Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.
A magnetic stripe card is a type of credit or other card that allows the user to make electronic transactions or obtain entry to a particular space. The "stripe" contains embedded information that identifies its user. Types of magnetic stripe cards currently in use include credit and debit cards, some driver's licenses, employee ID cards, hotel room "keys," gift cards, and public transit cards. Magnetic stripes are being largely phased out today and replaced with more secure microchip technology. From the user's viewpoint, it's the difference between a "swipe" and a "dip." ACCESORIES
Magnetic stripe cards are usually made of plastic or durable paper and about 2 inches by 3 inches in size. A stripe on the back, made of iron particles in plastic film, contains the embedded data. When the card is swiped through the slot on an electronic reader, such as a sales terminal in a retail store, the reader decodes the embedded data and either approves or rejects the card.
The magnetic stripe on a credit card (sometimes called a mag stripe) 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 cardholder's name and account number, the card's expiration date, a service code, and a card verification code. Credit cards primarily or exclusively use the first two tracks. The third track sometimes contains additional information such as a country code or currency code. Other types of magnetic stripe cards use all three tracks.
If the magnetic stripe becomes dirty, scratched, or demagnetized, the card may not work.
Magnetic stripe cards have been targets for fraud since their introduction, in particular through a process known as skimming.
In skimming, criminals place an inconspicuous device called a skimmer on the card readers of gas pumps or ATMs. When someone inserts their card into that machine, the skimmer reads the information on the stripe and stores it for later retrieval by the criminals. That gives them all they need to create duplicate cards, which they can then use to run up charges on the person's credit card or drain the money from the bank account that's linked to a debit card.
The FBI estimates that skimming costs financial institutions and consumers more than $1 billion a year.
Because of the costly security issues with magnetic stripes, many credit and debit cards now have small, square microchips, called EMV chips, embedded in them. They contain the same information as magnetic stripes, but are inherently more secure. EMV stands for Europay, Mastercard, and Visa, the companies that were involved in the creation of the technology standards.
EMV cards use a unique, encrypted digital signature that changes with each transaction, unlike stripes, where the information never changes. Because the digital signature is good only once, a thief who obtained it couldn't use it for any new transactions. EMV cards may also require that the user sign for the transaction or input a PIN number into the card reader at the point of sale.
For online transactions, where the consumer isn't present to sign or punch in a PIN, the cards carry a three- or four-digit number called a CVV (for card verification value) or CID (for card identification) code. That number is both encrypted in the chip and printed on either on the front or back of the card, depending on the issuer. This feature adds a degree of security to online transactions because a thief who has obtained the cardholder's account number but not their physical card will be unable to supply the CVV or CID if asked for it, and the transaction can be refused.
Magnetic stripes have not disappeared altogether from payment cards, many of which have a stripe on the back and a chip on the front, allowing the cardholder to either swipe or dip their card. A major reason that the changeover hasn't happened completely is that some merchants, particularly in the U.S., have been reluctant to replace their old card readers with new chip-enabled ones, largely due to the costs involved.
History credits Fritz Pfeulmer, a German engineer in the 1920s, with the basic concept of using coated magnetic stripes to store data—a breakthrough that also led to magnetic recording tape. The magnetic stripe card didn't come along until the 1960s and is typically credited to Forrest Parry, an American engineer at IBM. As IBM tells it, "The story goes that he wanted to combine a strip of magnetized tape with a plastic identity card for officials of the CIA, and he couldn’t figure out how to do it. When he mentioned his problem to his wife, who happened to be ironing clothing at the time, she suggested that he use the iron to essentially melt the strip on. And that’s what he did."
Credit cards with magnetic stripes appear to have been first introduced by American Express in 1970. The technology caught on with other issuers over the ensuing decade.
Magnetic stripe credit and debit cards could be around for the rest of this decade, although their days are clearly numbered. Mastercard, for example, says that, "by 2029, no new Mastercard credit or debit cards will be issued with a magnetic stripe," although its prepaid cards in the U.S. and Canada "are currently exempt from this change."
Magnetic stripes helped make credit and debit card transactions faster and easier but have been superseded by newer, more secure technologies. The stripes may remain on other types of cards for the foreseeable future, however.
Federal Bureau of Investigation. "Skimming."
Illumin Magazine, USC Viterbi School of Engineering. "The Magnetic Stripe Technology."
IEEE Spectrum. "The Long Life and Imminent Death of the Mag-Stripe Card."
Mastercard. "Swiping Left on Magnetic Stripes."
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