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How do Credit Card Readers work? All you need to know.

How do Credit Card Readers work? All you need to know.

17 August 2018 Product Information

Credit card reader technology and the role it plays in processing payments.

Over the past few years, card readers have become so ubiquitous that the vast majority of us now pay for most things with a debit or credit card, rather than paying with cash.

Ever since chip and PIN technology was introduced in 2004, credit card readers have gradually taken over. The total number of card readers in the UK is now estimated to be around 2.2 million, and the number is still growing. Unsurprisingly, debit cards are now the most popular form of payment in the UK (making cash seem outmoded, especially to younger people). But how do these devices work?

Do you know the difference between a magstripe and a chip card? What is contactless and how does that work? We’ll tell you everything you need to know about credit card readers and how payments are processed, so you’ll better understand how you get paid.


How do credit card readers work?

Step 1 – Payment authenticated

The customer presents their card (or mobile device, but more on that later) and the card reader takes the card-holder’s details from the card’s internal chip. As soon as a card payment is made the retailer’s merchant bank receives the request from the card machine via a telephone or broadband line (one of the main purposes of a merchant bank is to create and maintain a merchant account allowing the business to take card payments).


Step 2 – Transaction submitted

Once the request is received, the retailer’s merchant bank asks the debit or credit card provider (such as VISA or MasterCard) to verify the card and receive payment authorisation from the customer’s bank.


Step 3 – Authorisation requested

The card provider will verify that the card details are correct and they’ll pass the authorisation request onto the customer’s card-issuing bank (the bank that supplied the customer with their debit or credit card).


Step 4 – Authorisation response

The card-issuing bank will check the customer details and ensure there are available funds in their account to make the payment.


Step 5 – Retailer payment

Once the bank authorises the payment, a signal is sent back to the card reader. A receipt is printed with proof of the accepted purchase and payment. While authorisation instantly, it usually takes 2-3 days for the customer’s bank to send the payment to your acquiring bank (the acquiring bank being the ones who process credit or debit card payments on behalf of a merchant).


How do Chip and PIN Card Readers work?

Chip and PIN technology was originally created to improve the security of card transactions and protect, both consumers and card providers, from growing levels of card fraud.

Up until the deployment of this new system, consumers swiped and signed for goods using the black magnetic stripe on the reverse of the card. This payment method was sometimes called swipe card or magstripe.

Paying with a magnetic stripe card had a number of flaws that made it very easy for fraudsters to gain access to card information. The introduction of computer chip technology was seen as a surefire solution to this and was championed by the major banks, who were eager to crack down on card crime.

The ‘chip’ installed in the cards is about the size of a pinhead and stores a record of the 4 digit PIN number. When the customer inserts their card, the card reader reads the chip and the transaction is verified when the customer enters their matching identification number.


How do Contactless Card Readers work?

Contactless cards use short-range wireless technology which sends information to the contactless payment machine. This is the same technology used by Apple Pay, Android Pay and Samsung Pay devices. The transaction limit (currently £30) increases security for customers, while the speed of payment helps shorten queues so customers aren’t kept waiting. Many businesses like shops, cafés and small restaurants that sell low-cost items receive more sales due to the quick turnaround of their contactless card machine.


How do Apple Pay & Android Pay Card Readers work?

Android Pay

Android Pay is a mobile payment system that lets customers pay with an Android device like a mobile phone or tablet. By storing their card details on their Android device, customers can use it for fast and secure in-store payment. Payment is made using NFC (Near Field Communication) or RFID (Radio-frequency Identification), or by holding their mobile device to the card reader. All of our terminals come with Android Pay as standard without any additional fees.

Apple Pay

Apple Pay is a contactless payment system where customers can pay for goods and services using an Apple device. By adding their card details to their Apple Wallet, customers can use their device to pay in-store and online. Similarly, all of our card terminals come with Apple Pay as standard without any additional fees.


Benefits of using a credit card reader in a small business

As the popularity of cash payments continues to decline, more consumers expect to have the option of paying for goods and services by card. Our recent research found that the popularity of contactless has seen more and more consumers favouring card payments over cash, with forecasts suggesting cash will make up just over one in four (27%) payments by 2026. That’s why we only offer contactless credit card readers no matter how big or small your business is.


  • Faster and more efficient than other payment methods, card readers can reduce queues, thus improving the customer experience.
  • Gives your customer more choice with options to pay via contactless, Chip and PIN, Apple Pay or Android Pay.
  • Sales figures and customer behaviours are recorded automatically, giving you instant access to a wealth of useful data to help keep control of stock and plan your next marketing campaigns.
  • Helps reduce fraud and provides your business with a more secure way to take payments.


Paymentsense provides affordable credit card reader solutions for businesses of all shapes and sizes. Price plans and set-up costs will depend on things like size, sector, and personal requirements.


If you’re interested in a faster and smarter way to take payment fill out our form online to receive a quote.

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