Today, consumers have multiple ways to pay for goods and services. They can pay with cash, check, credit card, debit card, or even make near-field communications (NFC) contactless payments (Apple Pay, Samsung Pay, etc).

Although you don’t see many people writing a check at the grocery store anymore, you do see various types of credit card payment options — from traditional magnetic stripe payments to chip cards to wearables (think Apple Watch). In fact, in a 2018 survey, 80% of consumers stated they prefer to use either credit or debit cards when shopping. More specifically, 54% of consumers preferred using debit cards, where 26% preferred credit. Consumers typically use credit for larger purchases and debit for everyday purchases, according to the survey.

According to the 2018 Federal Reserve Payments Study, in 2017, total credit card payments increased by 11.3 billion to 23.5 billion payments in all. Remote payments continue to multiply, as indicated by the study, showing a 22.8% increase from 2016 to 2017, compared to a growth rate of 7.2% for in-person payments. Additionally, chip-authenticated payments (EMV - Europay, Mastercard, and Visa) increased substantially, showing a rise of 41.6% in use in 2017 alone.

Credit card use doesn’t appear to be going the way of cash payments anytime soon. With technology continually expanding consumer shopping options, understanding how to use a credit card reader is foundational to your business’s success. Let’s jump into the world of credit card readers, giving you an ultimate guide for your business.

What is a credit card reader?

A credit or debit card holds vital information on its magnetic strip or microchip (and sometimes both). For example, a credit card contains the consumer’s name, account number, the card expiration date, and the card’s validation code, typically found imprinted on the back of the card.

A credit card reader is a device that decodes the personal and financial information contained in the magnetic strip or microchip of a credit or debit card. The card reader “reads” the credit or debit card’s information. It then transmits this information to the payment processor, who communicates digitally with the customer’s bank or other financial institution, confirming that the funds for the purchase are available. After the payment processor confirms the availability of funds, the merchant receives an approval code, allowing them to complete the sale.

Traditionally, credit card readers were tied to traditional cash registers or, more recently, to in-store point-of-sale (POS) systems. However, with the advancement of technology, credit card readers have become more accessible. For example, you can connect a credit card reader with your smartphone, allowing you to take payments on the go.

How to use a credit card reader.

We’re all familiar with traditional forms of credit card processing, like swiping your card through the machine. However, new credit and debit card technology has emerged, focusing on offering additional security, as well as convenience. Some examples include EMV chip card, NFC contactless, and wearable payment technology.

So, when deciding what type of credit card reader that you need, you should first ask yourself, “Who’s using it?” According to, millennials are 2.5 times more likely to adopt technology earlier than older generations, as evidenced by almost 50% of millennials preferring mobile payments. With millennials responsible for more than $600 million in annual spending, watch for more common uses of these payment technologies over the next few years.

Wearable payment methods, such as those made through Apple watches, are also increasing. Although more than 60% of Americans disfavor a cashless society, this technology is more popular with younger generations. For example, in 2018, at least one-third of U.S. millennials (23.8 million in all) used a wearable device at least once per month. That number is expected to increase to 28.9 million U.S. millennials by 2022.

Let’s look more specifically at how credit card readers work, depending upon the type of card.

Magnetic stripe cards.

Most credit and debit cards have a stripe of magnetic information affixed to the back of the card. This stripe contains three tracks of data, with each track about one-tenth of an inch wide. The cardholder’s information is contained on the first two tracks, such as the credit card number and the card’s expiration date. Additional information may be stored on the third track.

The card is activated by swiping it through a credit card reader, allowing the reader to identify and interpret the information contained on the magnetic strip.

Chip cards.

A chip card contains an embedded microchip on the card in addition to the traditional magnetic stripe. Similar to the mag stripe, the microchip contains the cardholder’s information, but also includes enhanced security features not present on a traditional magnetic stripe card. Instead of swiping the card through the credit card reader, the consumer inserts - or dips - the card into the chip reader terminal. These cards are also sometimes referred to as chip-and-pin cards or chip-and-signature cards.

EMV is the global standard for chip cards. The technology behind the little microchip square on the credit or debit card is designed to reduce consumer fraud as well as limit the card-issuing banks’ liability for fraudulent chargebacks. In the United States, if you don’t accept chip cards in your business, then you can’t avoid liability under the new chip reader compliance rules.

Near-field communication (NFC) contactless payments.

NFC is a contactless payment method, allowing communication between the payment terminal and smartphones, tablets, or smartwatches (or other wearables). NFC contactless technology allows for the exchange of encrypted payment information without physical touch. The consumer waives the card or smart device over the payment terminal and the purchase is completed securely. Consumers often use NFC contactless technology to process mobile payments, such as Apple Pay, and payments from electronic wallets, like Chase Pay. 

Credit and debit card use is not only becoming more widespread, it’s also becoming more diverse and flexible with multiple payment options. Allowing your customers to make purchases quickly and easily will inevitably help you grow and expand your business.

Are credit card readers secure?

Offering secure online payment processing is paramount. One way to assure security compliance is to confirm that your credit card reader, along with the rest of your processing system, is PCI-compliant. In 2004, the major credit card companies, including Mastercard, Visa, and American Express, created the Payment Card Industry Security Council (PCI SSC), which in turn, established the Payment Card Industry Data Security Standards (PCI-DSS). These security standards include rules on fraud prevention, chargebacks, and identity theft, helping merchants keep their customer payment information secure.

Any business offering credit or debit card payments (including for online purchasing) must comply with PCI standards. These standards not only apply to the transmission of payment information, but also to its storage. PCI standards mandate ongoing compliance as the protection of payment information is not a one-time event. By offering PCI-compliant payment processing, merchants not only reduce the risk of payment fraud, they also improve their credibility as a business by ensuring the security of online payments.

Team up with experts

At North American Bancard, we partner with merchants of all types and sizes, helping them grow their businesses. We can help guide you through the setup of your payment processing for your brick-and-mortar or online store. We have the technology you need to adapt to consumer behaviors by accepting payments in the modern world, providing you with seamless integration and low fees. We’ll help you tailor your payment processing system to your specific business, giving you peace of mind. To set up a consultation, contact us here or give us a call at 877.840.1952.

Contact NAB today and see how easy it is to get the merchant services you deserve.

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