e've all heard of smart cards. How many of us really understand what they are? Further, how many ISOs and merchant level salespeople (MLSs) are able to educate merchants about what smart cards are and more importantly, how they can help merchants increase their sales and revenues?

Simply stated, smart cards are cards that contain a computer chip. The chip allows the cards to store more information than the more traditional mag stripe cards. They are "smart" because the computer chips enable the cards to run applications, just as a computer does.

And, like a computer, software applications can be added or deleted at a later date, by using a smart card reader. The cards have multiple levels of sophistication and can be as simple or involved as desired. For example, they can serve as ID cards, payment devices or loyalty cards.

Many smart cards are also contactless cards. That is, they can be used by simply tapping or waving them near a card reader rather than swiping them through or inserting them into a card reader. Since they don't need to be a certain size to fit a reader, they can come in a variety of forms, such as key fobs.

Contactless cards are gaining popularity because they enable transactions and processes to occur faster and more conveniently than swiped transactions, or even cash. For example, according to CVS/pharmacy, merchants saw a 20% increase in average ticket size and a 19-second decrease in transaction time when contactless products were used instead of cash.

ISOs and MLSs know that merchants are interested in any and all solutions that can increase sales while reducing transaction time. And consumers are ready; they have the cards, they just don't have many places in the United States to use them. In fact, last year more than 10 million payment cards in the United States were equipped with smart card technology.

OTI can help ISOs and MLSs bring their merchants a product that can gain access to these consumers. The company designs, develops and markets contactless microprocessor-based smart card technology. In other words, it creates the technology that makes contactless smart cards possible.

OTI has developed applications for payments, mass transit, parking, loyalty programs, petroleum payment systems, homeland security solutions, electronic passports and IDs. The company researches and develops all steps of the process, including smart cards, readers, software and communications technology.

An integral player

While contactless smart card technology may be a new concept to some, it has been around for decades, and OTI has been a part of the contactless payments market since its inception. "This is not a new technology, at least not for OTI," said Ohad Bashan, President and Chief Executive Officer of OTI America. "We have experience with deploying for more than 10 years."

OTI focuses on three markets: petroleum payment solutions, micropayments solutions for small ticket items, including loyalty programs, and SmartID solutions for identification. Established in 1990, the company has 680 employees in North America, Europe, Africa and Asia. Its revenues for 2004 were $23.2 million. OTI's U.S. office, OTI America Inc., opened in 1998 and this past year marked its first contactless payments rollout in the United States. Also last year, the company was honored with the Frost & Sullivan 2005 Company of the Year Award in the field of smart cards. "Things are going well," Bashan said. "We are excited to be supporting such a tremendous application."

Valuable partnerships

OTI works with some very familiar names in the payments industry to help bring its technology to merchants. Bashan said that OTI is the only company currently supplying reader solutions to both MasterCard International and Visa U.S.A. For example, OTI has been working closely with MasterCard on the PayPass contactless payments program. "We worked with MasterCard for more than four years to bring and develop the product to market," Bashan said.

OTI has also been working with Ingenico and Hypercom Corp., and OTI's contactless readers have been integrated into those manufacturers' terminals. Additionally, OTI's contactless reader solution is now approved by MasterCard, Visa and American Express Co. "It's a win-win-win for all stakeholders: issuers, financial institutions and consumers are benefiting from the new technology," Bashan said.

A choice to upgrade or replace

A significant benefit of OTI's solutions is that they allow terminal owners to either upgrade their existing equipment to accept contactless cards, or purchase new equipment with the technology already on board. The company's Saturn product line features a plug-and-play device that can transform a terminal into a smart card reader.

"OTI contactless readers offer a cost-effective, quick way to upgrade your POS to accept contactless payments," Bashan said. This flexibility means merchants do not have to invest significantly to realize the benefits of increased sales, increased efficiency and serving customers better. "With MasterCard and Visa behind the program and merchants like 7-Eleven, CVS, Duane Reade, Wawa, McDonald's and more already on board, this is a great source of revenues for merchants," he said.

A three-tiered sales channel

Processors, acquirers, POS manufacturers and others resell OTI's products and technologies, and OTI licenses and sells its products and technologies through three channels: channel partners, system integrators and service providers. The compensation for each channel varies depending on the products, quantities and specifics of the arrangement, but Bashan said OTI "can walk through the scenarios available" with all interested parties.

Channel partners are equipment manufacturers and other companies that incorporate OTI's technology in their solutions. System integrators incorporate OTI's components and off-the-shelf systems into their own offerings. Some system integrators also market and distribute OTI's products.

Finally, service providers purchase OTI's off-the-shelf systems and customized projects directly and may resell them to merchants or other end users. While an ISO or MLS can fall into any one of the three channels, service provider is the one most likely.

Solutions benefiting ISOs

As mentioned earlier, contactless payments can increase ticket averages while improving efficiency, which means increased sales for merchants and increased residuals for ISOs and MLSs. But, by offering OTI solutions, ISOs and MLSs can also create add-on sales and reach new markets.

"Our solutions offer an opportunity to increase revenues from existing customers, as the ISO can offer additional products," Bashan said. "They provide consumers with a better experience at the cash register. Merchants will most likely experience an upside in sales and average purchases. They also provide an opportunity to reach a different market."

Additionally, OTI's solutions can continually be updated and customized to meet a merchant's changing needs.The company also has plans to create programs to generate recurring revenues. "We currently derive most of our revenues from one-time payments for our products and technologies," Bashan said. "We intend to generate additional revenues by receiving service fees for ongoing customer services and technical support and transaction fees from our customers, based on the volume of transactions effected in systems that contain our products."

Growth by expanding and strengthening customer base

As far as the future, OTI is well positioned for further success. The company's goals include expanding its global market presence by growing its customer base in its current markets. "We plan to continue to lead by enhancing our manufacturing, sales, marketing and research and development capabilities," Bashan said. "In this way, we plan to expand our product offerings and provide more comprehensive service to our customers."

OTI also offers merchants the ability to add new applications to its smart cards, thereby expanding the number of industries in which its products are used.

"We plan to generate additional revenues through the sale of products required to add and operate these applications," Bashan said. ISOs, MLSs, equipment manufacturers and acquirers can all work with OTI to increase their own bottom line. "We offer a competitively priced product, a flexible design, and we always make sure we offer complementary solutions to ISO product portfolios," he said. "Contactless payments are happening in the U.S. today, and we see tremendous potential."