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The Evolution of the Card Scanning Machine

7 min read Mansoor Ahmed

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Next time you wave your watch or phone near a credit card terminal to complete a transaction, take a moment to appreciate how far we the card scanning machine has evolved. Of the many fascinating advancements in the last half of a century or so, few have been quite so profound as the way we pay for things. The evolution of credit card scanning machines has brought us to a point in time where clunky, inconvenient hardware is now being replaced by software.


Plastic cards arrive, and the credit card imprinter is born.

Payment cards are equipped with magnetic stripes.


Electronic payment terminals become common.

Square launches the first app-based reader in the United States.


Chip and PIN technology reaches the United States.

The Quolum card is virtual only, saving wallet height.


Card Scanning Machines: From “First Supper” to Square

After computers and smartphones, the credit card terminal is one of the most prevalent electronics in the world today. But where did it come from, and how did we get to the point where you can complete a transaction with your watch?

Credit card lore has it that in 1949, businessman Frank McNamara was entertaining clients at a Manhattan restaurant and realized he forgot his wallet. The event, known in the industry as “the first supper,” left an indelible mark on McNamara. The following year, he returned to the restaurant with a small cardboard card prototype designed to provide consumers with a way to pay for goods and services and settle their bill with merchants at the end of the month. And so, the Diners Club card was born!

But the idea of paying on credit, and using cards to track that credit, did not start with Diner’s Club. As early as the 1900s, department stores in the U.S. were issuing their own proprietary charge cards for in-store use. But it wasn’t until the 1970s that we began seeing today’s major credit cards (AMEX, Mastercard, and Visa) fronted by leading banks.

The adoption of general use cards led to an interesting problem: How does one verify that the card is legitimate, has not reached its credit limit, and so on without slowing down the transaction? With department stores, the credit check was easy enough to handle internally. With major credit cards, merchants needed a way to communicate card transactions with the issuing company.

Knuckle Busters for Credit Cards

Credit card imprinter

Knuckle buster” sounds like something you might wear in a street fight, not a credit card imprinter. But before the 1980s the knuckle buster, so named because repeated use could lead to cramping hands and sore knuckles, was one of the best tools for managing credit card transactions.

The device made imprints of plastic credit cards, the first of which was launched by American Express in 1959. The machine enabled merchants to quickly imprint credit card information onto a form, which was signed by the customer, eliminating the need to record transactions manually. Signed formers were mailed to the bank to receive payment.

Phone Authorization Comes and Goes

Phone authorization was the next step in the evolution of credit card technology. Merchants called a phone number listed on the card and gave the credit card number to a representative, who verbally authorized payment. The process was time consuming, even with the advent of computer use at most major banks, so it was reserved for larger transactions. 

POS Electronic Card Scanning Machines

First magnetic stripe credit card

Magnetic stripes, invented by an IBM engineer, were added to credit cards in 1970. The magnetic stripe contained critical information on the card, but there was still the challenge of reading it. In 1973, the first electronic transaction system linked merchants all over the United States to the Visa data center in California. By 1980, electronic credit card readers were common, thanks to Visa and Mastercard.

With magnetic stripes and payment terminals, consumers still had to sign receipts to authorize payment.  But of greater concern was security. The technology made counterfeiting and credit card fraud easier.

Dip and Sign Leads to Chip and Pin

"Euro Pay" card reader

Security issues over magnetic stripes led to the development of EMV chip cards, initially used in Europe.  EMV stands for Euro pay, Mastercard and Visa, the companies who founded the technology in 1994. These “smart” chips, based on 1980s semiconductor technology, were embedded in credit cards to provide an extra security layer.  Users “dipped” the card into a credit card reader, then signed the receipt to authorize payment. In some countries, EMV cards also require a personal identification number (PIN).

In 2015, chip and PIN cards were introduced into the United States, phasing out magnetic stripe-only cards.  Consumers dipped the card into the card reader and entered their four-digit PIN to verify their identity. As cards became smarter, users could get some limited credit card reporting on their statements.

Just Tap and Go

Tap-and-go card reader

Today debit and credit cards with chip technology also can be used to “tap” to pay without entering a PIN or signing a receipt. When a consumer taps the card to a reader, it uses near-field communication to send a token that contains a random set of numbers and symbols that represent the card via radio frequency to complete the purchase.  A customer’s name, bank account number and three-digit security code on the back of the card are not transmitted during the transaction, so information can’t be intercepted to create a counterfeit card or make unauthorized purchases.

Wireless Credit Card Terminals

Wireless card reader

The first credit card terminals were directly linked to a phone line and later to an internet line. Over time, it became possible to get off of Ethernet thanks to 3G, 4G, GPRS, WiFi, and now 5G. The type of connection impacts speed and dependability, but the key thing is that the terminal can connect to merchant banks to authenticate  payments.

Early wireless terminals were useful for adding flexibility on premises. For example, someone dining in a restaurant could check out at the table instead of walking up to the register. When mobile phones made wireless connections ubiquitous, it became possible for vendors to accept payments anywhere: Farmers’ markets, trade shows, food trucks, and more. App-based readers were not far behind.

App-Based Credit Card Readers

Early Square card reader

Modern smartphones made it possible to replace dedicated card readers that needed their own SIM cards. At first, it was possible to plug a small stripe reader into the headphone jack of a smartphone and accept payments through a mobile app. Square was the first to launch an app-based card reader in the United States in 2010. Others followed.

Thanks to recent advancements, app-based credit card readers typically connect via Bluetooth. These card readers are much more affordable than traditional card readers. They also offer advanced security and technology like chip readers and tap to pay.

Throughout the history of the card reader, the party or device responsible for assessing the validity of the transaction has shifted.  First, humans were completely responsible for discerning the legitimacy of a card. Even with security features like holograms, it was difficult for many cashiers to separate valid credit cards from impressive fakes.

Cashiers were limited to looking at a card to assess validity, even with the knuckle buster. The advent of the credit card stripe made it easier to validate payment, and made it harder (but certainly not impossible) to commit fraud. Once credit card terminals were connected to banks, there was less pressure on human beings to root out forgeries. At that point, the challenge was mostly limited to determining if the person using the card was the approved card carrier.

A Future Without Card Readers…?

"The future of credit cards and card readers will be marked by superior accuracy and convenience. Plus, you no longer have to sit on a fat wallet." Click To Tweet

Just as hardware replaced manual documentation, software now is replacing hardware. Going forward, there might not be any need for physical cards—only digital cards that can be used online. We are nearing the end of the need for human intervention when it comes to credit transactions.

That said, there are still fringe cases where human beings have to intervene in the payment process. For the most part, though, algorithms can determine the legitimacy or fraudulence of charges. Some credit cards can even help the card carrier manage expenses.

Credit cards and card readers of the future will significantly more accurate and convenient. Plus, you no longer have to sit on a fat wallet.

About Quolum

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