ou've got a great idea and a willing colleague, but the company you're working with to develop that idea goes under. Do you give up? Lou Struett and Thomas McGeary sure didn't. When they wanted to implement magnetic technology into the payment-processing industry in 1972, they founded MagTek, Inc.

"We surveyed technology that was out there or in infancy," says Struett, Executive Vice President of MagTek. (McGeary is the company's President.) "While mag stripe had been around since 1965, it was really only being used for rapid transit. Then in 1969, ATMs were introduced, and that was the first use of mag stripe cards in the industry. They were a novelty in those days with just a few leading banks trying them." Around that time, Struett and McGeary joined a company with significant venture capital hoping to help them capitalize on magnetic stripe technology. Within a couple of years, that organization called it quits, but Struett and McGeary vowed to continue with their vision.

"Here we were, unemployed in April of that year," Struett says. "It was either go back to a large company or start our own. We had learned in two years a lot of technology and believed in it. We approached it from a philosophy of making money from the get go, scaling the operation to fit what the market was.

"The other company was unfortunate in that, in order to attract venture capital, they had to present a business plan with 'x' amount of dollars in 'x' years. Realistically, we knew the market wasn't there, so we started extremely small - myself, Tom and two engineers, one of who is still with us. We set out to pursue what little business there was and built upon it."

Thirty years later, that small entity has evolved to 300 employees and has become one of the world's leading providers of electronic transaction technology. From magnetic stripe card readers and writers to MICR check readers and imaging equipment, secure PIN issuance and cardholder verification systems, MagTek's products and components are in use today at branch banks and thousands of point-of-sale locations around the world. They're also incorporated into kiosks and ATMs as well as restaurant and hospitality equipment.

Ever-evolving, MagTek continues to provide a broad range of card-reading, check-reading, card-issuing and cardholder-verification solutions through developments in imaging both magnetic stripe and smart card technologies. It is committed to expanding its product capabilities through new applications of those technologies.

"We have had the pleasure of growing up as our industry has grown," Struett says. "When we started building a couple of hundred readers for ATMs in 1972, there were no POS terminals then. Today, we make millions of readers for POS terminals.

"Our philosophy is to be the leader in technology. We have ventured a bit afield because customers say the fact that you read my credit card is great, but I do 70% of my business with a check. We realized reading checks is magnetic technology as well. We want to be the leader in technology in terms of making the best reader for all applications."

According to Struett, that involves understanding the physics of technology and building the best reader. The next step involves being the lowest-cost provider with the best technology.

"You can have great technology, but you also need to produce it at the lowest cost at the end of the day," Struett says. "We have competitors, two U.S. companies and three or four in Japan, a few Taiwanese and Korean as well.

"We approach the competition by having the better product and really emphasizing the technology. There are times when we say to a customer, 'If you are purely buying price, you may be better off buying a competitor's.' There are some manufacturers that, for whatever reason, their price is paramount. Their attitude is that the chip is important but the magstripe is not important, so they don't need to read it well. Our core is magnetic stripe reading."

MagTek's commitment to that core competency has resulted in a hot new product that will hit the market soon. It incorporates a new read circuit that MagTek promises will significantly simplify and reduce the cost of readers.

"Currently we read three tracks, one read circuit per track," Struett says. "We've built a simple read circuit that contains three tracks of reading in one ASIC. We believe this is going to greatly reduce the amount of circuitry required to read a card."

Already in place in the field is MagTek's check-imaging reader, and Struett sees a huge opportunity for MagTek to increase that area of business in the near future.

"We have a very large installed base of MICR readers," Struett says. "There is no question about check conversion, but conversion without imaging is dangerous. In the short term, you can take our existing check reader and get the economic benefits of check conversion without capital investment, but as soon as you get returned checks, there's a need for capital investment for imaging. Over the next few years, this is definitely going to happen. Imaging will be a necessity."

Another area of future advancement, in MagTek's view, is smart cards, and the company already is deeply involved with developing that technology.

"No one is really buying it yet in the U.S., but they are rolling it out at a rapid rate in Europe," Struett says. "We make a hybrid reader that does both magnetic and smart cards. We intend to be a significant player in providing both since both are going to exist longer than I like to think about, unless I live to 130."

MagTek's target market is universal, especially because it makes a reader that is incorporated into millions of dialup POS terminals across the board. MagTek boasts 25 million terminals employing its technology.

"That's a particular target market where you don't see our name," Struett says. "We would love to do an 'Intel' type of label saying 'MagTek' inside. A big segment of our business is inside. We're also inside thousands of hotel door locks."

