Magnetic Stripe Card
A magnetic stripe card is a type of payment card that stores data on a band of magnetic material, typically dark in color, located on the back of the card. This magnetic stripe contains encoded information that can be read by a point-of-sale (POS) terminal or other card readers to facilitate a transaction. These cards primarily function within the broader category of Payment Systems, enabling electronic exchanges of value. While widely adopted for decades, the technology relies on static data, making it less secure than newer alternatives.
History and Origin
The concept behind the magnetic stripe card emerged in the early 1960s. IBM engineer Forrest Parry sought to create a secure identity card for CIA officials by affixing magnetized tape to a plastic card. Initially, he faced challenges with adhesion until his wife, Dorothea Parry, suggested using an iron to melt the tape onto the card, which proved successful.8
IBM then pioneered the technology, leading the establishment of standards for magnetic stripe technology. It was adopted as a U.S. standard in 1969 and an international standard two years later, allowing magnetic stripe cards to be used globally.7 This standardization paved the way for widespread adoption by the retail banking sector, transforming how credit card and debit card transactions were processed.
Key Takeaways
- A magnetic stripe card uses a magnetic band to store static information, read by a compatible terminal.
- The technology was developed by IBM in the 1960s and became an international standard by 1971.
- Magnetic stripe cards are prone to security vulnerabilities like data skimming and cloning due to their static data storage.
- They remain in use for various applications, including payment, identification, and access control, though newer technologies are increasingly replacing them.
- The shift to more secure technologies like EMV chip cards has significantly reduced magnetic stripe-related fraud.
Interpreting the Magnetic Stripe Card
A magnetic stripe card, often found on the back of a credit card or debit card, functions as a simple data carrier. When swiped through a card reader, the magnetic heads in the reader convert the magnetic flux reversals on the stripe into electrical signals, which are then decoded into digital data. This data typically includes the cardholder's name, primary account number (PAN), expiration date, and a service code.
The interpretation of this data occurs at the payment gateway and the card issuer's systems, which use the information for authentication and authorization of the transaction. The simplicity of this data storage and retrieval made magnetic stripe cards revolutionary but also introduced security challenges due to the data being static and easily copied.
Hypothetical Example
Consider a consumer, Sarah, using her magnetic stripe debit card to pay for groceries at a supermarket.
- Swipe: Sarah slides her magnetic stripe card through the card reader at the checkout counter.
- Data Read: The reader's magnetic head reads the encoded information from the stripe, which includes her card number, expiration date, and other identifying data.
- Transmission: This data is then sent electronically through the merchant's point-of-sale (POS) system to the payment processor.
- Authorization: The payment processor routes the request to Sarah's bank (the card issuer) for authorization. The bank verifies the card details and checks for sufficient funds or credit.
- Approval/Denial: If approved, the authorization is sent back through the network to the POS terminal, and the transaction is completed, allowing Sarah to pay for her groceries.
This entire process, from swipe to approval, typically takes only a few seconds, illustrating the efficiency of magnetic stripe technology in facilitating quick payments.
Practical Applications
Beyond standard credit card and debit card transactions, magnetic stripe cards have found various practical applications:
- Identification Cards: Many institutional ID cards, such as those used by students and staff on university campuses, incorporate magnetic stripes for access control to buildings, libraries, or other restricted areas.6
- Loyalty and Gift Cards: Retailers often use magnetic stripes on loyalty cards for tracking customer purchases and on gift cards to store their loaded value.
- Transit Passes: Public transportation systems in some regions have utilized magnetic stripe cards as fare cards.
- Hotel Key Cards: Hotel room keys frequently employ magnetic stripe technology to grant guests access to their assigned rooms.
- Time and Attendance Systems: Businesses use magnetic stripe cards for employee clock-in/out systems.
These diverse uses highlight the magnetic stripe card's role as a versatile, low-cost medium for data storage and access, impacting various facets of daily commerce and operations.
Limitations and Criticisms
While revolutionary, magnetic stripe cards face significant limitations, primarily concerning security. The fundamental flaw is that the data stored on the magnetic stripe is static and unencrypted. This static nature makes magnetic stripe cards highly vulnerable to skimming and cloning.5
- Skimming: Criminals can attach small devices, known as skimmers, to legitimate card readers at ATMs or point-of-sale terminals. These devices surreptitiously copy the magnetic stripe data when a card is swiped.4
- Cloning: Once the data is skimmed, it can be easily written onto a blank card, creating a functional duplicate, or "clone card," for fraudulent purchases or withdrawals.3
- Lack of Data Encryption: Unlike newer chip technologies, magnetic stripes do not perform dynamic authentication or encryption for each transaction. This means if the data is stolen, it can be reused multiple times.
- Physical Wear and Tear: The magnetic stripe can be demagnetized or damaged by exposure to other magnets, dirt, moisture, or general wear, leading to card read errors.
These vulnerabilities have driven a global migration towards more secure payment technologies, impacting payment networks and financial technology (FinTech) development.
Magnetic Stripe Card vs. EMV Chip Card
The primary difference between a magnetic stripe card and an EMV chip card lies in their data storage and security mechanisms.
| Feature | Magnetic Stripe Card | EMV Chip Card |
|---|---|---|
| Data Storage | Static data on a magnetic strip. | Dynamic data stored on an embedded microchip. |
| Security | Vulnerable to skimming and cloning; data is easily copied. | Highly secure; generates unique, encrypted transaction codes for each use, making cloning difficult. |
| Authentication | Primarily relies on signature verification. | Supports various strong authentication methods, including PIN (Chip-and-PIN) and sometimes biometric verification, in addition to signatures. |
| Transaction Type | "Swipe" through a reader. | "Dip" (insert) into a reader, or "Tap" for contactless (NFC). |
| Fraud Liability | In many regions, the party with the least secure technology (e.g., merchant without chip reader) often bears the fraud liability. | Designed to shift liability for counterfeit card fraud to the party that has not adopted EMV.2 |
EMV (Europay, Mastercard, Visa) chip cards were developed to combat the rising tide of counterfeit card fraud, a significant issue with magnetic stripe technology. EMVCo, a global technical body owned by major payment networks, manages and evolves the EMV specifications to ensure worldwide interoperability and acceptance of secure payments.
FAQs
What information is stored on a magnetic stripe?
A magnetic stripe typically stores the cardholder's primary account number (PAN), expiration date, full name, and a service code that indicates how the card can be used (e.g., whether it requires a PIN or signature).
Are magnetic stripe cards still used?
Yes, magnetic stripe cards are still widely used, especially in regions that have not fully transitioned to EMV chip technology or for purposes other than payments, such as loyalty programs or access control. However, their use for payments is declining in favor of more secure options.
Why are EMV chip cards more secure than magnetic stripe cards?
EMV chip cards are more secure because they contain a microchip that generates a unique, encrypted code for each transaction. This dynamic data encryption makes it extremely difficult for fraudsters to clone the card or use stolen card data for subsequent fraudulent purchases.
Can a magnetic stripe card be cloned?
Yes, magnetic stripe cards are susceptible to cloning. Their static data can be easily copied using skimming devices and then written onto a new card, enabling fraudsters to create duplicates for unauthorized use.1
What does "liability shift" mean for magnetic stripe cards?
The "liability shift" is a policy that transferred the financial responsibility for certain types of card fraud (specifically counterfeit card fraud) from the card issuer to the merchant if the merchant had not upgraded to an EMV-compliant terminal. This incentivized merchants to adopt the more secure chip technology.