Electronic Payment Services Inc. may have found a graceful way out of its smart card troubles.
Two years after it tried to get an ambitious but ill-fated joint venture called SmartCash off the ground, the bank-owned transaction processing company announced this week that it sold its system to Touch Technology International Inc. of Phoenix.
Electronic Payment Services had set out to influence card technology on a global scale. Instead it lost what knowledgeable sources estimated at $25 million.
In a deal that could save face and money, Electronic Payment Services' owners-Banc One Corp., CoreStates Financial Corp., KeyCorp, National City Corp., and PNC Bank Corp.-have jointly taken a minority interest in Touch Technology Inc.
The buyer, known as TTI, obtained property rights to technology, including seven patents, that it helped develop while under contract to EPS over the last four years.
EPS, the Delaware company better known for operating the MAC automated teller network, said the transaction did not require bank regulatory approval. Financial terms were not disclosed.
William C. Hussey, chairman and chief executive officer of TTI, said the transfer will enable his smart card development company to break out of closed systems-those serving limited communities like universities or office parks.
The EPS technology is a bridge from "the world of closed systems today to the open systems of tomorrow," Mr. Hussey said, and hence to the "next generation of cards, terminals, and applications" in which cards would be used as freely and conveniently as cash while holding in their computer chips relevant information about cardholders and their accounts.
Insiders and outside observers saw the acquisition as logical for both parties, with potential mutual benefits.
Richard N. Garman, president and chief executive officer of EPS, said, "Through the development of this smart card technology we realized that ... we would only be able to apply this technology to the acquirer side of stored transactions"-the processing of payments for merchants.
"The stored-value card system that TTI developed for us is very comprehensive (and) we plan to drive terminals that will support this issuer-based technology as the market evolves," Mr. Garman said in a prepared statement.
Bruce Luecke, general manager of interactive services at Banc One in Columbus, Ohio, said with smart cards still in their infancy, "it didn't make sense for EPS to be a developer ... EPS is a processor."
Smart cards were a gleam in the eye of the MAC organization before the formation of EPS in 1992, when it was still a division of Philadelphia- based CoreStates.
Building upon early testing by CoreStates, EPS created a "smart card enterprise" in 1993. The company anticipated using the MAC brand as a springboard and had laid the groundwork-including extensive and highly encouraging market research-for a sizable market trial in Delaware. But the attempt to create an open system ran into repeated delays and mounting costs, and led to pressure from the owners for a resolution.
Former EPS official James F. Russell, president of Russell Technologies Associates of Hockessin, Del., said, "They tried to make a very complex system instead of starting simple and learning how to do it." The resulting product was "a very complex yet secure system."
Unlike in 1993, he said, "Now there is more middleware on the market" that could smooth out the technological rough edges among card issuers, merchants, and their banks, and ease implementation.
EPS was the driving force behind SmartCash, a consortium of 11 banks and other technology companies that came together in August 1995 to promote chip cards and share development costs. But that effort unraveled along with the plans for the initial pilot test.
EPS went back to the drawing board, abandoned further development, and in January this year shelved the project when service contracts with TTI expired. By that time, the Delaware company had decided not to renew the contract of Donald J. Gleason, president of the smart card enterprise. Mr. Gleason joined TTI March 1 as executive vice president of strategic initiatives.
Dan A. Cunningham, senior vice president of Phoenix Planning and Evaluation Ltd., a Rockville, Md., consulting firm, said TTI is "a force to be reckoned with." He said the big question is, "Will this now rise like a phoenix" and compete against the Visa Cash, Mondex, and Proton systems?
