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Street SmartsSM:
A 'bit' of a look at payment data transfer

By Amy B. Garvey

As merchant level salespeople we provide our customers with electronic payment processing capabilities deployed through PCs and POS terminals. But how much do we really know about how the computers in these devices work? What takes place behind the scenes that affects the speed at which payment data can be moved?

Technology has always interested me. I was even somewhat of a geek in high school, with my graphing calculator and my father's computer at home (a "portable" computer that we could move from one place to another).

As I researched the topic of data transfer, however, I found that there's a lot more to it than I thought: bits and bytes, RAM and ROM, Megahertz, baud, analog and digital communication, and encryption. Let's begin with the basics and a few definitions.

Bits and bytes

Bits and bytes are data amount measurements. Bits are typically used to describe the speed at which data are transferred. Bytes are used to measure file sizes. A bit, the smallest unit of computer data, is a single-digit number in binary code, which consists of 1's and 0's. It is measured in powers of two. Eight bits make up one byte. The term bit is derived from its full name: binary digit.

Because computers are based on the binary system, hard drive and memory capacity are measured in powers of two. For example, a kilobyte (KB) is two to the 10th power, or 1,024 bytes (usually rounded to 1,000 bytes). Most text files are less than 1KB, a thumbnail (or reduced) digital image is usually 5KB -10KB, and a larger JPEG file can take up as much as 250KB of space.

The amount of "space" encompasses everything from a computer's or POS terminal's hard drive and how much data the drives can store in their memory, to data transfer rates and how many programs can run simultaneously.

RAM and ROM ... and Flash

RAM, which stands for Random Access Memory, acts like short-term memory in the computer or POS terminal. RAM is made up of small memory chips connected to the computer's or terminal's motherboard.

When you open a program, it is moved from the hard drive into RAM for faster access. The amount of RAM available, combined with the data transfer rate, loosely determine how fast the computer will respond to commands (or how often it will crash).

Although processing speed and ability are important, without a sufficient amount of RAM, the computer won't be able to hold enough information for immediate access. Changes in RAM availability and configuration, combined with higher processing speeds, are what have allowed the advent of the value-added applications for POS terminals that we sell to merchants every day.

ROM, or Read Only Memory, contains the hard-wired instructions used by the computer when it boots up. All data are stored on the hard drive in a stack of magnetic disks that spin rapidly.

This enables the immediate retrieval of data from anywhere on the drive. Because ROM is magnetic storage, data won't be lost when the power goes out; however, unsaved data stored in RAM will be.

Data transfer rates are related to RAM and ROM by units of measure. They are also related in that the computer's ability to transfer data depends as much on the amount of its RAM as on the connection's amount.

For example, regardless of whether POS terminals use a fast connection, such as a broadband connection, if the devices don't have enough RAM to receive and translate data, they might as well use a slower, dial-up connection.

In terms of merchant services, this is where issues often arise. Merchants may invest in a broadband connection for their store, but if their system (whether it's a stand-alone POS terminal or an integrated POS system) doesn't have enough RAM or ROM, a faster connection doesn't help.

Another common memory type is flash memory, also known as electrically erasable programmable read-only memory, or EEPROM. Flash memory is usually used in smaller devices such iPods or POS terminals because of its size and ability to store information.

Megahertz and baud

Megahertz is the unit used to measure transmission speed in electronic devices. One megahertz equals 1 million cycles per second. "Buses" inside the computer contain wires that allow the passing of data back and forth. Buses are restricted by size (bits) and speed (megahertz).

In terms of connection speed, baud is the term most often used in our industry. Baud is a difficult concept to understand because it doesn't describe data transfer speed. Rather, it's a measure of how many electrical signals are transmitted per second.

To put it another way, compare RAM and ROM to miles in "miles per hour"; they are simply measurements of quantity. Baud is the "per hour" part of the equation, although it's measured in seconds rather than hours.

Baud is the number of signals sent over a line. It does not equate to bits per second because most modems transmit many bits of data per baud. Although baud and bits per second are related, they are not the same thing.

Analog versus digital

Human beings perceive the world in analog. This means our senses receive and translate a continuous stream of measurable, physical variations in information and stimuli.

Digital, the language of most computers, is based on the binary system. Unlike human perception, digital communication is somewhat limited; everything sent or received must first be estimated as a series of 1's and 0's.

Aside from the fact that all modern computers communicate digitally, digital has another major advantage. Digital data are simply an estimation of analog data, and unlike analog, digital data can be copied, edited and moved around without changing the quality.

How fast the data are "estimated" is called the sampling rate, and the amount of data contained in a sample is called the bit depth. Bit depth and sampling rate determine how accurate the translation is from analog to digital format.

Analog data may be more accurate (think of a vinyl album on a turntable, which reads the bumps on a record as a continuous signal) but accuracy doesn't always equal quality. When listening to a CD, you actually only listen to an approximation of the audio, as the player translates the 1's and 0's into wavelengths.

The same applies to a VCR tape versus a DVD. The quality of a DVD seems better, as many unwanted things are filtered out (like cheers from a crowd or static), but the information's accuracy is compromised.

The higher the bit depth, the more accurate the information will be. With the ability to filter out unwanted things such as static, digital makes sense for computers and POS terminals.


Encryption is the scrambling of data so that only someone with the right key can decode or read data. Think cereal box prizes and magic decoder rings, and you get the picture. Encryption is extremely important, especially in our industry in which we deal with so much private, valuable information. Encryption allows only the sender and intended receiver to know what's going on in a transaction, whether it is a data communication or funds transfer. Although encryption doesn't prevent people from intercepting the data, it does keep them from understanding the data or doing anything with the information if they do gain access to it.

Though certainly not exhaustive, I hope this overview has been helpful as you try to gain an understanding of how all the technology we use every day works together.

Amy B. Garvey is NAOPP Secretary. She works in the Upstate of South Carolina as a Sales Agent for New York-based Business Payment Systems. Call her at 864-901-8722 or e-mail her at .

Article published in issue number 060202

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