Magnetic Stripe vs. Chip: What’s the Difference?

You’ve seen those new card reading machines. They function as both magnetic card readers and chip readers. You might even already have a credit card with a chip. But what’s the difference between that chip and a magnetic stripe? Is there a difference? We’re here to answer that question.

How does a magnetic stripe card work?

Magnetic stripe cards are basically traditional credit cards. Until a few years ago, almost every credit card transaction was performed with a mag stripe reader. The purpose of the magnetic stripe is to store and communicate data from your card to the transaction terminal when you’re making a purchase. The magnetic stripe stores data like the card number, your full name, the card’s expiration date, and the country code of your card’s origin. It can hold up to 60 characters magnetically. The transaction process is fairly simple, as well. It goes a little like this:

  • You swipe the card.
  • The transaction terminal sends a request to your card’s bank.
  • The transaction terminal sends an authorization request (and creates a response) from your bank back to the terminal.
  • If all requests for authorization are approved, the transaction goes through.

Overall, this is a fairly straightforward process. Let’s look at how chips differ.

How is a chip different from a magnetic stripe?

The biggest difference between chip cards and magnetic stripes is security. As we discussed above, magnetic card readers go through a fairly simple process. If someone can access the data stored in that magnetic stripe, they can replicate it over and over again. Chips, on the other hand, provide a much higher level of data encryption.

Instead of a simple magnetic stripe, chip cards utilize an actual computer chip to interface with transaction terminals. This makes stealing data much more difficult. It also means it’s much easier for credit card algorithms to stop fraudulent transactions in their tracks. Magnetic stripe card readers just don’t have the level of security that chip cards do.

All in all, either method works for processing transactions. But in a world where credit card fraud and identity theft are becoming more and more common, going with the more secure option just might do you good.

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