What is a card reader – definition of card payment machines

There are many names to describe card readers these days. Some call them POS terminals, card machines, payment terminals, card terminals and more. Ultimately, however, we’re talking about the technology that helps a merchant accept card payments like debit and credit cards, prepaid, and gift cards in the payments acceptance process.

With the rise of cashless payments on the continent, it’s clear that card readers play a crucial role in helping merchants accept payments. If you’re new to the world of seamless payments and you’d like to find out what is a card reader, keep reading below!

A brief definition of a card reader

A card reader is essentially a piece of electronic technology designed to decode the information in the card’s magstripe or chip. This electronic data input device can be handheld, wireless, or connected by wire to a PC or sales terminal and has several common features across the variety of devices available on the market.

Traditionally, these devices contain a screen, keypad, or touchpad for smart devices and important features that enable the card reader to engage with the customer’s card.

These features may include:

• The ability to enable the card to be physically inserted in the card reader or the chip to be read;
• The ability to enable the card’s magnetic stripe to be swiped, a pin pad or a touchpad;
• Features which enable the card reader to process contactless transactions.

At this point, it’s essential to look at some characteristics of debit and credit cards. Physically, they are small, thin pieces of plastic with cardholder details embossed on the front of the card. These details include the PAN number of the card, the cardholder’s name, and the expiry date.

Another feature of the front of the card is the chip. It is a piece of technology which, when inserted in a card reader, enables the latter to transmit information to several actors. It includes issuing bank, merchant’s bank or financial services provider in order for a payment transaction to be processed and for the sales process to be completed.

The back of the card contains a magnetic stripe, or magstripe, which very much like the chip on the front, contains the cardholder’s data and is used to communicate to the various actors in the payment process.

The back of a credit card also contains a CVV number, added for extra layers of security and to reduce incidents of fraud. It is the chip and the magnetic stripe, which are the key features of a card that relate to card machines. This is because the chip and the magnetic stripe contain all the information on the card and more.

Additional features

The different types of card readers offer various additional features which may be beneficial for your business. Here’s a brief list of some of those:

Here’s a brief list of some of those:

• Highly responsive Multi-touch touchscreen displays;
• Possibility to connect to networks via Wi-Fi connection;
• Thermal receipt printers with options to customize receipts for specific brands;
• Digital receipts through SMS and E-mails for more sustainable business workflow;
• Payment requests directly through the card reader;
• Ability to issue refunds without the need to use additional hardware and software;
• Tipping – perfect for taxi, bar, and restaurant businesses.

How does it work?

In essence, card readers are simple to understand.

Once a shopper has selected products or services to purchase from your business, the customer inserts, swipes, or taps their card on the card reader in order to initiate a payment.

The device processes the microchip or magnetic stripe on the card and ensures the card number matches the one linked to the cardholder’s account. 

Next, the reader connects with the card issuer’s payment system to verify that there are sufficient funds in the customer’s account. After full authentication, the funds are securely transferred from the shopper to the merchant account of the business. 

During the verification process, the issuing bank conducts the authentication process, where there is a security device needed.

However, card readers work slightly differently based on the payment method selected.

Although we’re discussing card transactions using credit or debit cards, these can be used on:

• Magstripe credit card readers;
• EMV chip and PIN card readers; 
• Contactless payments;
• Apple Pay and Android Pay readers.

Let’s go over each one in more detail.

Magstripe credit card readers

Although Magstripe are no longer as popular as other card readers, they’re still present on the market. Associated with less security compared to other alternatives, with this option the payment information is positioned on the backside magnetic stripe payment card.

In other words, it’s static and remains constant each time the card is used on the machine. This makes these cards vulnerable to fraud.

EMV chip and PIN card readers 

EMV readers are designed for EMV cards (credit or debit cards that possess a microchip according to a standard created by Europay, MasterCard, and Visa).

It’s important to note that EMV chip cards support Near Field Communication (NFC) technology. 

Debit and credit cards come with a tiny chip that’s installed within the plastic. This chip holds information about the card owner’s four-digit PIN number. 

PIN card readers work in the following way. Once a shopper puts their card into the card reader, the reader acknowledges the data on the chip and verifies the transaction once the customer provides a matching PIN.

