DEFINITION of 'Magnetic Stripe Card'

A magnetic stripe card is any type of card that contains data embedded in a strip composed of iron particles in plastic film. The front of the card contains identifying information, such as the cardholder’s name and the issuing company’s name, while the magnetic stripe resides on the back. These cards are usually a little larger than 2 inches by 3 inches and made of plastic or durable paper. Types of magnetic stripe cards include driver’s licenses, credit cards, employee ID cards, gift cards and public transit cards.

BREAKING DOWN 'Magnetic Stripe Card'

When a magnetic stripe card is swiped through a magnetic stripe reader, the reader decodes the data in the magnetic stripe to enable a transaction to go through. The transaction might allow an employee to access a building or a customer to pay a merchant by credit card. If the magnetic stripe becomes dirty, scratched or demagnetized, the card may not work.

How Magnetic Stripe Cards Function

The magnetic stripe on a credit card contains three horizontally stacked tracks, each of which stretches across the full width of the card and occupies a portion of the magnetic stripe. Each track is capable of holding a different amount and type of data. These tracks contain the credit card account number, name, expiration date, service code and card verification code. Credit cards primarily or exclusively use the first two tracks. The third one sometimes contains additional information, such as a country code or currency code. Other types of magnetic stripe cards use all three tracks.

Magnet stripe cards have been targets for fraud, particular when information thieves use devices to skim and copy the data in the stripe. That information might be used create duplicate cards that can access the account at retail locations, or it can be used to tap into the accounts for electronic transactions. Such potential for abuse has led to the development of new ways to secure transactions normally handled with magnetic stripe cards.

The EMV microchip, or chip-and-PIN, credit card is replacing magnetic stripe credit cards to improve credit card security. Microchip cards use a superior technology: a unique, single-use encrypted digital signature that is harder to copy. Chip-and-pin cards can also require cardholders to enter a personal identification number at the point of sale to provide an extra level of security.

Magnetic stripe cards continue to be used as retailers continue to introduce chip readers at their stores to allow for sales to be conducted with so-called smart cards.

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