Breaking a long silence about its smart card strategy, Visa vowed Tuesday to mount a serious competitive challenge to the technology that underlies MasterCard's Mondex system.

Visa said it will take an approach based on Java, the increasingly popular Internet computing language, which it views as more flexible and adaptable than the Mondex operating system.

"The price goes down and the flexibility goes up," said Visa International group executive vice president Francois Dutray, aiming at Mondex's jugular.

One of the big reasons for Mondex's appeal, its backers say, is that value can change hands electronically at virtually no cost, comparable to conventional cash transactions.

The organizations are also likely to spar over branding: Mondex is establishing a strong brand name designed to stand for electronic cash anywhere in the world. Visa describes itself as an "acceptance brand" that leaves banks' names more prominent in the services they build into cards with computer chips.

Supporting Visa's technology move are several weighty allies, including International Business Machines Corp., Sun Microsystems Inc.'s JavaSoft unit, Verifone Inc., and the card and chip manufacturers Gemplus, Philips, Schlumberger, and Siemens.

The San Francisco-based bank card association is thus trying to steal the technology initiative that MasterCard gained with its recent purchase of 51% of Mondex International, the outgrowth of a research and development effort begun seven years ago at National Westminster Bank in the United Kingdom.

Mr. Dutray did not accept that Mondex has established a lasting competitive advantage. The technology strategy aside, he said, Visa's smart card team has been intact for years, not suffering from the change and uncertainty that MasterCard's involvement brought to Mondex.

The Visa team, meanwhile, confounded industry speculation that they would try to catch up to MasterCard-Mondex through an acquisition, perhaps of the dormant SmartCash system from Electronic Payment Services Inc., Wilmington, Del.

In fact, Mr. Dutray said Visa started two years ago down the strategic path that led to Tuesday's announcement. Within the last year, as Sun Microsystems increased the marketing momentum behind Java in hopes of making it a de facto programming standard for networks and computing devices of all kinds, Visa began working intensively with its vendor-allies on what it calls a "migration strategy" for chip cards.

The idea is that each bank can go as far and as fast as it wants, incorporating chip technology into anything from core credit and debit products to simple stored-value cash services to the cross-industry, multi- application systems that many strategists view as the holy grail.

Given this framework, the U.S. market's slow adoption of chip cards can coexist with more aggressive schedules in Europe, Asia, and the developing world, where demand may come faster for electronic cash, or where banks see more need for the security chips afford or for their ability to complete transactions without requiring on-line authorizations.

Visa International officials suggested that institutions choosing Mondex are locking themselves into a technology that, despite endorsements from many significant banks and favorable test results, is already outmoded by the flexibility and "openness" built into Java.

Mr. Dutray said Mondex's proprietary language and operating system are "not in the best interest of members."

For example, he said, a major Mondex upgrade might require new chips, and hence an expensive reissuance of cards. Java-based software, which is inexpensive and widely available, permits programs to be rewritten almost on the fly and distributed quickly over networks.

"This is not a product or a card," Mr. Dutray said of Visa's approach, which it calls the "partner program" to emphasize the decision-making and control banks will exercise. "It is a whole payment system allowing a migration at the pace that members decide is right."

Industry experts said there may be less to this conflict than meets the eye. Openness and "interoperability" are Mondex watchwords. Even before the deal with MasterCard, Mondex had agreed with the principles of EMV-the smart card compatibility standard initiated by Europay, MasterCard, and Visa.

What's more, vendors working on the Visa-Java strategy also have worked with MasterCard and/or Mondex. Verifone, for one, would want to accommodate all payment types in its electronic wallet for consumers as well as in bank and merchant processing systems.

Dan Cunningham, the former head of the U.S. subsidiary of France-based Gemplus, said Mondex and the Visa partner program "sound similar." Java can be viewed as "a different implementation. Java is a higher-level language than what is usually used."

Mr. Cunningham, now an executive with Phoenix Planning and Evaluation of Rockville, Md., pointed out that Mondex has proven flexible enough that it can be modified for national and regional preferences and regulatory structures.

In a speech just last week to an Electronic Funds Transfer Association meeting, Mondex USA president Janet Crane said, "We are an open system. Everybody can participate. ... We will talk to anybody." Mondex wants to be "the platform" the way magnetic stripes became the current generation's card-encoding standard, she said, providing a technological foundation for inter-institution competition.

But Visa does not want to allow that to happen.

Visa International president Edmund Jensen said the partner program reflects Visa's role as an "enabler" and "doesn't force anything down people's throats." He said "it is imperative that we converge on common platforms" like the open architecture Visa proposes.

"The members design their own products and functions, and we are just the enabler," said Mr. Dutray. "They have total control of the final product they offer customers. They can add a loan application, or structure the product any way they want. They can differentiate among themselves and deliver the appropriate card to the appropriate segment-getting down almost to a segment of one."

Visa gave the first public hints about its Java direction last October when it signed on to Sun Microsystems' Java Card API (application programming interface), a specification designed to encourage open standards for smart cards in conjunction with other computing devices. Visa also joined Gemplus and Schlumberger in the Java Card Forum, which they organized in February to promote standardization.

Gemplus and Schlumberger "came together to drive standards," Mr. Cunningham said. "Their cooperation underscores the fact that the industry still needs a lot of standardization to get to the next level."

Visa said elements of its approach are immediately available for the smart card test it is conducting in 13 countries. More advanced elements, including Java card specifications and reference code, are due in the fourth quarter.

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