Hungry Manufacturers Await the Smart Card Explosion

FORT LEE, N.J. (AP) -- A hungry office worker pays for his burrito in a downtown Manhattan restaurant by waving a plastic card over an electronic reader.

Palestinians do the same to get security clearance as they cross the Israeli border on their way to work.

So do clinic receptionists in Alabama, to pull up the medical history of a patient arriving to see a doctor.

The cards were developed by an Israeli company with U.S. headquarters in Fort Lee -- On Track Innovations Ltd., or OTI. It hopes they will one day become as common as cash.

The ''contactless smart card'' most often resembles a credit card but holds more information because it's embedded with a microchip instead of a magnetic strip. The card doesn't need to be swiped -- merely passed near a wireless electronic sensor that swiftly reads the information.

Like a credit card, however, the card can be hooked up to a database and used for many tasks, such as credit or debit payment systems and ID background checks.

OTI -- one of at least half a dozen developers and manufacturers of smart cards -- believes the speed, flexibility and convenience of the technology offer a timely solution to the growing demand for faster consumer transactions and greater security.

''It's the next wave of payment and security applications in the U.S. and around the world,'' said Ohad Bashan, president and CEO of the company's U.S. arm, OTI America. And those enticed by the idea include the U.S., Israeli and Chinese governments and several major American financial services companies.

The U.S. State Department is mulling eight bids -- among them one by OTI -- to develop a chip that can be embedded in a passport to help stop document fraud. The chip probably would contain the same personal data found in the passport, and the holder's photo, said Kelly Shannon, a spokeswoman for the State Department's Bureau of Consular Affairs. When a traveler seeks to enter the country, she said, ''the passport is read, the digital image pops up on screen'' and it's biometrically compared to a photo taken of the traveler.

''If they don't match,'' Shannon added, ''then that could be a flag that the person traveling on the passport isn't the person to whom it was issued.''

About three weeks ago, J.P. Morgan Chase launched contactless credit cards called ''blink.'' MasterCard introduced its own version, called ''PayPass,'' last year. And on June 6, American Express announced it would begin issuing a blue contactless card that uses its ExpressPay credit card technology.

Both MasterCard and J.P. Morgan use cards and readers developed by OTI, among others; American Express uses OTI's reader, but not their card.

Randy Vanderhoof, executive director of the Smart Card Alliance, a trade group of card developers and manufacturers, said the financial institutions hope the ease of contactless cards will get them accepted in locations where credit cards have traditionally been shunned as too slow.

The small but growing number of merchants accepting contactless cards include some McDonalds restaurants, Sheetz convenience stores, Ritz Camera centers, 7-Elevens, CVS drug stores and movie theaters owned by Regal Entertainment Group.

''Our customers need speed,'' said Scott Rau, senior vice president for J.P. Morgan. ''Quick service restaurants, movie theaters, drug stores _ those are the places where we expect customers to get the best benefit.''

The OTI story began in 1990 in Rosh Pina, Israel, the company's world headquarters. Founder and current CEO and chairman, Oded Bashan -- Ohad's father -- had worked with a simple, early version of the technology as CEO of another company, but started OTI to explore the potential of the idea.

Today, the company has a German manufacturing plant, a Polish software development facility, a South African sales office and 236 employees, most of them in Israel and Europe. Seven years ago, OTI's U.S. arm opened in California; it moved in October to Fort Lee, where the dozen employees work mostly in marketing.

The company began trading on the Nasdaq in December. Since then, shares have risen from $5.25 to $13.29, driven by strong sales but no profits. Last year, OTI had revenue of $23.1 million, up 18 percent over the year before, and a net loss of $9.2 million.

Frederick D. Ziegel, a principal at Soleil Securities, a New York-based independent research firm, said OTI has shown its contactless technology works, but needs to hustle it more.

''It's a marketing game,'' he said. ''Their big challenge is to get in a position to be a technology supplier.''

As part of that effort, OTI on June 8 signed a partnership with Ingenico -- a global leader in electronic payment systems -- to develop contactless readers for its customers. And in the search for other partners or customers, OTI can point to a growing portfolio of global projects.

In Israel, drivers use in-vehicle parking meters embedded with OTI technology into which prepaid parking fees are uploaded. Meter clerks can check for payment by scanning the card through the window.

Petroleum companies in South Africa, Peru and Turkey use the technology in their gasoline payment cards. And more than 10,000 patients of clinics run by Alabama-based Harmonex carry contactless cards, which store their biographical and medical data as well as information on their insurance coverage, OTI officials said.

The Chinese government picked OTI and another company to develop a readable chip that can be embedded in the 860 million or so national identification cards soon to be distributed to its citizens, OTI officials said.

To Ohad Bashan, however, the quality of the company's product is best demonstrated in a six-year-old project developing a card-based security system for the Israeli government to stop possible terrorists crossing the Erez border in the Gaza strip.

As Palestinian workers place their hands on an electronic fingerprint reader, a computer checks the prints and information on their ID card against a database of prescreened workers eligible to cross the frontier.

''We are not talking about plans,'' Bashan said. ''This is here, and now, and real.''