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Point-of-sale pioneer Ron Klein looks back

The legendary engineer may not have invented the mag stripe, but his innovations revolutionized credit card verification

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While IBM was busy adapting reel-to-reel magnetic tape into a "mag stripe" data storage medium for credit cards in the 1960s, an engineer for hire named Ron Klein was quietly inventing the first automated point-of-sale system (POS) to validate those cutting-edge cards.

Although Klein's path never crossed with IBM engineer Forrest Parry or project manager Jerome Svigals -- widely regarded as inventor and father of the mag-stripe card, respectively -- the 78-year-old Florida-based inventor, business consultant, Senior Olympian and self-described "grandfather of possibilities" holds something they do not: a U.S. patent for his invention.

RON KLEIN
Point-of-sale pioneer Ron Klein looks back

Ron Klein, 78, holds a patent for his role in the technology that powers credit card transactions. Today, the Florida-based inventor is a consultant, a medal-winning Senior Olympics bicyclist and the self-described "Grandfather of Possibilities."

Klein's contribution to the history of the credit card had been something of a lost chapter until a recent article popped up on Huffington Post proclaiming him the inventor of the mag stripe card. While Klein did in fact affix reel-to-reel magnetic tape onto a charge plate back in the day, just as Parry had, his focus was much different from that of his IBM counterpart.

"I have no problem saying that Forrest Parry can be the father of the mag stripe; that's fine with me," Klein says from his home in Sarasota, Fla. "What you see when you really analyze my patent is the first methodology to automate credit card validation. I didn't really focus that much on the mechanism of the card."

Father of the mag stripe? Maybe not. But Klein proudly wears the title "father of the credit card magnetic stripe validating system," an equally fascinating story he agreed to share with CreditCards.com.

Hey! Give me back my card!
In 1964, Klein, a former Honeywell electrical engineer, became director of engineering for Ultronics Systems Corp., which would later become part of GT&E Financial Data Services. Among his clients was a major department store with a major headache: how to quickly tell good cards from bad at the point of sale.

"Back then, each merchant was given a long, long list of negative ("bad") account numbers each month by the credit card companies," Klein recalls. "When a consumer would make a charge purchase, the merchant would take the piece of plastic with the embossed number and check to see if it was listed on the bad-card list." This time-consuming process proved particularly costly to retailers during peak holiday shopping seasons.

Today, verification of card account status occurs almost instantaneously, thanks to high-speed computer processing and electronic POS connectivity. Back then, however, automated data storage involved "drum memory" -- huge machines housed large, revolving magnetic drums, some of which bore a striking resemblance to R2D2 of "Star Wars" fame. These monsters, which segregated individual card numbers into specific locations on the revolving drum, were precursors to what would become the hard disk drive on personal computers.

"There were no point-of-sale terminals," Klein explains. "There wasn't even anything called a point-of-sale device."

So he decided to invent one.

'Validity-checking system'
Klein's "validity-checking system," for which he received a patent in 1969, enabled the merchant to enter a credit card number into a remote "desk mountable interrogation unit" connected to a central drum memory unit. Once the drum received the key entry, it rapidly crosschecked it against a stored list of bad card numbers.

If the account number didn't show up on the bad-card list, the drum would activate a "credit good" light on the desk unit and automatically trigger its integrated card embosser to roll the two-ply, carbon copy sales ticket, completing the purchase. If a merchant entered the card number incorrectly, the desk unit would display an error signal.

But if an entered card number found its match in the bad-card database, Klein had devised an additional automatic security feature that might shock card users today.

"If the credit wasn't good, it locked up the card so that the person didn't get the card back, because the merchant got credit for capturing negative-account cards," he says.

The search for brainier credit cards
While his system greatly reduced card verification time, Klein recognized that he could speed it up even more by somehow eliminating the cashier key-entry step. Since he had already tapped drum memory on the back end, Klein set about finding a way to make the credit card itself do some of the heavy lifting at the point of sale.

Back then, plastic or metal credit cards were largely passive, their lone "smart" feature being the embossed numbers that enabled cashiers to create merchant and customer receipts, typically with two strokes of the old hand-operated zip-zap embossing machines.

Klein's first attempt at a smarter card was to adapt the Hollerith code, which used tiny holes punched in predefined positions on an 80-column grid.

Hollerith "punch cards" had been used as a rudimentary data recording medium since the late 1800s for everything from census forms to voting machines. They came to be called IBM cards when Hollerith's company became merged with two others to form Big Blue in 1911. In fact, IBM cards would eventually become the data output medium of choice for those drum memory monsters.

"My first concept was to take the plastic credit card and trim off the edge so that it looked like the front end of an IBM punch card so we could punch holes into it to represent the account number," Klein recalls. "But it turned out to be expensive and a nonpractical process."

Looking for alternatives, he happened upon a technology that was all the rage at the time: reel-to-reel tape recorders. While beatniks and, later, hippies embraced tape players to get their groove on, engineers including Klein and Parry recognized magnetic tape as a handy, inexpensive way to give plastic just enough brains to eliminate the costly front-end key stroking.

My first concept was to take the plastic credit card and trim off the edge so that it looked like the front end of an IBM punch card so we could punch holes into it to represent the account number.

-- Ron Klein

The prototype mag stripe card proved to be a cost-effective data storage solution that has endured for nearly half a century. The mag stripe's one characteristic quirk -- a seemingly random sensitivity to the speed in which the card is swiped -- is actually a holdover from its groovy reel-to-reel origins.

"Years ago, if you were to speed up a reel-to-reel tape recorder, it would sound like Mickey Mouse and if you slowed it down it would sound like Dracula. So it was a governed speed across the 'cap set' or reader," Klein says. "Today, when you shove a mag-stripe card into a POS device, the variable speed activates what's called 'start-stop synchronization,' which tells the reader to synchronize or read everything after the first start impulse and reset after the last impulse."

Klein never applied for a patent on his mag stripe innovation, nor did he make a fortune on his patent for his credit card validity checking system, which was embraced by his client as well as other major department stores. Eventually, high-speed computing refined and streamlined the validation process he pioneered.

But ever the entrepreneurial man on the move, Klein went on to develop the computer systems for real estate's Multiple Listing Service, trading systems for the New York Stock Exchange and technology to aid the hearing and visually impaired. Today, he's a medal-winning Senior Olympian cyclist, business consultant and mentor who helps other innovators reach their potential.

"You know, I failed at retirement three times," Klein chuckles. "For me, there are two types of senior citizens: old people and those who have had a lot of birthdays. I classify myself in the second category."

See related: The rise and fall of the credit card magnetic stripeCredit card magnetic stripes get smarterWhat will credit cards look like in 25, 50 or 100 years?The history of credit cards

Published: August 13, 2013



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