Payment Types Defined - What You Need to Know About Data Transmission

Most of us swipe or tap our cards without giving the action a second thought, and soon, dipping our chip-enabled cards will become an automatic action, too. Still, if your business is the one accepting these transactions, it’s good to know the differences when it comes to the data that’s being transmitted. 

To help, we created a guide to the three most common ways to pay in the US—magnetic stripe, EMV and NFC—along with the data-transmission details of each.

How Magnetic Stripe Cards Work

While these credit cards will soon be replaced by EMV cards, understanding how they work helps put the benefits of EMV into perspective. Data is stored in that stripe on the back of your card, which is home to the owner’s account information like card number, first and last name and when the card expires.

When a shopper swipes their card to pay, the bank in charge of the transaction, called an acquirer, enters the equation and analyzes those pieces of data on the magnetic stripe. The acquirer does several checks before accepting the purchase, including whether there’s enough balance on the card. If a customer’s card passes the acquirer's inspection, the bank authorizes the purchase. If it isn’t accepted, the bank sends a reason why the transaction failed.

Unlike EMV, which we’ll cover next, the identifying information on the magnetic stripe is directly connected to the cardholder’s information, meaning it could be more accessible to hackers than its chip-enabled replacement. The data can also be pulled and read by a hacker using a scanning device and duplicated for future use.

How EMV Works:

EMV is different from magnetic stripe cards in several ways. That little credit card chip does a lot to keep a customer’s information safe, and it’s already widely used outside of the US. The process of verifying that an EMV card is valid is called “dynamic authentication.” When a shopper dips their card, the data that’s transmitted to complete the transaction is encrypted and unique each time, so even if a hacker accesses a shopper’s information, it won’t be directly linked to a card number. Beyond this, unlike the magnetic stripe cards they’re replacing, chip-enabled cards are far more difficult to copy thanks to that unique authorization code.

EMV transactions can be verified by the shopper in several different ways: by the customer entering their unique PIN, by leaving a signature, or automatically, without the need for further authentication—provided the purchase amount is low enough.

How NFC Works

Mobile payment options like Apple Pay and Android Pay use NFC, or “near field communication” to complete transactions with the tap of a phone, instead of the swipe or dip of a credit card. Typically, a shopper places the phone near a NFC-enabled payment terminal to initiate the purchase. In the case of Apple Pay and Android Pay, customers must enter a password or scan their fingerprint to authorize the transaction.

Behind the scenes, a chip or “secure element” inside the phone checks that the purchase is authentic and, if so, completes it. While some may doubt the security of mobile payments, that chip is near-impossible for hackers to get ahold of. Additionally, for each purchase, a unique code is transmitted in place of a shopper’s actual card information, meaning any information accessed by hackers is unreadable.

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