Ellen Cibula
Written by Ellen Cibula Payments, Finance, and AI Expert: Learn More

Are you curious about how card readers work?

Card readers are a popular way to make payments and transactions. They’re convenient, fast, and secure and allow customers to access their funds on the go easily. But what makes them tick? How do credit card readers work? I have written the ultimate guide that explains everything from chip cards to EMV technology!

With my guide, you can learn all there is to know about credit card readers – from exactly how they process information to where your money goes when it’s swiped across the reader. You can even learn tips for protecting yourself against fraud and using card readers securely in your business.


Card readers capture data from credit or debit cards for payment processing.

  • Magstripe readers read the magnetic stripe on the back of the card.
  • EMV chip readers read the chip embedded in the card for more secure transactions.
  • Contactless readers use near field communication (NFC) to read the card without physical contact.

I have numerous years of experience with payments, including working at a payment processor developing the software behind credit card readers. Therefore, I based this post on my payment expertise.

Check out my blog post now and become an expert on card reader technology today!

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How do card readers work?

How do card readers work?

There are 3 different types of card readers – magstripe readers (swipe devices), EMV chip readers (insert or dip devices), and contactless readers (tap devices).

Magstripe readers

Magstripe technology is a familiar sight in many places. It is the system used by credit and debit cards to store information on their magnetic strip. The tracks on the magstripe contain encoded data that includes the cardholder’s name, account number, expiration date, and more. Magstripe encodes data from a customer’s bank information or credit card onto strips of magnetized material marked with black ink and oxides during manufacture. This data can then be read using magnetic stripe readers, resulting in quick customer identification.

The technology is even being used for small-scale applications such as gift cards or loyalty program cards, making it a highly versatile method of storing information.

Despite being an older payment processing technology, magstripes are still widely used due to their fast processing speed, convenience, and cost-effectiveness.

The Square Reader for magstripe is an example of this device.

Components of a magstripe card

While they might appear simple and one-dimensional, magstripe cards contain several components. Each card includes a 3-track magnetic stripe down one side. Tracks 1 and 2 are encoded with account information, including the assigned account number and expiration date. Track 3 is often blank for supplementary information such as insurance or loyalty programs.

Magstripe cards also have two sides – the matte surface generally includes the printed name, account number, and logo. In contrast, the back can include a signature box to verify authenticity. All these features contribute to ensuring that this convenient form of payment remains both secure and reliable.

How magstripe readers read the card

Credit card readers use magstripe technology to decipher a payment card’s encoded magnetic data track. This information is stored as a series of electric pulses in the magstripe. It contains the customer’s credit card information, such as bank account number, expiration date, and other identifying features.

The credit card reader reads the magstripe when the user slides their card through its slot, transferring the pulses into digital information accepted by the machine’s reading device. Inside the card is a strip of magnetic medium containing several pieces of encoded data. When it passes through the reader, it results in a voltage change that the machine interprets and stores. This data is then sent to the payment processor to process the transaction.

Limitations of magstripe technology


Because the data on the magstripe is static, it can be copied and reused with a fake swipe device.

Despite its prevalence and accessibility, magstripe technology has several limitations that make it vulnerable to counterfeiting and data breaches. The magnetic information stored in a magstripe is generally static, which means any stolen card information can be copied to create counterfeit cards. The data stored on the stripe can be copied and reused with a simple swiping machine. Many businesses have begun putting tags on their card readers with unique logos indicating that the reader is legitimate to protect customers from fraud.

Additionally, this technology offers few encryption or security measures, so verifying that the information stored in a card’s magnetic strip matches the cardholder’s identity is challenging. As more secure payment solutions become available, magstripes are slowly being phased out due to their vulnerability and lack of additional features.

EMV chip readers

EMV chip technology, using the EMV (Europay-Mastercard-Visa) standard, has revolutionized how credit and debit cards are securely used to make purchases. EMV chips, found on most credit and debit cards today, increase fraud protection by storing data related to a user’s purchase securely on the card itself. In addition, when used with a compatible payment terminal, this chip can enable two-way authentication to ensure the safety of transactions between users and merchants. Using EMV chips also provides added convenience for consumers and greatly enhances data security for all involved parties.

Instead of swiping the card on a magnetic strip reader, it is inserted into the payment terminal with its chip facing up. The chip then transmits payment information securely over an encrypted connection that is almost impossible to counterfeit.

Additionally, while magnetic strips can be copied and reused indefinitely, each transaction made with an EMV-enabled card generates a unique code that cannot be used again. This added security makes EMV technology a more reliable method for processing payments than magnetic strips and helps reduce instances of fraud.