Contactless payments

Businesses can also use card readers to process payments contactless. Rather than providing their PIN every time consumers pay, they can simply tap their card on the card reader. There are certain daily payment limits that apply for contactless payments and it’s key to have up-to-date information about your personal daily limits. 

For example, the most popular personal payment limits are up to £100 per transaction. 

Contactless payment technology works thanks to Radio Frequency Identification (RFI) or short-range wireless technology. It enables shoppers to position their cards close to the card reader, which receives the signal and establishes communication with the card to complete the payment. 

Apple Pay and Android Pay readers 

Today, more and more shoppers prefer to use a mobile device to initiate payments as an easy, secure, and fast alternative. 

Thanks to digital wallet apps like Samsung Pay, Google Pay, Apple Pay, and more, shoppers can use a mobile app anytime on their iOS and Android devices to make payments. 

The customer presents only a mobile device, which contains a set-up digital wallet, which automatically stores all necessary payment information and eliminates the need to provide PIN numbers, payment details, or other information at the time of purchase.  

When should you use a card reader?

You can use payment terminals to process the customer’s card for payment. The devices “read” the information on the card, transmit it to the relevant parties in the workflow, and finally complete the transaction with either an approved or a declined payment.

The three most common ways that card readers can “read” the cardholder’s information are through swiping the magnetic strip, inserting the chip into the chip reader, or contactless through a hover near a designated area.

Do you need special software to use a card reader?

Be cautious of card reader messages, especially if the message reads battery-low. Such messages may mean that the software is prompting you to address urgent issues or actions needed to prevent device interruptions.

Note that some partners offer a replacement card reader log designed to track when new readers are issued.

What are the benefits of using a card reader?

Apart from the obvious benefits of using card readers for your business, namely that they offer a faster and more efficient way for customers to pay you and reduce queue times, there are other benefits.

They include the following:

• They offer customers a wider choice for making payments – via cards, digital wallets, contactless, Chip&PIN, magstripe, and more;
• They are more secure than keeping cash on-site;
• They enable the collection of sales data, which can help with reporting and analytics.

Which industries benefit from the use of a card reader?

Card readers are used in a wide range of industries, such as retail, hospitality, and financial services.

If you want to manage regular payments as a business or hope to handle numerous daily transactions (for example, supermarkets and restaurants), card readers streamline payment processes. This helps minimise waiting times to just a few seconds. 

In the financial industry, card readers are key to preventing online fraud. This is especially important when handling international transactions with an existing international payee. 

Online banking solutions also depend on card readers to authorise transactions and keep a high level of security when changing personal details. 

There are a few more uses for card readers, but the examples above will help you understand the foundations.

Can you use a card reader for contactless payments?

Yes, you can use a card reader to accept contactless card payments and boost everyday banking convenience. 

NFC, mentioned above, is the technology that enables this. It is used to read card details without physical contact. 

Shoppers simply tap their card or mobile device on the reader to initiate the transaction, which is completed almost instantly. 

For businesses without a card reader, contactless payments through mobile apps can be a solution, given that the payment reference and card number match the bank’s records. In some cases, you can find a card reader section in your banking app that will help you understand the process, often using up and down arrows to navigate through card reader select or select security features.

How to choose the right card reader for your business?

Choosing an appropriate card reader for your business can be a challenging process, often requiring careful consideration. 

One of the most important things to assess is your transaction volume. Larger businesses may need readers with more sophisticated features. Check if the reader you’ve set your eyes on supports contactless payments and can take care of international mobile numbers if this applies to your business.

Make sure the card reader is user-friendly so you can easily work with it without wasting time. 

If you’re new to card readers, it may be useful to search for a digital lesson provided by banks or other partners on how to use and maintain them. Make sure that the number displayed on the reader matches the payment details.

Conclusion

Card readers are an invaluable asset to small and medium businesses today. In fact, the payments landscape in Europe is changing quickly, with Statista estimating that as of late December 2020, over 15.5 million such terminals processed payments across Europe.

These electronic pieces of technology help merchants accept a variety of card payments and mobile wallets. They eliminate or reduce queues, offer customers a more secure way to pay, and better facilitate the payment acceptance process. If you’re looking for an affordable card machine, it’s always good to get informed about the options you have available before you make your final decision.