Credit Cards What Is a Magnetic Stripe Card? Magstripe Cards Explained By Alene Laney Alene Laney Facebook Website Alene Laney is a personal finance writer for The Balance since 2021. She has written for the Chicago Tribune, Yahoo Finance, and Rocket Mortgage. learn about our editorial policies Updated on April 30, 2022 Reviewed by Khadija Khartit Reviewed by Khadija Khartit Twitter Website Khadija Khartit is a strategy, investment, and funding expert, and an educator of fintech and strategic finance in top universities. She has been an investor, entrepreneur, and advisor for more than 25 years. She is a FINRA Series 7, 63, and 66 license holder. learn about our financial review board Share Tweet Pin Email In This Article View All In This Article Definition and Examples of a Magnetic Stripe Card How Do Magnetic Stripe Cards Work? Examples of Magnetic Stripe Card Transactions Alternatives to a Magnetic Stripe The History of the Magnetic Stripe Card What’s Next for Magnetic Stripe Cards? Definition A magnetic stripe card is a card embedded with magnetic technology that allows personal information to be read when swept through a card reader. Photo: RuslanDashinsky / Getty Images A magnetic stripe card is a card embedded with magnetic technology that allows personal information to be read when swept through a card reader. This personal information can include the cardholder’s name, address, account number, and account balances. Instant access to this information allows transactions to be processed quickly and accurately. Magnetic stripe cards have been used in a variety of settings since IBM invented them in the 1960s. After global standards were established for magnetic stripe cards, the technology took off. Although magnetic stripe cards have faded in importance as newer technologies such as EMV chips have arisen, they still survive. Here’s how they work. Definition and Examples of a Magnetic Stripe Card In its most simplified form, a magnetic stripe card is a card embedded with magnetic stripe technology that stores information. This information can include account numbers, identifying information, security functions, and other relevant data. When combined with a point-of-sale (POS) retail system, data networks, and transaction-processing computers, information is read instantly and transactions can be approved or denied on the spot. Alternate names: Magnetic strip card, swipe card, magstripe Some examples of magnetic stripe cards include: Credit cardsBank cardsATM cardsTransit cardsID cardsHotel key cardsLibrary cardsAccess cardsGift cardsLoyalty cardsMembership cards Note One of the first uses of the magnetic stripe card was in transportation systems in London. The London Transit Authority installed systems that used a magnetic stripe card on paper tickets to make access to transportation more efficient. How Do Magnetic Stripe Cards Work? The magnetic stripe on the back of a card is composed of three smaller stripes made of tiny, iron-based magnetized particles. These are called data tracks, and they hold the personal information and security functions relevant to an account. When passed through a card reader, a magnetic current is introduced to the stripe, and the information can be read in binary code by the computer. Then the point-of-sale system communicates the data it has received with the network and either approves or denies the transaction. Examples of Magnetic Stripe Card Transactions Here are a couple of examples of magnetic stripe cards in action. Gift Cards A gift card preloaded with a set dollar value is a great example of how a magnetic stripe card is used. When you buy a gift card, the cashier will ask how much money you would like to apply to the gift card. They will enter that amount into the point-of-sale (POS) system and swipe the card. When the card is swiped, it is encoded with the amount you specified and attached to the card’s serial number. When the recipient of the gift card uses it, it is swiped again. The serial number is read, and the information about the amount loaded onto the card is immediately transmitted to the POS system and applied as payment to the transaction. Transit Cards Another common application of the magnetic stripe card is in transit cards. A transit card—often a bus pass or a train pass—holds information about your account and the balance (how much money is left on it or how many trips the card’s value represents). When you swipe your card in a magnetic card reader, it will access your account number and instantly deduct the fare from your balance or make note of its time- or journey-based usage. Credit Cards A magnetic stripe credit card functions in the same manner. When a credit card is swiped at a store, the information from the data track interacts with the POS machine, data networks, and transaction-processing computers. This determines the customer’s information, account number, and credit limit. If the customer is under their limit and there are no holds on the account, the transaction will be completed. Alternatives to a Magnetic Stripe Newer technologies currently in use are set to replace the magnetic stripe in the coming years. The most common types include EMV chips and NFC technology. EMV Chip or Chip Card EMV (Europay, Mastercard, Visa) chips are embedded into the card and data read by a POS system much like a magnetic stripe card. When the EMV chip is used, each transaction creates an encrypted one-of-a-kind code, making it much harder for thieves to steal data when consumers use the card. EMV use is already widespread in the U.S. In 2015, most merchants complied with rules to accept EMV credit cards or face greater liability for fraudulent transactions. Although some credit cards today have both chips and stripes, the stripes may eventually be phased out. Near Field Communications (NFC) Near Field Communications (NFC) is a form of contactless communication between two devices. Supported devices can use NFC scanning to read special electronic tags attached to objects when holding a device within a few centimeters of it. Think Apple Pay: When your card is nearly touching the POS system, you’re able to pay for your purchases. Note One of the main reasons the magnetic stripe card has been replaced with the EMV smart chip card is due to its security benefits. It is much harder for thieves to steal personal data from an encrypted EMV smart chip. The History of the Magnetic Stripe Card Though credit cards were first issued in 1951, it wasn’t until they were standardized in the 1970s with a magstripe that their usage exploded. Before the magnetic stripe card, credit card numbers were written down by hand by a store clerk and sent to the bank for payment. Later, cashiers could copy embossed numbers with a machine, but there was still no way to verify if there was enough money to cover the charge other than phoning the bank. When infrastructure around the usage of magnetic stripe cards developed in the 1980s, it became a driving force behind the growth of the credit card industry. Now, cards are swiped nearly 50 billion times per year. The inventor of the magnetic stripe card, IBM, didn’t patent the technology. Instead, it worked with the banking and airline industries to lobby for standardization so the technology could be used worldwide. IBM did, however, sell substantially more computers to support the technology behind magnetic stripe cards. What’s Next for Magnetic Stripe Cards? As technology evolves, the magnetic stripe card will give way to more advanced methods of transacting. In August 2021, Mastercard announced it would begin phasing out magnetic stripe technology. Starting in 2024, the magnetic stripe will start to disappear in certain places where chip technology is widely used (such as in Europe). In 2027, banks in the U.S. will no longer be required to issue cards with a stripe, and in 2029, no Mastercard will be issued with a magnetic stripe. Key Takeaways Magnetic stripes carry personal information that can be validated instantly and accurately.The standardization of magnetic stripe cards in the 1970s allowed for cards to be used across the globe.Magnetic stripe technology is being replaced by more secure and convenient technology, such as EMV chips and NFC. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. IBM. "Magnetic Stripe Technology." Accessed Oct. 11, 2021. Vassar College Lasers, Technology, and Teleportation. "Explaining the Physics Behind Magstripes/Experimental Conclusions." Accessed Oct. 11, 2021. High Tech Aid. "Historical Overview of The Card Industry." Accessed Sept. 28, 2021. FIS. "Why EMV Chip Cards Are Replacing Magnetic Stripes." Accessed Oct. 11, 2021. Mastercard. "Swiping Left on Magnetic Stripes." Accessed Oct. 11, 2021.