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 credit card authorization key refers to an specialized code ...
  2. Carding

    Carding is a form of fraud that uses stolen credit card information ...
  3. Business Guarantee

    A business guarantee is a credit card agreement where charges ...
  4. Credit Card

    Issued by a financial company giving the holder an option to ...
  5. Credit Card Funding

    Credit card funding is the use of a credit card account to provide ...
  6. Cash Card

    A cash card is any electronic payment card that stores cash for ...
Related Articles
  1. 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.
  2. Small Business

    How to Use Small Business Credit Cards

    A small business credit card can be a convenient way to increase your company's purchasing power, but must be carefully managed.
  3. IPF - Banking

    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.
  4. 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.
  5. 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.
  6. Personal Finance

    Why More Millennials Need Credit Cards

    Here's why more Millennials should have credit cards – even though a majority don’t.
  7. Personal Finance

    How To Get Your First Credit Card

    Here's a rundown of how you can go about getting your first credit card.
  8. Personal Finance

    Does a Lost or Stolen Credit Card Hurt Your Credit Score?

    Learn the ways in which a lost or stolen credit card can hurt your credit, and understand the steps you can take to protect yourself if this happens.
  9. Personal Finance

    How Many Credit Cards Should You Carry?

    If you have ever wondered whether you should carry one, two or more cards, read on and we'll tell you.
Trading Center