When I slidey debit card, how does the card reader know if there is money on it?
I understand nowadays that the card reader probably just asks over the Internet how much money the account has, but debit cards are older than the Internet, so what did they do back then?
In: Technology
Before the internet, and before telephone processing, credit cards were charged using a machine that made an imprint of the card on a three-layer carbon paper receipt. The merchant would write the charge amount on the receipt, then load the card into something literally called a card imprinter.
The merchant would then take the carbon receipt out and the customer would sign it to authorize the charge. The three layers carbon copy receipt would be separated. One to the customer, one for the merchant, and one was mailed to the bank for processing. The bank had staff that would key the charges into their systems.
It was all very cumbersome and very expensive. Credit cards were very different back then. Only a limited number of stores even accepted them, and you couldn’t just use them to buy a soda. Many large stores had their own internal charge card programs, and they only accepted their own cards.
As an interesting aside, store charge accounts are more or less the origin of the concept of a credit card. Regular customers at local stores had “charge accounts” as early as the late 1800s. Department stores formalized the programs and started issuing cards.
As charge cards became more widespread, and charge amounts ballooned, merchants would call a phone number on the back of a customer’s card in order to authorize a signifcant charge. This was the introduction of the idea of “pre-authorization” and “authorization”, which is still part of the charge process today.
It wasn’t until modems became a thing that the mag stripe took off. Visa introduced the first POS in 1979, and that’s when things really started to change. Merchants could swipe a card, wait a few moments, and get an authorization for any amount, and no expensive call center employees were required. The modems could connect directly from the POS terminal at the merchant to regional banking computing centers.
From here, it feels like a rocket ship ride to the modern, internet connected CC terminal machine.
The history of the credit card is fascinating, and you should definitely do some Google searches and do some reading.
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