MagTek Inc., a maker of credit card readers that moved from Carson to Seal Beach last year, has hunkered down to weather the recession.
The company has been hit as its biggest customers—retailers and banks—have floundered during the downturn.
“At the beginning of the year, the economy was in a wreck and our customers were in trouble,” Chief Executive Mimi Hart said.
Sales are down from a year earlier, according to Hart.
MagTek doesn’t disclose revenue. The Business Journal estimates the company’s yearly revenue at about $100 million.
“Our goals had to change because we didn’t want to do any layoffs,” Hart said. “We wanted to do everything possible to preserve our workforce and make sure we didn’t contribute to the downward spiral.”
The company hasn’t had to lay off anyone, “but we’ve also had no raises,” Hart said.
“Everybody is understanding of that. When the downturn came, we were able to hold the line,” she said.
MagTek is one of the largest suppliers of technology for reading magnetic data stripes on credit and debit cards at ATMs, kiosks, gas pumps and cash registers.
The company has about half of the market for card readers. It supplies them directly to banks as well as to makers of card machines, pin pads and check scanners.
MagTek has about 250 workers in Seal Beach. Manufacturing is done elsewhere in the U.S., with design work and final assembly done locally.
The company has been looking for growth with security technology that encrypts and authenticates card data when it is swiped, instead of when it’s stored at a data center.
The process “makes the data useless if it has been captured by some cyber crooks,” Hart said.
One product, MagnePrint, reads a “fingerprint” that’s encoded into each card. The anti-counterfeiting measure is aimed at stopping thieves who make fake cards from stolen account numbers.
“Right now security is at the forefront of everyone’s minds,” Hart said. “It’s been the No. 1 subject in the payment processing industry.”
Still, MagTek’s security push is a tough sale at a time when banks and retailers are suffering their worst downturn in recent memory.
In the past, they’ve balked at putting in extra security if the cost was too high.
MagTek hopes to drive down costs of its security technology by distilling it into a single chip that goes inside a card reader, according to Tom Patterson, MagTek’s newly hired chief security officer.
“The company has invested millions into reducing it to a low-cost chip that’s already being mass-produced,” he said.
Patterson was hired to head a campaign to save banks and retailers money by eliminating credit card fraud.
A self-described “lifelong security guy,” Patterson is an entrepreneur and security expert who has done work for the FBI, IBM Corp. and ran Deloitte LLP’s security business abroad.
Patterson has launched a sort of crusade to wipe out transaction fraud with MagTek’s secure card readers.
“It’s in everyone’s best interest to do it,” he said. “I’m calling in all my favors in Washington to make sure everyone is aware. We are pushing this very hard.”
Last year’s financial meltdown has prompted payment processors to consider shifting the burden of card security away from the consumer, according to Patterson.
“Consumers were getting unfairly blamed,” he said. “Rather than have consumers trying to stop their cards from being stolen, it’s time to turn that question back to the industry to find a solution.”
Card fraud costs companies big money—by some estimates more than $4 billion per year.
Banks and stores have to eat what’s called a “chargeback” to cover fraudulent transactions.
Some are waiting for a big transition to smart cards, which use chips or radio frequency tags to store information.
Moving away from magnetic stripes to smart cards still is a ways off.
“Right now we all use magnetic cards—they are in our pockets today,” Patterson said. “There is every financial incentive to adopt it sooner rather than later.”
