industry observers had left for dead, is showing signs of life. The turnabout is so complete, according to some sources, that Visa International may buy the system. People close to SmartCash - it was formed in August 1995 by 11 major U.S. banks, MasterCard International, Verifone Inc., and the French smart card maker Gemplus - say it has completed development of an operating system and is attracting renewed industry interest. With MasterCard closing in on an acquisition agreement with Mondex, the smart-card-based electronic cash system developed by Natwest Group of London, Visa is said to be looking closely at SmartCash. Visa refused to comment on the speculation, but a spokesman said, "We have been in longstanding discussions with SmartCash since day one." He said Visa has had "a number of discussions with a variety of vendors." But outsiders are freely throwing Visa's name around. It is part of the same flurry of rumors that has American Express Co. taking a hard look at Proton, a smart card system developed by Banksys, the Belgian national payments association. "Visa is interested in SmartCash," said Dan Cunningham, a former Gemplus executive who is senior vice president of Phoenix Planning and Evaluation, a Rockville, Md.-based consulting firm. Though Visa's stored value card system, Visa Cash, has been trumpeted as a viable application of chip technology, "SmartCash is more robust," said a knowledgeable source who requested anonymity. Visa Cash was built on the Danmont operating system, which was designed for Denmark, a tiny market compared to the United States. SmartCash, with a membership nucleus that included the owners of Electronic Payment Services Inc., began last year with much fanfare. But by April this year, executive departures, bickering among the bankers, and the lack of an operating system left an impression of disarray, and the alliance appeared to have dissolved. Electronic Payment Services, owner of the MAC automated teller machine network, quietly stayed the course. Its operating system completed and delivered just two weeks ago, Smart Cash "is the only stored value system developed in the U.S. for the U.S. market," said Donald J. Gleason, president of the Wilmington, Del., company's smart card enterprise. SmartCash founders MasterCard, First Union Corp., NationsBank Corp., and Chase Manhattan Corp. are out. Electronic Payment Services' owners - Banc One Corp., CoreStates Financial Corp., KeyCorp, National City Corp., and PNC Bank Corp. - are still committed. Banc One is "still involved with Smart Cash," said a spokesman. "We want to see it get off the ground and go." "They've got a very viable solution," said David R. Campbell, executive vice president of KeyCorp. "It's a matter of whether enough interest can be generated to put that solution into the marketplace." With chip cards looking increasingly viable, the stakes are getting higher for the bank card associations. Visa made a big publicity splash in Atlanta with a Visa Cash pilot that coincided with the Olympic Games, but the banks are still waiting for proof of a business case. MasterCard did not deliver on the expectations of its cash card experiment in Canberra, Australia. Sources said it was deemed a "disaster" and led to the negotiations with Mondex International, the global consortium put together this year by Natwest Group. Several executives involved in MasterCard's chip card efforts have departed, including Robin Townend, Philip Verdi, and Diane Weatherington, head of the program, who left Oct. 1. Another key technologist, John Tunstall, recently submitted his resignation, sources said. American Express Co. is being paired with the Belgian group that has completed several successful installations in Europe and is supplying the technology for the Exact smart card pilot in Canada. Though many smart card systems are getting under way, especially in "closed systems" such as campuses and athletic venues, creating an open worldwide system is much more complex, involving a more sophisticated approach to security, operating standards, access to automated teller networks, interbank settlement, fraud detection, and other back-office issues. Acquiring a system that has been proven can reduce a system's time to market and could be far less costly for banks and their payment associations, industry experts said. The Mondex system is estimated to have cost $150 million to develop. Many banks are trying out several systems; most in Australia are in Visa Cash, MasterCard Cash, and Mondex in hopes of arriving at the most efficient and cost effective answer. Also critical in developing an open smart card system is "scalability," the power to expand and upgrade the hardware and software as new technological developments occur, without having to reissue cards and terminals. Danmont, the proven system Visa used for Atlanta, is not "designed to migrate," a technology expert said. He said the merchant terminals and smart cards would have to be replaced as heightened security measures are implemented. That would not fly with merchants, who are a hard sell on the concept to begin with. The SmartCash system, which took more than four years to complete, is expressly designed for a changing marketplace, with modular components that can be replaced or upgraded. Mr. Gleason called the effort, which suffered embarrassing delays, "a huge challenge." Trying to recoup the costs by getting the SmartCash coalition back on track is the organization's next task. Though Electronic Payment Services would not comment on membership and future plans, BankAmerica Corp., the big California bank historically aligned with Visa, is said to be in the group. Pilots at member banks' offices could be running in early 1997, said Mr. Cunningham, the consultant. Martha Campbell, a former Bank of America executive, said both the San Francisco giant and Visa were active in SmartCash as of August.

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