How Do Credit Card Readers Work?

Credit Card Readers Work

People are stepping away from the traditional way of doing things. For instance, they may contact their  online instead of visiting them in case they need a solution to their problem. Similarly, they now prefer to carry a credit card instead of cash. After all, it is easier to pay bills through it. Plus, it is lightweight and fits perfectly in the wallet, saving you the hassle of managing your cash.

Since people are more inclined toward using their credit or debit cards for making a transaction, it is imperative for retail store owners to use card readers. This will make the process of obtaining and processing banking information from a customer’s credit card much more secure. But how do they work? Let’s find out!   

5 Steps of Credit Card Processing

A credit card reader reads the information of a customer’s credit card and communicates the transactional information to the banks and credit card networks securely. Whether the device used is a mobile card reader or a traditional credit card machine, understanding the flow of credit card processing payment is helpful. It will let you know what exactly happens the moment you dip or swipe your card through the tool. Here are five steps that show how they readers work:

1. Authentication

At the time of making a payment, the customer offers their card so that the retailer can run it through the card reader. The tool reads the information stored in the physical card. Alternatively, customers can choose to pay through mobile wallets or QR codes.  

2. Verification

The retailer’s bank gets the information and contacts the cardholder’s issuer to complete the verification process before moving to authorization.

3. Authorization

The customer’s card provider will examine the cardholder’s information whether it is correct or not before it checks if the person has sufficient funds in the account to complete the transaction. Based on that data, the card issuer will either confirm or decline the transaction.

4. Confirmation

When the card issuer accepts the transaction, a response is immediately sent to the card reader. The device then transmits information that the payment has been approved and the transaction process can now be completed.

5. Completion

The payment is withdrawn from the customer’s account and is transferred to the account of the retailer. According to the industry standard, it takes around 2-3 days for the fund settlement into the retailer’s account. However, there are some providers like myPOS that take little to no time for the settlement of funds.

Types of Credit Card Readers

As more and more people have started to lean towards using credit and debit cards, it is necessary for you to know about different types of card readers. Here are a few of them that you should know about:

1. Magstripe

This device only reads those credit cards that have a magnetic stripe. However, you should know that credit card companies are now actively replacing magnetic stripes with an EMV chip. This is because magnetic stripe cards are vulnerable to credit card fraud.

2. EMV

These readers only process information from EMV chip cards. But what is an EMV? It is a global standard that is developed by big credit card companies. EMV technology is considered to be one of the safest, enabling secure payments in remote as well as face-to-face environments. When a retailer supports an EMV reader, you will be required to dip or insert the card instead of swiping. When using this type of reader, the customer needs to enter the PIN for the transaction to go through.

3. Contactless  

Some cards come with an RFID chip. This chip allows a customer to make a contactless payment by waving the card close to the reader. There are different technologies that play a role in making these payment work. They are as follows:


Near Field Communication or NFC is a technology that powers the contactless card reader. With this tech, the device can transmit information easily.


Radiofrequency distribution or RFID leverages radio waves to transfer data over short distances. Customers who own an RFID credit card can complete their transaction quickly by either tapping or waving the card on or near the card reader.


Contactless payment App tokenization offers a super secure way to make payments. It does so by replacing critical banking information with non-sensitive data before proceeding to process the funds. Tokenization prevents criminals from stealing card information as they will not have the encryption key to decipher the data.


People like using credit or debit cards more than cash. And that is not a surprise. After all, who would want to go through the hassle of managing and paying with cash when you can complete the transaction with a credit card in seconds? As more people are opting for credit cards to make payments, customers often wonder how secure this payment method really is and how they even works. Hopefully, this article would have answered this question and made things clear for you.