How do card readers work? A guide for businesses

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Terminal

Build a unified commerce experience across your online and in-person customer interactions. Stripe Terminal provides platforms and enterprises with developer tools, precertified card readers, Tap to Pay on compatible iPhone and Android devices, and cloud-based device management.

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  1. Introduction
  2. What is a card reader?
  3. Card reader vs POS
  4. How many types of card readers are there?
  5. How does a card reader work?
  6. Do card readers need Wi-Fi?
  7. Benefits of using a card reader

As of 2022, credit and debit cards comprised 71% of point-of-sale (POS) payments, followed by digital wallets, which made up 12% – all of which require a card reader to process. Because cards are used in so many everyday purchases, card readers, which facilitate these transactions, are ubiquitous. While card readers may seem straightforward, credit and debit cards, and the card readers that power these payments, are increasingly more complex.This means that there’s even more for businesses to know about when picking the right card reader.

From security and fraud prevention to accommodating increasingly popular digital wallets, here’s what businesses need to know about different types of card readers and how to incorporate them.

What's in this article?

  • What is a card reader?
  • Card reader vs POS
  • How many types of card readers are there?
  • How does a card reader work?
  • Do card readers need Wi-Fi?
  • Benefits of using a card reader

What is a card reader?

A card reader is a device that accepts credit and debit cards as a payment method during transactions. It can be a component within a POS terminal or a stand-alone device that works independently.

Card reader vs POS

We have an article that explains the differences and relationship between card readers and POS systems, but in short, a POS system’s functionality extends well beyond accepting card information for transactions. While card readers are often a component in a larger POS system, the POS itself is responsible for performing many more functions, including:

  • Creating receipts
  • Documenting customer information
  • Updating inventory
  • Logging the sale for accounting purposes
  • Documenting any rewards programme information
  • Noting which employee performed the transaction

Another important distinction between card readers and POS systems: Card readers are physical devices, whereas POS systems can take the form of physical terminals, digital software or a combination of both.

How many types of card readers are there?

Depending on how and where they’re meant to be used, card readers can come in several different forms. Common types of card readers include:

  • Stand-alone countertop card readers
  • Card readers that attach to mobile devices
  • Card readers that are an attached component on a larger POS terminal

How does a card reader work?

Generally, card readers work by accepting card information from a credit or debit card presented at the POS and transmitting that information to the business’s POS software – and subsequently its payment processor – for authorisation. Many modern card readers, including Stripe Reader M2, accept all three card payment types:

  • Magstripe payments
    Originally, card payments were conducted by swiping the magnetic stripe – also called a magstripe – on the back of credit and debit cards. Because magstripe transactions involve transmitting the card number itself to the card reader, this type of payment is considered less secure than newer card payment methods.

  • Europay, Mastercard and Visa (EMV) chip cards
    Since the early 2010s, more credit and debit cards have come equipped with embedded computer chips. These cards are either inserted into card readers or tapped to initiate a transaction, at which point the EMV chip sends an encrypted code, and not the card number itself, to the card reader, minimising the chances of someone accessing the card’s credentials for fraudulent purposes.

  • Near-field communication (NFC) contactless payments
    Millions of cards are now enabled with NFC technology, which allows payments to be completed by holding the card very close to the card reader, usually a few millimetres away.

Do card readers need Wi-Fi?

Some card readers require a Wi-Fi connection, and others don’t. Stripe Reader, for example, is able to communicate with your POS using Bluetooth, but both Stripe Reader and Terminal require an Internet connection to process payments.

Benefits of using a card reader

With more than 108.6 million credit card transactions occurring in the US every day, most businesses are now required to accept card payments from customers. There are many important benefits to using a card reader:

  • They’re fast
    Compared with manually processing credit and debit card payments, card readers are huge time savers. Initiating a card transaction – whether it’s swiped, tapped or inserted – typically takes only seconds. Not only do faster transactions contribute to a smoother customer experience, but when you have a line of customers waiting to checkout, efficient card readers can make a significant difference in your ability to turn over sales.

  • They’re usually highly secure
    Keeping a customer’s payment data secure is always a primary concern for businesses, and modern card readers do an excellent job of supporting that goal. Stripe Reader M2 is EMV-certified and comes with end-to-end encryption (E2EE), and is also point-to-point encryption (P2PE) ready. All of Stripe’s pre-certified readers meet PCI compliance requirements, encrypt sensitive card information, and return a token to your application through the Stripe Terminal SDK so that you can confirm payment.

  • They integrate with other payment solutions
    The Stripe Reader M2 works seamlessly with Terminal and the rest of the Stripe platform. For businesses, this means access to an integrated and unified payments system that extends across online and in-person payments.

Whatever kind of business you run, your customers’ satisfaction is likely to be strongly tied to how effortless your payment experience is. Once you’ve successfully got a customer to the point of checking out and completing a purchase, the last thing you want is to deliver a time-consuming, friction-filled checkout. Equipping your business with readers that easily and quickly accept swiped, tapped and inserted card payments is a smart investment in a better customer experience.

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