Components of an EMV chip card

These cards contain an embedded microprocessor chip. These cards are used instead of traditional magnetic stripe-only cards, enabling secure, digitally signed transactions between the card issuer and merchant. The embedded microchip within the card stores essential data such as account information and other sensitive personal data that is typically unavailable on a mag stripe-only credit or debit card.

Additionally, the chip uses encryption technology to increase security further by allowing for dynamic authentication each time it is used at a point-of-sale terminal or ATM. This increases consumer privacy protections when making payments with their EMV chip cards.

How EMV chip readers read the card

EMV chip readers provide a secure and efficient way of reading an EMV card. The reader can securely read the data on the chip, process it, and ensure it is legitimate before completing a transaction. This prevents credit cards from being used fraudulently, as only those with the correct credentials can access the information on the card. When an EMV card is inserted into the chip reader, a tiny computer inside reads and validates the information embedded within it. Successful payment authorization is granted if everything checks out and the proceeds are transferred accordingly.

It’s important to note that while EMV chips offer greater security than traditional magnetic stripe cards, they can still be vulnerable to hack attacks if users aren’t careful about their online activities.

Advantages of EMV chip technology


Every transaction on card with an EMV chip is issued a unique code; therefore, it is difficult to counterfeit these cards.

The adoption of EMV chip technology has given consumers an added layer of protection when making payments via debit and credit cards. This type of chip-based authentication is one of the more secure methods to prevent fraud, with every transaction validated by a unique code issued for each payment.

By eliminating common vulnerabilities associated with magnetic stripes, EMV chips create an extra hurdle for thieves since the card data is rendered useless after each transaction. This technology has also been proven to help reduce the incidence rates – and cost – or fraud-related charges for banks, merchants, and other financial institutions. This also helps reduce chargebacks for your business.

Contactless readers

Contactless technology allows us to initiate purchases, deposits, and transfers with just a wave of our card or a tap of our smartphone, making it incredibly convenient and eliminating unnecessary waste. This technology uses unique radio-frequency identification or near-field communication antennas to read specific information stored in the chip attached to the cards being read. This allows customers to make secure payments without using physical cash or inserting their card into a device.

For contactless technology to work, it must be paired with two-factor authentication. It requires both something the user knows (like a PIN) and something the user has (like an RFID chip) to enable secure transactions.

Contactless payments are becoming increasingly popular due to their convenience, heightened security levels, and ability to reduce wait times at checkout counters.

The Clover Go is a cloud-based POS system that accepts Tap payments.

Components of a contactless card

A contactless card typically consists of four components — an antenna, a chip, a secure microprocessor, and a secure element – which work together to ensure that the card information remains encrypted and secure at all times when stored in the card.

  • Antennas allow for the contactless exchange of data with readers located on payment terminals
  • Chip determines if that exchange is authentic or not
  • Secure microprocessor computes cryptographic operations using a unique key which prevents the duplication of data
  • Secure element stores sensitive cardholder data securely inside removable cards tamper-proof packages.

How contactless readers read the card

Through radio frequency technology, contactless readers can securely read the card data from a contactless card in just a fraction of a second. As long as the reader and the card have compatible processors and encryption keys, information can be exchanged without issue.

While it may seem simple, contactless readers operate by reading codes embedded into each card’s chip structure and decoding them into readable information, such as the customer’s credit card information.

Contactless readers also enable contactless payments using cell phones. These readers allow users to touch their phones against a terminal to complete transactions. This process is facilitated by Apple Pay, Google Pay, and Samsung Pay, which digitally store your credit and debit card information. Contactless readers use an antenna in the terminal to detect the NFC signal from the connected phone. When the reader sees a compatible device, it exchanges information with that device to process the mobile payment securely. Additionally, customers can make purchases on any compatible contactless reader – making payments more efficient for everyone.

Advantages of contactless technology


Contactless readers allow customers to pay without having to touch the device by tapping their phone or their card to the device.

One of the most significant advantages of contactless technology is its convenience and efficiency. Not having to pull out cards or cash to make a payment cuts out long wait times, giving customers and retailers fast access to goods and services they need.

Contactless tech also helps reduce human error in payments, as it automatically charges the right amount without requiring manual calculations.

On top of this, contactless technology provides better security against fraud than other methods since each transaction requires an authorization code and can only be used for a limited number of payments until expiry. This makes it virtually impossible for criminals to use stolen card information from previous transactions.

How credit card readers process transactions

Flow for processing an in-person credit card transaction

Authorization process

The authorization process of processing a transaction via a credit card reader is typically straightforward and secure. First, the cashier or merchant will insert or swipe the customer’s credit card into the reader to retrieve the card’s information. This will be processed through an encrypted system using advanced security protocols for enhanced protection against fraud. Next, the processor confirms the customer’s card details, such as the card number, expiration date, and security code. The authorization process also ensures that funds are available for the purchase.

