[NEWS] Crypto-relevant wire clippings

[Dr.Dimitri Vulis KOTM]

American Banker: Friday, October 11, 1996

Smart Card Venture, Once Written Off, Is Perking Up

By VALERIE BLOCK

SmartCash, a high-profile smart card venture that many 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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Dr.Dimitri Vulis KOTM
Brighton Beach Boardwalk BBS, Forest Hills, N.Y.: +1-718-261-2013, 14.4Kbps