Everything You Need to Know About How a Card Reader Works

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Every retailer has to fight to stay on top of purchasing trends. Millennials are their prime target these days. The millennial generation is now reaching its prime purchasing age. That gives their money power in the eyes of retailers. Millennials are now a large part of the American work force, which means that how they spend their money matters to retailers.

Fico reports that 83 percent of millennials between the ages of 25 and 34 use credit cards. This staggering statistic doesn’t include the portion that uses debit cards. Cards represent convenience and freedom, something younger Americans treasure.

With more retailers than ever accommodating credit and debit cards, it only makes sense that both consumers and retailers understand how these pieces of equipment work to get the money from the consumer’s bank account and into the retailer’s bank.

Swipe or Dip

Data can be gathered from debit or credit cards by two methods; swipe or dip. When you swipe or dip (use the chip reader) a card into a card reader, it reads the information included within the magnetic stripe or the EMV chip. These parts of a card contain the consumer’s account information.

The magnetic stripe on a card uses outdated technology that can be read using magnets. If you recall cassette tapes, they operated using the same technology. The card reader essentially reads the data recorded within the magnetic stripe. Your credit card information is then transferred to the banking institution. There is no encryption process with these cards by the card reader. That means anyone who can hack into the system can access your credit card information.

EMV Chip and Pin

In 2013, Target made headlines when its consumer data was breached in one of the largest breaches in American history. During the Black Friday shopping weekend, hackers were able to steal millions of customer’s credit card information. This breach has cost the company untold millions, including an $18.5 million settlement and costs due to damage to its reputation, damage control, and internal investigations.

In recent years, skimmers, a small magnetic reader with data storage, are also on the rise. These thefts can occur because the older magnetic stripe technology’s flaws have been widely exploited. Since there is no communication between the card reader and card with the magnetic stripe, the data cannot be encrypted, which opens the consumer up to fraud. The answer to this problem is the chip.

The EMV chip stores data in a computer chip, which requires direct contact with the chip in order to transfer data. That data is encrypted by the card reader prior to being sent to the retailer’s bank. The EMV chip, often referred to as “chip and pin”, also requires the use of a pin number instead of a signature. This makes the chip significantly safer and more effective than magnetic stripe cards. Although data can still be stolen, it requires a more sophisticated thief to be able to decrypt the information.

Data Is Collected

“When you swipe or dip a card, the card reader collects the data from the card via the magnetic stripe or chip,” said POINTMAN Technologies. This data is encrypted (if an EMV chip was used) and sent to the retailer’s bank via a phone or internet connection. At that point, the retailer’s bank reads (and decrypts) the data and connects to the consumer’s bank to verify the information. The consumer’s bank will either authorize or decline the transaction. If the pin number is incorrect, the card was reported stolen, or there are any blocks on the consumer’s account, the payment will be denied.

Authorization

Once a payment is authorized, it is queued to be processed and deducted from the consumer’s account. Once the payment is deducted from the consumer’s account, it waits to be transferred in batches to retailer’s banking institution. Transfers are typically made within one or two business days.

Card Readers Protect You

Card readers are amazing pieces of equipment that are capable of accessing and protecting your account. The next time you use a card reader, you will understand exactly how it protects you from fraud and theft and keeps your life simple and convenient.