While bankers and others struggle to find the winning proposition for smart cards, Mordechai E. Teicher theorizes.

Mr. Teicher, an Israeli card technology entrepreneur, faces more than his share of business challenges. But of his theories he could not be more sure.

In peeling back the publicized results of chip card trials the world over, Mr. Teicher sees a lot of disappointment, faulty thinking, and wasted energy.

Just a few examples:

Marketers, as is their wont, concentrate on generating consumer acceptance. "Consumer acceptance is necessary but not sufficient for the business case," Mr. Teicher contended in a recent interview.

One school of thought, intent on minimizing risk, calls for central auditability of transactions along the lines of today's credit and debit networks. Mr. Teicher sides with the off-line advocates, which on this specific point include MasterCard International's Mondex program. "Why have full accountability?" he asked. "It does not prevent fraud."

"The most counterproductive notion in promoting stored-value applications so far has been ... that consumers want electronic cash," Mr. Teicher wrote in a white paper spelling out his views, here tweaking Mondex, Visa International, and anyone else trying to get into the game. "In reality, consumers have no interest in adopting a new electronic cash card that carries on the major deficiencies of the cash they are used to carrying, with none of the benefits they have come to expect from cards."

He believes chip promoters misfired by focusing first on limited-purpose throwaway items such as prepaid phone cards, and he considers security the industry's Achilles' heel.

These arguments, which Mr. Teicher has honed over a year of pounding the chip card industry's virtual pavements, are meant to call attention to the approach he is trying to sell in his role as director of Ultimus Ltd., based in Kfar Saba, Israel.

But it is with the underlying philosophy that Mr. Teicher really hopes to strike nerves. With it, he has been careful to avoid being characterized as a mere gadfly.

Quite the contrary, he has designed his scheme to piggyback on-rather than attack or displace-the existing MasterCard and Visa infrastructures.

The Ultimus Solution, as he labels it, revolves around a "minimum charge," $25. Transactions above that amount would be cleared and settled via existing on- or off-line debit and credit channels.

Smaller amounts would be stored as electronic cash in the chip of the card. If the chip held $10 and the transaction amount were $8, the $8 would be paid directly, without central accountability, in the form of digital cash.

If the payment due were $15-exceeding the stored $10 but below the minimum charge of $25-the merchant would collect $25 through the clearing system and return the difference, as change, to the card.

These electronic change amounts would continue to circulate on small transactions as a "lubricant" to the system. Ultimus has calculated that $25 million of electronic cash-a million cards each initially loaded with $25-would be sufficient to support $2.5 billion of retail revenues.

The relatively nominal electronic cash amount theoretically would contain risks and would not complicate the management of monetary policy- and the reliance on existing infrastructure reduces the need for an extensive network of cash-reloading machines.

Ultimus believes it has addressed security needs both actively-including cryptographic methods-and with passive techniques embedded in "statistical traps" and in the accounting of the electronic change purses.

"It does not have to take 30 years" to implement a widely accepted electronic money system, Mr. Teicher said.

"We have a customer base; it is educated. We have an acceptable fee schedule-but the system has to be an extension, not a new animal.

"If we reinvent, we have inherent problems, and the central banks are worried about privately issued money in circulation."

Mr. Teicher has gotten no indications that the two bank card associations have any interest in adopting or endorsing his idea, but outsiders find reasons to be intrigued.

Michael J. Shade, head of Centum Consultancy, Verifone Inc.'s smart card specialty arm, said Ultimus' biggest obstacle is the "sheer momentum and commitments now being put behind major schemes such as Mondex."

"It's hard to turn the snowball once it starts downhill," Mr. Shade said, "but if the right 'major player' could become convinced that their approach had a compelling value proposition, anything is possible."

Thomas H. Sak, another Centum principal, said Ultimus "does enhance the value proposition of electronic currency to the cardholder-so long as the cardholder has a credit line or sufficient funds in a linked debit account."

That linkage, Mr. Sak said, reduces the system's anonymity, and anonymity is a selling point when trying to replicate the characteristics of physical cash in electronic form.

He also questioned whether Ultimus would win easy acceptance from merchants who might see low-cost cash payments being converted to more expensive "extended credit" transactions.

Mr. Sak and others have pointed out that Ultimus is not the first to consider the idea of preset cash loads and the pooling of microtransaction values as a circulating "lubricant."

But for the most part, the card industry has put its marketing muscle behind a different approach to stored value, leaving Ultimus and others like it fighting an uphill battle.

"There are a lot of advantages to being big," Mr. Teicher said. "One advantage to our small size is innovation. Large companies have no advantage in coming up with a better idea."

He said Ultimus has been in discussions "with major financial institutions in Europe and with major technology providers. We are looking at collaboration, not competition, because that may be the only practical way for us as a small company."

Ultimus has both brain power and intellectual property-patents-and is "committed to further innovations to build on our base."

Mr. Teicher said the first of a coming series of new ideas is a "white reloadable card" for the unbanked population.

It could hold both "coins," totaling up to $24.99, and "bills," totaling $250.

With the larger amounts at stake and no recourse to bank accounts, the electronic bill transactions would be processed centrally with full auditability.

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