It wasn’t too long ago that all consumers had to worry about was having enough cash in their wallet to make a purchase. In today’s technology-infused marketplace, you’d be hard-pressed to find someone walking around with wads of cash in hand. Instead, the use of plastic or in some cases, metal, is far more prevalent among consumers, and widely accepted by merchants and retailers.
In the last few years, new payment technologies have emerged making it even easier to pay for anything and everything – from a cup of coffee to a designer bag. There are three main types of credit card payment technology used in the consumer market today, including magnetic stripe cards, EMV, and NFC. Here we break down each form of payment, how it works, and what benefits and drawbacks it presents to shoppers.
Magnetic Stripe Transactions
On the back of credit and debit cards, a magnetic stripe works to transmit payment and account information from one point to the next. Personal data, like a specific bank account and available funds, is validated when a card is swiped at a point-of-sale terminal on the merchant side of the transaction. The payment information is then sent to the financial institution to verify, in real time.
The stripe on the back of credit or debit card, also known as magstripe, contains tiny iron-based magnetic particles, covered in a plastic film, which allows for information to be written on it easily. As soon as the card is swiped, a call goes through to an authenticating company which then provides a guarantee of payment to the merchant based on the data received from the card.
Nearly all merchants carry point-of-sale terminals that accept magnetic stripe cards as a form of payment, but changes to security liability mean that these types of transactions are poised to be used less than other payment types.
Understanding EMV Chip Cards
In the last two years, merchants and retailers have been motivated to transition point-of-sale systems to accept EMV transactions, which stands for Europay, MasterCard, and Visa. While many countries throughout the world use EMV technology to process payments, the United States was one of the last to adopt the updated, more secure method of transmitting secure financial data.
With an EMV transaction, a chip is used to send account information to the receiving party, instead of the magnetic stripe. The chip contains secure keys that generate encrypted data, making it nearly impossible for a criminal to create fraudulent cards or gather information from a specific transaction. Magnetic stripes hold the same information at all times, while EMV chip-enabled cards contain information that constantly changes.
The biggest difference between magnetic swipe cards and chip-enabled CMV cards is the buyer’s experience. Instead of a quick swipe, EMV cards must be inserted into a payment terminal and left there until the encrypted information is transferred to the seller. Transactions often take a few more seconds than magnetic stripe swipes, but consumers and merchants alike benefit from greater security features.
How NFC Works
A recent addition to the payments scene is the use of digital wallets by consumers. The technology behind digital wallets is near field communication, or NFC, which is a set of standards used for mobile devices. Through this technology, peer-to-peer radio communications are enabled that allow the transfer of data from one device to another with either a touch or waving one in front of the other.
Some chip-enabled cards also allow NFC transactions at a point-of-sale terminal, but merchants must also accept this type of payment method for the transaction to work. In most cases, NFC is utilized when a buyer has added her card information or bank account information to a digital wallet, and then uses that digital wallet instead of a physical card to pay.
Final Thoughts on Magstripe, EMV and NFC Payment Technologies
The payment world has seen many shifts in the methods for transmitting sensitive financial information from a buyer to a seller, and in the future, there may be other forms of payment widely used and accepted. For now, the magnetic stripe cards, chip-enable EMV cards, and NFC technology through digital wallets are the most common forms of payment used for making debit and credit purchases.
