Not all cloud-based wallets are created equal. The vast majority of solutions in the market are attempting to eliminate payment cards altogether, although few have gained any significant adoption.

Today, Los Angeles startup Wallaby Financial closed a $1.1 million seed financing round to deliver a much different solution. The company offers a single Visa-branded smart credit card that replaces and optimizes the use of all credit cards currently within a user’s wallet. Wallaby’s interim goal then, is not to eliminate the physical wallet or payment card, but rather to use technology to optimize their use.

“With so many cards available for consumers, it can be a challenge for them to use the right one to maximize their rewards,” says co-founder and CEO Matthew Goldman. “Our intelligent system is able to select the correct card so the user collects the rewards that matter most to them without any hassle at the point of sale.”

Wallaby directs spending on the Wallaby card in real time, based on preferences set by each individual user, to maximize savings and rewards, or based on transaction type, location, and time. Allowing for ultimate flexibility, users have the option to process transactions based on these predetermined rules or soon to manually over these rules temporarily using the company’s mobile app.

Two months after launching out of Santa Monica accelerator MuckerLab, Wallaby has attracted considerable interest from users. The company, which is still technically in public beta, signed up its first 1,000 users in a matter of days and has a waiting list several thousand users long, which it’s slowly moving through the onboarding process. Goldman predicts that it will take through early 2013 before the company is able to add all of these waiting users and truly open its floodgates.

“It’s both a good and bad problem to have,” he says. “That said, it’s more important to us at this stage to make sure our users have a fantastic experience than anything else.”

Although the service was free for life for the first 1,000 users, and for a year for the first 5,000, subsequent users will pay an annual fee currently set at $50. This fee will be in addition to any already associated with a user’s existing cards, because while the Wallaby card is issued by a partner bank, it does not represent a new line of credit. The early adoption seems to indicate that this fee is palatable to those tech savvy users with pockets full of credit cards, but it may ultimately prove to be a growth deterrent once the company moves to the next concentric circle of target users.

Goldman got the idea for the product when fueling up his car and seeing an ad on the pump after completing his purchase that said he would have gotten 5 percent cash back had he used a different card — one that he happened to have in his wallet but had not used. Goldman is certainly not alone in his frustration, given that most American adults have more than three credit cards.

Since launching in June, Wallaby made a key addition to its team, adding CTO and co-founder Todd Zino. Zino, who was formerly a lead systems engineer at Adobe Systems, seems to nicely complement Goldman’s background as a director at reloadable prepaid debit card company Green Dot.

The company’s latest funding round was led by Founders Fund Angel and WI Harper Group with participation from SLP Ventures, Lion Wells Capital, and additional angel investors. With Founder’s Fund, Wallaby gains access to the brain trust and related network behind online payments behemoth PayPal. The company views WI Harper as an equally strategic partner, given its relationships and experience in Asia and the enormous opportunity to expand the smart credit card service internationally.

The road to mass adoption in the cloud wallet is one of the most competitive around. Wallaby will have to contend with solutions from existing credit card and banking giants, as well as mobile telecom companies, mobile OS platforms, and other more established online payment companies.

It seems highly probable that physical payment cards will one day go the way of the Dodo, but that day is not here yet. One advantage working in Wallaby’s favor in the near term is its ability to rely on existing payment infrastructure. While many of the most anticipated competing solutions are stalled by the limited adoption of NFC (near field communication) payment terminals, Wallaby allows users to pay as they would with a normal Visa card. Goldman’s company is based on the bet that it can reach scale and profitability long before this ceases to be an advantage.

PayPal, on the other hand, lets consumers make in-store payments with their cell phone number and a PIN. Square has a similar approach using a GPS integrated mobile app to allow users to pay simply by saying their name at checkout. Perhaps the most futuristic of all is the iPhone case-based Geode mobile wallet, which dynamically reprograms a physical payment card and also incorporates a smart barcode reader for loyalty card management.

At the end of the day, novelty can only carry a payments company so far. The ultimate bar is that of adding simplicity and convenience to the payment experience and doing so to a wide enough audience to make it profitable for the company. Wallaby has some good ideas in this regard and seems to be taking small steps in the right direction, but has a long and competitive road ahead.