The response to authorize the purchase typically takes a few seconds before completion. This makes it easy and efficient to accept customer payments, giving merchants peace of mind that their payment processing is secure and reliable.

Settlement process

The issuer subtracts the amount from the cardholder’s account balance if the transaction is approved. Then, it sends it back to the merchant while transferring their share of the payment to their account. The settlement process after that is relatively quick – generally within 24-48 hours – allowing merchants to receive their money faster than any other processing methods.

Issuing bank and acquiring bank

A credit card transaction involves the simultaneous interaction of an issuing bank and an acquiring bank. The issuing bank is responsible for providing the merchant with the credit card used for the purchase. In contrast, the acquiring bank is a middleman between the merchant and the issuing bank.

This means that when a purchase is made via a credit card reader, it is first authorized by the issuing bank before being transferred to the acquiring bank. The acquiring bank then verifies and transfers the funds to confirm the completion of the transaction.

In this way, each banking institution has its own role in ensuring that transactions are processed efficiently and securely.

Fees associated with credit card transactions

Credit card transactions come with associated fees. These credit card processing fees are typically charged to the business accepting credit cards when customers pay with their cards. In addition, credit card companies take a percentage of every transaction conducted. These rates vary depending on the merchant’s size, creditworthiness, and how they process payments.

In some cases, memberships and foreign currency transaction fees may also be incurred in addition to the regular processing fees.

Security concerns with credit card readers

Risks associated with magstripe technology

Unfortunately, Magstripe technology, commonly used for credit and debit card payments, carries many risks. For example, it is vulnerable to a type of fraud called skimming, where hackers can access customer information from the storage found on magnetic strip cards.

It is also easily prone to card duplication, where an unauthorized user attempts to clone an existing card by creating a new one based on the customer’s details. Because this information is not encrypted, data breaches and identity theft risk increases when using magstripe technology.

EMV chip technology and increased security

With integrated security enhancements, EMV chips provide better protection against credit card fraud than traditional magnetic card stripes. In addition, their unique cryptography is difficult to break and ensures each purchase is secure from malicious hackers. EMV cards also come outfitted with additional identity protection features, such as PIN and biometric authentication, making them more difficult for imposters to use.

Contactless technology and security measures

Contactless technology uses wireless or electronic data transfer to complete transactions, such as tap and mobile payments. Contactless payment security has become increasingly crucial for businesses and consumers in recent years. Banks, credit card companies, and retailers have adopted stricter security measures to protect against identity theft, fraud, and unauthorized payments. Security measures like PIN codes, two-factor authentication, and encryption are being used to help ensure secure transactions. Contactless technology can offer convenience and a quicker checkout without sacrificing essential security features. With the correct precautions in place, contactless technology provides a safer and more efficient experience for businesses and their customers.


Understanding how card readers work is essential for anyone using credit or debit cards to purchase. By knowing the different types of card readers available and how they work, you can make more informed decisions when choosing a payment method and using card readers safely and securely.

 While card readers have come a long way in terms of technology and security, it’s still important to be vigilant and protect your personal and financial information when making transactions. As technology evolves, we can expect card readers to become even more advanced, convenient, and secure.


Card readers are a convenient way to process credit and debit card payments, allowing businesses to take payments wherever they are. But do they need internet access? Generally, the answer is yes. Most card readers require an internet connection, such as WiFi or cellular data, to securely transfer information and transmit it to the bank or credit card processing company.

However, some companies offer offline or “disconnected” solutions that don’t require an active internet connection to process cards. However, these solutions still need an internet connection occasionally to update software and communicate with the card processing company.

A portable card reader is a device that enables the user to access data contained on cards such as debit and credit cards. Its small size makes it easy to carry, allowing users to scan IDs, swipe purchased items with magnetic cards, or tap contactless cards.

To work, portable card readers use several technologies such as WiFi, Bluetooth, or USB connection. The device reads the data stored on the card, either on the mag strip or the encrypted chip, and the data is sent to the processor to authorize the purchase.

Portable card readers have revolutionized the payment industry by enabling merchants to accept credit card payments without needing a full-fledged Point of Sale system.

Card readers are generally secure, but some risks are still associated with using them. Magstripe readers are the least secure because the information on the stripe can be easily copied. EMV chip and contactless readers are more secure because they use encryption to protect the data. To protect your information, use a secure card reader, keep your card in sight when making a transaction, and monitor your accounts for unauthorized charges.

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