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How do card readers work?

2 min read

Whether you’re buying a cup of coffee or a delicious meal out, you may not have thought too deeply about how bank card readers work while you’re tapping that POS terminal. But card readers have come a long way from the days of credit card imprinters and early magnetic stripe technology. Buckle up, because we’re about to explore the fancy technology that sits behind card readers for businesses.

What does a card reader do?

The terms ‘card machine’ and ‘card reader’ are often used interchangeably as both are devices that allow you to take payments securely, but strictly speaking, a card machine is a Chip and PIN-style device with a screen and PIN pad that you might encounter on the high street or elsewhere, whether it’s a pub, coffee shop, butchers, bakers or candlestick-makers. In contrast, card readers are smaller devices that may not offer the same features, and could be more suited to businesses handling a lower volume of transactions.

How do contactless card readers work?

Contactless payments are possible thanks to Near Field Communication (NFC) technology, which enables data to be transmitted through radio waves over short distances. Here is a summary of how contactless card readers take payments:

  1. A customer holds their bank card a few centimetres from your business card reader, which reads the information contained on the card. Contactless payments of up to £100 can be made.
  2. The information is verified by your bank, who will contact the customer’s card issuer or provider to check the transaction is valid – the issuer will approve or decline the transaction and send this information to the card reader.
  3. The payment is withdrawn from the customers’ account and transferred to your business bank account.

How do mobile card readers work?

These days, customers can make mobile payments on their smartphone, which is sometimes referred to as a mobile wallet payment; the term ‘digital wallet’ is used more broadly for payments on other devices like tablets and computers (as well as smartphones). A customer can install a mobile wallet app, such as Google Pay and Apple Pay, and hold their device to a POS terminal reader before the payment is processed. Just like contactless payments, mobile wallets use the same NFC technology we covered earlier.

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This has been prepared by Tyl by NatWest for informational purposes only and should not be treated as advice or a recommendation. There may be other considerations relevant to you and your business so you should undertake your own independent research.

Tyl by NatWest makes no representation, warranty, undertaking or assurance (express or implied) with respect to the adequacy, accuracy, completeness, or reasonableness of the information provided.

Tyl by NatWest accepts no liability for any direct, indirect, or consequential losses (in contract, tort or otherwise) arising from the use of the information contained herein. However, this shall not restrict, exclude, or limit any duty or liability to any person under any applicable laws or regulations of any jurisdiction which may not be lawfully disclaimed.

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