WHAT IS A Card Reader
A card reader is a device that can decode the information contained in a credit or debit card’s magnetic strip or microchip.
BREAKING DOWN Card Reader
A card reader is a machine that reads the information on an individual’s credit card or debit card. Banks use card readers in their automated teller machines, which allow customers access to their bank accounts without speaking with a teller. Consumers benefit from card readers, as card readers make it possible for individuals to make purchases using credit and debit cards.
A credit card or debit card contains the cardholder’s personal information in either a magnetic strip, microchip or both. The card holds the cardholder’s name, account number, card expiration date and card validation code. The card reader decodes the information contained on the card, and then transmits the information to a payment processor. After this, the payment processor verifies that sufficient funds are available to complete the transaction, and the merchant completes the sale.
Traditionally, electronic card readers have been integrated with stationary payment systems, the cashier or point-of-sale terminals we envision when we think of using a credit card to pay at the store. As technology evolved, credit card readers became more flexible, smaller and more portable. Now credit card readers are widely available and can be an easy and inexpensive option for anyone who wants to accept credit card payments. Any individual can purchase a device that plugs directly into a smartphone or tablet. There are some free versions of this kind of credit card reader. In those iterations, the payment processor that issues the reader makes money by collecting a small percentage of each credit card transaction, such as 2.75 percent.
Life Before Credit Card Readers
Before there were card readers, merchants used manual devices at the point of sale to accept credit card payment. The merchant would take a physical imprint of the embossed customer name and account number from the front of the credit card. These devices were colloquially referred to as knuckle busters because users would often scrape their knuckles on the device while using them. As credit card use became more common in the 1950s, the machines also rose in popularity. These manual devices cannot read or transmit data stored on credit cards. Instead, the merchants had to transmit the information from the carbon copies to the payment processor long after the transaction was complete. Today, some merchants keep manual imprinters on hand as a backup option for accepting credit cards when electronic payment systems are down.