What is a card reader and how does it work?

Editorial Team

4 min read
Woman holding card over Clover Mini at food stand

When we visit stores or restaurants, we often use our credit or debit cards without giving much thought to the card reading technology that initiates the transaction. What is a card reader, and how do these essential devices work?

In this post, we will explore the different types of credit card terminals, their inner workings, and the advantages of card reader technology — for both merchants and customers alike.

Card reader definition

A card reader is an electronic device that enables businesses to more securely accept and process credit, debit, or gift card transactions. It can come in various forms, such as part of a countertop POS system, as a smartphone attachment, or even as a handheld or wireless device.

How do credit card readers work?

Credit card terminals work by decoding the information stored on the card, encrypting it, and then transmitting it to the payment processor for authorization. The process involves several steps:

  • The cardholder initiates the transaction by either swiping, inserting, tapping, or waving their card or mobile device over the card reader.
  • The card reader decodes the card’s information and encrypts it for secure transmission.
  • The encrypted data is sent to the payment processor, which routes it to the cardholder’s bank for verification and authorization.
  • The card-issuing bank approves or declines the transaction, and the response is sent back to the card reader.
  • The card reader displays the transaction result and, if approved, the sale is completed.

For a more detailed look at the entire payments journey, check out this comprehensive credit card processing resource.

READ: Credit card processing in 8 simple steps

What is an EMV® card reader?

Short for Europay, Mastercard, and Visa, EMV card readers are designed to accept cards with embedded microprocessor chips. Rather than swiping, the chip is inserted or “dipped” into the card reader. These chips help provide an added layer of security compared to traditional magnetic stripe cards by generating a unique transaction code for each purchase. It’s worth noting, however, that the enhanced security that EMV credit card processing provides only exists for in-person shopping, since the transaction is not accepted without entering a PIN or providing a signature.

What is a magstripe reader?

Magstripe readers, also known as magnetic stripe readers, are card terminals designed to read the information stored on the magnetic stripe on the back of credit and debit cards. These card readers use a magnetic head to decode the card data, which is then sent for authorization. While magstripe readers are still used in the U.S., they are less secure for in-person shopping than EMV card readers because the data on the magnetic stripe can be easily copied or cloned.

What is an NFC card reader?

NFC card readers, or near-field communication readers, allow for contactless payments using cards or mobile devices with NFC technology. These card terminals use short-range wireless communication to exchange data between devices. To make a payment, the customer simply needs to hold their card or mobile device near the reader. Contactless mobile wallet payments, like Apple Pay® and Google Pay™, continue to increase in popularity due to their speed and convenience.

Which card reader is right for your business?

Understanding the pros and cons of different card reading technologies is important as you begin exploring your payment processing options. Newer card readers now offer the capability to accept all three types of card payments on one device, but it’s essential to prioritize security and convenience when selecting a payment processing solution for your own growing business.

Clover offers a wide range of POS solutions that help small businesses run more smoothly, including card readers designed to accept various types of card payments. By investing in the right technology, your business can streamline its payment processing, help reduce fraud risks, and provide an improved customer experience — all of which can ultimately contribute to your success and growth.

To learn more about our POS and card reader solutions, schedule a free demo with a Clover Business Consultant today.


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