DEFINITION of 'Credit Card Encryption'

Credit card encryption is a security measure used to reduce the likelihood of a credit or debit card information being stolen. Credit card encryption involves both the security of the card, the security of the terminal where a card is scanned, and the security of the transmission of the card’s information between the terminal and a back-end computer system.

BREAKING DOWN 'Credit Card Encryption'

Credit cards are an integral part of the payment process. Consumers expect that most businesses will accept cards as a method of payment, rather than relying on cash to conduct transactions. Businesses provide electronic terminals that a consumer can scan his or her credit card through, with the terminals sending the card’s identifying information to computer servers in order to verify that the consumer has sufficient funds.

How Credit Card Encryption Works

When a credit account holder makes a purchase with their card, the information such as the account number are scrambled by an algorithm. The intent is to make it impossible to access that information without the corresponding encryption key that lets the merchant and financial institution conduct their transactions. Until the information is decrypted by the key, the information is not usable, making it safe so long as it remains unlocked.

Because credit cards require the use of an electronic transfer of information, they can be exposed to third parties who can steal the card’s information. Types of fraud include skimming, carding, and RAM scraping.

Card issuers use a variety of methods to encrypt credit cards. The magnetic strip on the back of a card is typically encrypted and can only be read by a card scanner. Relying solely on the magnetic strip is a less secure method than requiring the use of a PIN-and-chip, because a PIN makes it more difficult for stolen credit cards to be authorized and used. A smart card with an electronic chip adds can be harder for thieves and hackers to steal information from, compared with other forms of encryption and security put in place to protect cred account information.

For transactions that do not require a card to be scanned, such as an online transaction, websites require both the credit card number on the front of the card and a CVV number located on the back of the card to be used. Using a CVV prevents an individual from being able to use only a stolen credit card number to conduct a transaction.

RELATED TERMS
  1. Credit Card Authorization Key

    A code used in credit card transaction authorizations that confirms ...
  2. Cloning

    The copying of stolen credit or debit card information to a new ...
  3. Secured Credit Card

    A secured credit card is a type of credit card that is backed ...
  4. Carding

    Carding is a form of fraud that uses stolen credit card information ...
  5. A Credit Card

    Issued by a financial company giving the holder an option to ...
  6. Stored-Value Card

    A stored value card is a type of electronic bank debit card.
Related Articles
  1. Personal Finance

    3 New Types Of Credit Cards To Look For

    These three types of credit cards are becoming popular with customers looking to pay less fees and build up their credit scores.
  2. Insights

    What Is The New Credit Card Chip Good For?

    Under current U.S. credit card requirements, credit card issuers are required to issue chip cards as of October 1, 2015. Instead of swiping your card as you do now, you will slide the card into ...
  3. Personal Finance

    What happens when your credit card expires?

    Find out why it's a good idea to change and update your credit card once in a while. Learn about other cards that may better suit your needs.
  4. Personal Finance

    Credit, Debit and Charge: Sizing Up The Cards in Your Wallet

    Not all plastic is equal! Learn the difference between the three kinds, and how each can affect your finances.
  5. Personal Finance

    Credit Card or Cash?

    Credit cards are convenient to use, but not always the best choice. Here are five times you shouldn't pay with a credit card — and five times you should.
  6. Personal Finance

    Purchases You Should Always Make With A Credit Card

    Credit cards aren't always bad possessions to have. There are certain perks associated with using credit cards as we make routine or irregular purchases.
  7. Personal Finance

    10 Considerations For Using Your Credit Card Abroad

    Credit cards can be the best item you pack when traveling, just make sure that you are taking the right card that suits your needs.
  8. Investing

    Investing In Credit Card Companies

    This investment requires keeping an eye on consumer indexes and the overall health of the economy.
Hot Definitions
  1. Return On Equity - ROE

    The profitability returned in direct relation to shareholders' investments is called the return on equity.
  2. Working Capital

    Working capital, also known as net working capital is a measure of a company's liquidity and operational efficiency.
  3. Bond

    A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
  4. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  5. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  6. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
Trading Center