant banks
are really going to be in for a rude awakening when Internet banking
soars off
the charts. Some 500 banks had Web pages by this fall, and if the market
forecasts are accurate, that number could increase five- or ten-fold in
the
next few years. He feels it's unfair to singled out Quicken for
committing
on-line disintermediation. 
 
Some bankers may never be reconciled to Cook's presence in their
business.
As long as somebody else is selling software to their customers, that
person,
whether it's Gates, Cook or someone else, they are going to be looked
upon
as interlopers who are trying to hog "ownership" of the customer
relationship.
A Matter of Ownership When NationsBank chief executive Hugh McColl
addressed a retail banking conference last December, he said, "I get
calls
every week from representatives of technology companies. They all swear
they don't intend to become banks. But they won't have to. With control
of
the medium, they ultimately gain the chance to own our customer
relationships." 
 

But Cook responds, "Owning the customer? I don't know what that means.
We found out with our ISC strategy, that when you don't allow the
customer
-- in this case our bank customer -- to have a choice, they're unhappy.
What
you want is to have the customer seek you out and want to do business
with
you." 
 
Although Cook seems a little bit wiser now, his prior insistence on banks
processing home banking payments through ISC if they wanted to distribute
Quicken only made it more difficult for him to overcome banks' suspicions
about the company's motives. 
 
"We know we need to play in Intuit's world," says PNC's Kurz. But
"there's
a difference between saying 'Connect to me, and I'll provide you this
service',
and saying, 'If you want to connect to me, you have to go through my
processor.'"
 
Throughout Intuit's history, someone who bought a copy of Quicken could
keep their checking account at any bank, and that's still true. In most
cases,
Quicken's customers print out specially formatted paper checks, which can
be ordered through a depositor's bank or directly from the firms that
provide
printed check stock. In 1990, Intuit formed a relationship with Checkfree
Corp. to sidestep the printing of paper checks and make payments
electronically. But less than 10% of its customers chose this option.
Then in
April 1994, Intuit entered the processing business itself when it
purchased
National Payments Clearinghouse for $ 7.6 million. Intuit wanted to use
NPC
for the background wiring for all of its on-line banking and investing
services,
and it was last year that NPC was rechristened Intuit Services Corp. 
 
But the plans never panned out. Intuit couldn't build the necessary
computer
systems quickly enough -- or well enough -- and more than $ 30 million in
R&D costs went down the drain before Cook and his management team
finally concluded they were wasting their time. Things hit bottom earlier
this
year, when some late and improperly filed payments caused a flurry of
stories
in the consumer press. Intuit finally announced the sale of the operation
to
Checkfree in September, for $ 227 million in stock. 
 
The biggest reason the ISC unit was sold, Cook freely acknowledges, was
bankers' unhappiness about having to go through ISC. Most banks prefer to
select a processor independent of their retail software. 
 
Converting home banking payments from paper to electronic form has been a
tough nut to crack for every entrant in the market, not just Intuit. But
Checkfree has had far more luck at it than anyone else. The company now
processes bills for 800,000 consumers, and it will pick up another
300,000
with ISC. About 40% of Checkfree's payments are completed electronically,
but chairman Peter Kight says the conversion process is time-consuming.
More than 40 employees from the Atlanta company are devoted to
marketing electronic payments to merchants and helping them adapt their
computer systems.
 
Still, as recently as a year ago, things looked bright for Intuit's ISC 
strategy.
Individual Quicken customers could still opt to have their payments
processed through Checkfree, but without a link between their bank and
ISC, these consumers didn't have electronic access to their bank
statements
and couldn't use Quicken to transfer balances among accounts. Since banks
had to join forces with ISC if they wanted to offer a complete service
through
Quicken, it appeared that Intuit could bend them to its will. But it
wasn't
meant to be.
 
With the sale of ISC, Intuit seems to have made a brilliant tactical
retreat. It
has hardly given up promoting its own brands, but it has finally
satisfied banks
that they're not going to be forced into doing business with a firm
that's 
intent
on stealing their customer lists. 

 
"The whole fear of Bill Gates or Scott Cook becoming a bank just went
away," says Frank Han, vice president for strategic planning for the $
28-billion-asset Union Bank of California. 
 
The sale coincided with the launch of a strategy called Open Exchange,
which is blueprint for connecting Quicken's users and banks to the
Internet.
In a way, it's a response to a similar strategy Microsoft announced last
March, called Open Financial Connectivity, and IBM's Integrion home
banking venture. 
 
At the very least, the sale of ISC and the proposal of Open Exchange
indicate a new pragmatism on Cook's part. Not long ago, some banks were
so eager for a link to Quicken that they would accept almost any product
distribution terms. But now does not seem to be a time when a hardball
strategy can work in home banking. Software companies like Intuit need
the
banks, the banks need the processing companies like Checkfree, and
everyone depends on everybody else's cooperation. Moreover, should any
of the players move in on one of the other's turf, they may wind up
losing
more than they gain. Intuit's experience with ISC is proof of that. "This
is a
very complex market," says Checkfree's Kight. "Everybody needs to focus."

 
For software companies like Intuit, that focus is now on gathering up as
many
customers as possible, even if it means giving the software away.
Publishers
like Intuit have discovered they can sell much more software by
distributing
packages directly to PC manufacturers, who then ship the software
programs
with every computer they sell. Unfortunately for the publishers, the
wholesale
revenue from this strategy is barely a fraction of that on copies sold
through
traditional retail outlets. But once these consumers have a copy of
Quicken,
Intuit believes it can sell them its other software. 
 
It's all part of a trend in high-tech markets that Citicorp's chief
technology
officer Colin Crook has called "non-linearity:" forsake the up-front
revenue
on your products now with the anticipation that customers will like what
they
see and pay extra for more valuable products down the road. Crook says
banks are going to have to understand this approach and employ it
themselves if they are to succeed in the on-line world. 
 
Intuit is staking its future on just this sort of non-linear approach. If
Cook
succeeds, he may yet find his detractors on the Motley Fool message
boards
eating their words.