Swiping a credit card is a familiar part of everyday commerce. Businesses have relied on credit card swipes for their simplicity and affordability, but there are concerns about the security of older swipe-only setups. Adopting new methods can deepen customers' trust while also improving the checkout process.

Below, we'll explain how credit card swipes work, why some businesses prefer them, where they fall short, and what modern upgrades can offer businesses and customers.

Key Takeaways

• Swiping reads static data from a card's magnetic stripe, making this payment method fast and affordable to accept but also more vulnerable to skimming and cloning than chip or contactless methods.

• Businesses that haven't upgraded to EMV or contactless terminals can be held liable for fraud on transactions that could have used a more secure method.

• Upgrading to EMV-capable or NFC-capable hardware, such as through Stripe Terminal, lets businesses keep swiping as a backup while adopting safer payment options.

What is credit card swiping?

Credit card swiping is a payment method that reads data stored on a card's magnetic stripe by dragging it through a reader. Introduced in the 1970s and standardised for banking in the 1980s, credit card swiping became the dominant way to pay in stores for decades, but eventually gave way to more secure EMV chip and contactless technology.

How does a credit card swipe transaction work?

For customers, credit card swiping is a simple process: you swipe your card, the screen flashes "approved," and you walk away with your purchase. Behind the scenes, it involves secure data transfer and multiple checks for fraud and other issues. Here's the process that occurs after a customer swipes their card:

• The terminal reads details from the card stripe, including the card number and expiry date.

• Those details are routed through a payment gateway to the bank that issued the card. This system asks the bank whether the card has sufficient funds and whether it should approve the purchase.

• The issuing bank checks the card status (e.g., balance, credit limit, any signs of suspicious activity) and responds with an approval or a decline. If approved, the transaction is completed and the business and customer receive confirmation.

What are the benefits of using swipe payments?

Despite some security drawbacks, swiping is still part of everyday transactions in many countries around the world. Here are some reasons why shops, restaurants, and service providers use swipe payments.

It’s familiar

Swiping feels straightforward, especially in environments that cater to older cardholders or communities where chip adoption isn’t high. A familiar experience at checkout can make a meaningful difference.

The hardware is affordable

A basic magnetic stripe reader is often cheaper than readers that accept chips or are tap to pay. In some cases, you can even get a small plug-in device for a phone or tablet at a very low cost. That's appealing if you're a pop-up vendor or a small shop that wants to be able to quickly accept credit cards.

It works with legacy point-of-sale (POS) systems

Some businesses have older POS systems that aren't fully updated to accept chip-based transactions. Businesses that still use swiping might not see a pressing reason to upgrade.

It’s a useful backup method

Even if a business supports chip-based and contactless card payments, there might be times when those features fail or the card’s chip is scratched. It’s useful to have a magnetic stripe slot as a fallback in those cases.

What are the challenges of relying on swipe payments?

While swipe payments were once a major technological advancement, they have notable downsides in modern commerce. Here are the main drawbacks of accepting swipe payments:

• Security: Magnetic stripe data can be copied using a hidden skimmer. If a fraudulent actor steals the data, they can produce counterfeit cards.

• Liability: Businesses that haven't upgraded to accept cards with chips can be held liable for fraudulent transactions. That means if someone uses a cloned magnetic stripe card in a swipe transaction, the business might be held responsible.

• Wear and tear: Magnetic stripes can get scratched, and card readers can get clogged or damaged. A misread stripe slows down checkout and can frustrate customers.

• Global acceptance: The United States has recently begun to embrace contactless cards, but many other countries have used them for years.

• Limited data: Swipes don't generate unique transaction codes like an EMV chip does, which reduces the overall security and traceability of transactions.

Comparison of alternatives to credit card swiping

What tools do businesses need to accept swipe payments?

The barrier to entry for accepting swipe payments is low, especially with a basic card reader. Small businesses such as food trucks and farmers market vendors often use these devices because they're a convenient, portable way to accept cards. To get started with swipe payments, you just need a magnetic stripe reader, POS or payment software, a payment processor, and an internet connection or phone line. Here's how each of these components works.

Magnetic stripe reader

This can be a countertop terminal or a small USB or audio jack device you attach to a phone or tablet. Some card readers are built to use only the magnetic stripe while others have multiple slots or the ability to accept contactless payments, which use near-field communication (NFC).

POS or payment software

This software ties the hardware to a payments platform. It logs the purchase amount, handles refunds, and transmits data to your processor. This might be a simple mobile app for a single-person venture or a full retail system that also tracks inventory and customer accounts.

Payment processor

The payment processor completes each transaction by moving it from your POS system to the card networks. Stripe is an all-in-one solution that handles processing for both online and in-person payments.

Internet connection or phone line

Swipe transactions typically require real-time authorisation. If you lose signal or your line goes down, you might have to process payments offline, which risks data loss.

How to swipe a credit card

A few tips for a clean swipe:

• Orient the stripe correctly and keep the card flat: Face the stripe the way the terminal specifies and hold it flush against the slot as you pull it through.

• Swipe in one smooth, steady motion: Avoid stopping partway or moving too fast/slow, which are common causes of misreads.

• Check the card and reader for wear: Scratches, creases, or magnet exposure can damage the stripe, and a worn reader slot can cause repeated failures.

• Try another reader if swipes keep failing: Before assuming the card is bad, test it on a different terminal.

Wrong ways to swipe your credit card

Avoid these common mistakes, which can cause failed or rejected reads:

• Swiping too fast, too slow, or at an angle: Instead of a smooth, flat, steady pass through the reader

• Facing the stripe the wrong direction or stopping mid-swipe: Rather than following the terminal's markings and completing the motion in one go

• Swiping a damaged or worn card: A scratched or demagnetised stripe often won't read no matter how carefully it's swiped

How can businesses upgrade from swipes to EMV or contactless payments?

While swiping remains a useful option, it's worth considering an upgrade. Here's how to switch to accepting EMV and contactless payments.

Choose the right hardware

Look for a device that can accept EMV chips, contactless payments, and possibly magnetic stripes as a secondary measure. Stripe Terminal offers card readers with all these features built in.

Verify your POS software

If you're using a POS system that was built around swiping, verify that it supports EMV or NFC. In many cases, it might require an upgrade or a plug-in. Integrating with a provider such as Stripe can keep your data consistent across channels.

Weigh your costs

Modern readers can be more expensive than basic swipe machines, but the costs of potential fraud or replacements after a data breach can be higher in the long run. Calculate your return on investment for upgrading to a new system, and ensure you consider hardware cost, potential liability, and the broader customer experience.

How Stripe can help

Stripe Terminal allows businesses to grow their revenue with unified payments across in-person and online channels. It supports new ways to pay, simple hardware logistics, global coverage and hundreds of POS and commerce integrations to design your ideal payments stack.

Stripe powers unified commerce for brands like Hertz, URBN, Lands' End, Shopify, Lightspeed and Mindbody.

Stripe Terminal can help you:

• Unify commerce: Manage online and in-person payments on a global platform with unified payments data.

• Expand globally: Scale to 24 countries with a single set of integrations and popular payment methods.

• Integrate your way: Develop your own custom POS app or connect with your existing tech stack using third-party POS and commerce integrations.

• Simplify hardware logistics: Easily order, manage and monitor Stripe-supported readers, wherever they are.

Learn more about Stripe Terminal or get started today.

FAQs about credit card swiping