How Is Information Stored on Credit Cards?

Magnetic Strip Technology

Credit cards encode information by using magnetic stripes, and data is stored by changing the magnetism of iron-based particles on the band of magnetic material. These black magnetic stripes, sometimes called "magstripes," also may include other technology, such as an RFID tag, a transponder device or a microchip. Invented by IBM engineer Forrest Parry, these magnetic strips are in similar in part to cassette tape technology.

Magnetic Encoding

There are three tracks on the magstripe, each about one-tenth of an inch wide. There are many different systems for storing information, but for banks, the ISO/IEC standard 7811 is used. Credit cards typically use only tracks one and two, whereas track three is a read/write track whose usage has not been standardized among banks. This information includes credit card numbers, account numbers, country codes, discretionary data to fill out records, expiration dates and other information.

Point of Sale

When a card is swiped at a Point-of-Sale (POS) terminal, the terminal dials a telephone number using a modem to call an acquirer. Acquirers are hired by credit card companies to collect credit-authentication requests from merchants to provide the merchant with a safeguard for payment. The acquirer, upon receipt of the authentication request, checks the merchant ID, credit card number, expiration date, credit-card limit and card usage against a database of credit-card information. With PIN codes, as some magnetic strip technologies use, the PIN is encoded and sent along with the other information to be checked against either the cipher form in a bank's database or against a chip on the card itself. The acquirer then releases funds, and communicates updated account information to the credit card companies. Banks attempt to secure credit card information by making the cipher a one-way cipher: Even with access to encrypted PIN numbers in a database, the PIN numbers will remain secure. Further, encryption is used in all telephone communications to prevent wiretapping. Today's advanced technologies further spawn a new generation of smart cards whose complexity increases monthly.