Nebraska-based SmartPay Processing Inc. had the earmarks of a successful start-up in home banking: a solid system, banks under contract, and marketing links with regional electronic banking networks.

But now the telephone bill payment venture is on the skids, and its troubles are sending a cautionary message to other small companies hoping to play in the high-stakes game of interactive banking.

SmartPay notified its customers last month that it was discontinuing its service.

SmartPay, whose headquarters are in Bellevue, is believed to have been in financial difficulty for months. According to one former executive, it was losing as much as $400,000 per month.

Current executives of the company did not return phone calls.

Lack of capital, insufficient volume, extreme underpricing, and overestimating the potential market caused the difficulty, sources said.

"These services aren't as widespread or in demand as assumed," said an executive of a small bank that had signed on with SmartPay but had not set up a service.

The banker said he does not feel pressed to offer bill payment services, in view of limited consumer demand. Larger banks in his area are not offering them, he noted.

SmartPay reportedly had signed nearly 50 banks for its telephone service and had done some testing for a similar PC-based service.

Norwest Corp., a bank that offered that service, had only a "small group of accounts" on it, said spokeswoman Linda Engelkes. These accounts are being moved onto another service, which she declined to identify.

Executives from two other processors said SmartPay had underpriced its competitors by as much as 20%. The company focused on marketing the service and had little capital left over to keep it going.

"I think a lot of people thought SmartPay's ability to sustain itself was greater than it was," said Tom Bennion, chief executive and president of Southeast Switch Inc., the Maitland, Fla.-based parent of the Honor automated teller network.

Honor had planned to designate SmartPay as a "certified processor" for home banking.

"It's going to be difficult for (small processors) as the larger players gain volume and scale," said David Lind, chief operating officer of Michigan-based Magic Line Inc., a network that had an agreement with SmartPay.

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