A magnetic stripe reading terminal is a point-of-sale (POS) machine that reads encoded information with a magnetic head, similar to that of a tape recorder, from a magnetic stripe of a credit card or other bankcard when it is swiped into a terminal passage area. The terminal immediately transmits transaction and account information, over a phone landline or wireless, to the authorizing agent or merchant service provider. While there are several types of magnetic stripe reading terminals, most of these machines have the same basic purpose and functions.
Many of the latest models of these terminals process a substantial variety of payment cards. These include but are not limited to traditional credit cards, retail gift cards, benefits cards and debit cards, and are often expandable to separately read newer “smart chip” cards and perform paper check verification for payment processing. While most magnetic stripe reading terminals are in-store POS machines, such devices as the common ATM (Automated Teller Machine) also use the same kind of equipment.
The Way it Works
Most terminals that read magnetic stripes transmit important card and cardholder data over a standard telephone line, while wireless magnetic stripe reading terminals can transmit payment card data using either large cellular networks or satellite networks in operation today. Both wired and wireless varieties can be used for Internet processing. Some magnetic stripe reading terminals – like other credit card terminals – also have the ability to store data and transmit batches at a later time when a connection becomes available.
Magnetic stripe reading terminals originate from magnetic tape reel technology that was developed in the 1950′s and 1960′s. The process of attaching a magnetic stripe to a plastic card was invented by Forrest Parry, an IBM engineer under contract with the U.S. government for the development of a new security system. The engineer had the idea of securing a piece of magnetic tape to a plastic card base.
There were a few steps required to convert the tic stripe media of the card and reader into an industry-acceptable device. These steps included
- the creation of international standards for stripe record content, including which information, in what format and using which defining codes;
- field testing the devices and standards for market acceptance;
- development of the manufacturing steps to mass produce the large number of cards required; and
- adding stripe issue and acceptance capabilities to equipment available at that time, during the early days of magnetic stripe reading technology.
Form Factors and Components
Most magnetic stripe cards are just a bit larger than a standard business card. The magnetic stripe is contained in a plastic film near the edge of one side of the card. The stripe itself has three tracks, something like those of traditional audio recording tape. The first and third tracks are usually recorded near two hundred and ten bits per inch, whereas the second track usually has a smaller recording density close to seventy-five bits for every inch. Either track may either have seven-bit alphanumeric characters or five-bit numeric characters. The standards of track one were created by the airline industry, while track two standards were created by the American Bankers Association. Track three standards were created by the thrift-savings industry.
In banking, most of the time just the first two tracks are used. Track one usually contains a primary account number up to nineteen characters and usually matches the credit card number that is embossed on the outside of the credit card. This is followed by the name of the cardholder, the expiration date, a service code and such discretionary data as PIN verification value, card verification value or card verification code, and a “longitudinal redundancy check” that is a “validity character” calculated from other data on the track. Track two was developed specifically for the banking industry and contains much of the same data as track one but with fewer separators and special characters between information bits.
From Stripes to Chips
Many magnetic stripe reading terminals are simply older POS terminals with additional magnetic stripe readers. Computers can be programmed to act as POS machines, but they need external stripe readers to accept in-person payment at retail locations. These readers usually attach to any computer with a traditional USB connector that works with a merchant’s existing POS software to act as a complete magnetic stripe reading terminal and payment processor. There are even keyboards for POS-adapted computers that have a magnetic stripe reader built into the top, above the first row of function keys.
While magnetic stripe readers are still commonly used today, there is a general shift toward the use of smart cards, which are being phased in through the major credit card companies’ newly-issued consumer credit cards. Many readers also handle these new smart cards, and a number of upcoming checkout terminals can read both card formats for the ultimate in credit card payment processing ease.