Magnetic Stripe

What magnetic stripe is

A magnetic stripe is the band on the back of a payment card that holds account data. When you swipe a card, a magnetic stripe reader captures that data and sends it in the authorization request. The stripe is different from the reader: the stripe stores information, while the reader detects and passes it to your point-of-sale system.

The stripe holds static data, meaning the information does not change with each purchase. Track 1 and Track 2 contain payment information, including the account number and expiration date; Track 2 also includes a service code. A reader uses the encoded data to help start a card transaction.

A swipe reads reusable card data; an EMV chip generates a unique code for each transaction.

How a swipe works

When you swipe a card, the reader captures the stripe data and your system sends an authorization request through the acquiring bank and card network to the issuing bank. The approval or decline travels back through that route. If approved, the sale is later included in your batch for settlement.

An EMV chip works differently. Instead of sending only reusable stripe data, the chip generates a unique code for each transaction. That makes copying data from one swipe less useful for making a counterfeit transaction. A swipe is a card-present transaction, but it does not provide the same chip-based protection.

What it means for your costs and risk

There is no verified processing fee specific to magnetic-stripe transactions in the research for this entry. Your card costs still come from interchange, network fees and your processor markup. If a swiped sale costs more than a chip sale on your bill, compare the transaction category and processor markup before treating the difference as a stripe fee.

Static stripe data is vulnerable to skimming and copying. A criminal who obtains the data can put it on another card and attempt a counterfeit purchase at a terminal that accepts swipes. The US EMV liability shift took effect for most card-present merchants in October 2015. When chip technology could have prevented counterfeit fraud, the party using the less secure technology bears the loss.

What you can actually change

1. 01
   Use chip first. Set your terminal to prompt customers to insert or tap when the card supports it. Keep swipe acceptance as a fallback for cards or situations that require it.
2. 02
   Check terminal coverage. Confirm each checkout device reads EMV chips, including handheld terminals used on the sales floor or at tables. A swipe-only device leaves you using the less secure method.
3. 03
   Compare transaction costs. If your statement separates transaction types, compare the rates and processor markup for swiped and chip transactions. Look for a named fee before assuming a separate magnetic-stripe charge applies.

Frequently asked questions