Will all those millions of merchants take the plunge and invest in MagTek's new terminal technology? Absolutely, Struett says.

"Say a merchant has spent $300 for his original terminal. He'll spend that again for a new terminal, and he'll do it for two reasons," Struett says. "One is the age of the terminal if it's 10 years old. The other will have to occur with an incentive such as achieving economic benefits with, say, check conversion and smart card.

"The U.S. market will need an incentive for smart card, like what happened in the U.K. a year ago. There wasn't a great acceptance then. Merchants were up in arms about buying new terminals, especially since they were spending the money and the banks were getting the benefits.

"Then the banks put out a new policy that, starting in 2005, any losses or fraud would go to the retailer if they didn't have smart card capability. Now those U.K. merchants are lining up to buy smart card terminals."

While Struett admits it is different in America, particularly because the U.S. has thousands of banks compared to just a few in the U.K., he believes that if U.K. fraudsters relocate to American shores and fraud here accelerates, smart card solutions might be accepted that much more quickly. He admits there isn't a strong business case for smart cards yet, but he is hopeful.

In the meantime, MagTek stays focused on providing quality service with its solutions.

The company ships same-day orders, producing and warehousing its inventory in California. In fact, MagTek considers its quick turnaround one of its strongest features.

Another strong service is its quick and efficient in-house repair and refurbishment department. "We range from 24 hours to three to five days, depending on the pricing of level of service," Struett says. "For a big retailer with 50 lanes, getting same-day service isn't critical. For the mom-and-pop store that has one or two, it is. There are also a lot of independents that repair our products as well."

MagTek also has a direct sales force but doesn't see any conflict of interest with the ISO community. "We focus on the big retailers and prefer the ISO channel for small to midsize retailers," Struett says. "They are our feet on the street, and it works well."

MagTek also provides quality customer support in the form of a 24/7 live-voice call center that guarantees a solution to any problem. For ISO dedicated support, MagTek has a strategy just as specialized.

"We have our local salespeople in their particular area develop ISOs in their territories," Struett says. "We've convinced them that developing ISO relationships increases their personal share. Our approach is dual, both direct and independent accounts, and our sales force is very happy to work with them."

Struett continues, "We like to think we can work with everybody. We're not exclusive, and our goals are not to compete with our customers. We want to be good at what we do, and that is to make product and sell it to as many as are out there in the market. Of our 300 employees, we have 50 out in the field and 50 in product development alone. That is our strong suit, to stay ahead of the curve. We invest in that like some invest in other areas."

Because of MagTek's commitment to its investments, it seeks partners who share its vision.

"We look for reasonable forecast in our partners, and that's our biggest problem," Struett says. "We do look for more established, more long-term players. In our 30 years, there have been a lot of companies that have come and gone. We try to work with people that are for real. We've seen a lot of people take a shot at this industry and are gone in a year or two.

"We want to work with ISOs that have been in business for a number of years and have good references. We will be conservative. We would rather not take a risk."

MagTek is also aware of the risks of the current economy. "Sometimes I wonder whether being bigger is better," Struett says. "We are suffering like everyone else from the general slowdown of the economy. But we are still proud of the industry. Thanks to Visa and MasterCard and the magnetic stripe, we've created the only global currency. It's quite an accomplishment to travel anywhere in the world and know your card is going to work."

Struett predicts the biggest challenge to the future of the industry will be new technology acceptance, such as smart card.

"It's been overpromoted in some respects," Struett says. "I believe smart card is today what mag stripe was years ago. When it first started years ago, ATMs used mag stripe but with different types of technology. Then standards were produced and mag stripes became what they are today - efficient and productive.

"It's a similar situation with smart cards. The technology needs to be standardized. The worst thing that could happen to any company is a big investment in equipment that will be obsolete in a relatively short period of time. That would be a disaster."

For check imaging, Struett sees more widespread acceptance except for one area. "I don't understand why banks don't want to participate with retailers," Struett says. "There is no reason why the image shouldn't go to the bank. The banks are not participating right now, and they need to be involved right now to where the retailers pass them the image. Conversion will happen and the banks will wake up too late. They will have missed it."

Struett predicts the future of the industry is check imaging and smart cards.

"I can't see it not happening, and gradually over the next 10 years smart cards will happen as well," Struett says. "MagTek is strongly positioned to meet this wave. Mag stripe will still be there with check conversion and the combination of hybrid smart card and mag stripe.

"We're well positioned, but if the credit card goes away and we start using mobile phones ... we're in trouble!"