- A credit card's magnetic strip consists of thousands of tiny magnets. These magnets are oriented in a way that resembles binary code, the language computers read; generally, magnets facing up have a value of one (1) and magnets facing down have a value of zero (0). This binary code contains important account information such as the credit card number, expiration date, security codes and other identifying information. As the card is passed through the credit card machine's magnetic stripe reader, the machine reads these details from the card and prepares the data for transmission to the credit card network.
- If the credit card's magnetic stripe is damaged or unreadable, the machine may require the information to be manually entered by the clerk. In such a case, the machine will prompt for the necessary information (such as card number, expiration date and security code) to be entered using the machine's keypad.
- After receiving and preparing the credit card and transaction information, the credit card machine must transmit this information to the credit card network. To transmit, the machine connects with a Local Access Telephone Area (LATA) Interface Gateway (LIG) which routes the transaction to the issuing bank for a credit authorization. Some machines connect to the LIG by dialing a local access telephone number while others are constantly connected through a high-speed data or broadband Internet connection.
- After the LIG transmits the transaction information to the card issuer and an authorization (or decline) message is generated, the message is transferred in numeric code back across the credit card network to the LIG and ultimately to the credit card terminal. The terminal receives the response, deciphers the numeric code and displays either an authorization number (for approved transactions) or a declined message.
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