- Authorizing a credit card transaction begins with the magstrip, that horizontal band running along the back of your credit card. "Magstrip" stands for magnetic strip. Information about your credit card account is stored on that strip in the same way that music is stored on a cassette tape or data is stored on a floppy disk.
- When you swipe your card through the credit card machine, that machine reads the data on the card's magstrip. It transmits information about your card and the transaction to the computers at your issuing bank. It then receives information from the bank as to whether the transaction can be approved and prints an appropriate receipt. Though not directly related to authorizing the transaction, these machines also keep records of recent transactions for later reprinting or other analysis.
- Credit card machines communicate with the computers at the issuing bank and/or with the major credit card companies, including Visa and American Express. Most do this via a phone line, like your fax machine or dial-up modem. Because of this, most transactions rely on the telecommunications infrastructure to be successfully completed.
- The issuing bank and the credit card network store all the data about credit card transactions on computers. These are the large data storage racks, not personal computers like most people use at home and at work. These computers communicate information between one another automatically, using modems and telecommunications infrastructure just like the credit card machine must.
- Internet-based credit card processing has grown in popularity between 2000 and 2010. By accepting credit card payment over the Internet, vendors and buyers are able to bypass credit card machines and, if they have a non-telephone connection, the telecommunications infrastructure.
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