First, it's useful to distinguish between a magnetic-stripe transaction and a fallback transaction.
The difference between a magnetic-stripe transaction and a fallback transaction
A magnetic-stripe transaction is one carried out by swiping the magnetic stripe on the card. Because chip data is not read in these transactions, the security level of the transaction is low.
A fallback transaction is one in which a chip card is used at a POS terminal that has chip-reading capability, but the card's chip cannot be read for some reason (the chip is damaged, the card was inserted into the POS device incorrectly, the POS device's chip reader is faulty, etc.), so the POS device redirects the transaction to the magnetic stripe reader instead.
In that case, we can confidently answer the question ‘Is a transaction made by swiping the magnetic stripe of a chip card always a fallback transaction?’ with No.
Who decides whether a transaction is magnetic-stripe or fallback?
The POS device decides. If the POS device itself has no chip-reading capability, it routes the transaction directly to the magnetic stripe reader. If it could not read the chip for some reason and redirected the transaction to the magnetic reader, this information is recorded by the POS device, so the transaction is sent to the POS's acquiring bank marked as either a fallback or a magnetic-stripe transaction.
How does the POS send this information to the bank?
First, it's worth noting that the payment systems messaging structure is in ISO 8583 format.
According to this format, the transaction type is sent in the F22 POS Entry Mode field.
- If the POS device has chip-reading capability but was unable to read the chip, the F22 value is 80x;
- If the POS device has no chip-reading capability, the F22 value 90x is sent. (The x value indicates the POS's PIN entry capacity.)
Card-issuing banks also determine the transaction type based on the information sent in this field, and can approve or decline the transaction according to their own internal rules.
You can find the article I previously wrote about F22 at the link below.
F22 POS Entry Mode values
F22—POINT OF SERVICE ENTRY MODE: This is the field that records how the transaction was carried out via the POS/ATM, and the POS device's PIN entry capacity. The first 2 digits indicate how the transaction was carried out, and the last digit indicates the POS's PIN entry capacity. It is a 3-digit numeric field.
| ISO Code | Description |
| 00x | PAN entry mode unknown. |
| 01x | PAN manual entry. |
| 02x | Magnetic Stripe, the magnetic stripe has not been fully read and/or transmitted. |
| 03x | PAN auto-entry via bar code reader. |
| 04x | PAN auto-entry via optical character reader (OCR). |
| 05x | PAN auto-entry via integrated circuit card. |
| 06x | PAN key entry. |
| 07x | Contactless Chip |
| 79x | Chip card or chip-capable terminal was unable to process transaction using data on the chip or magnetic stripe, therefore, PAN was entered via manual entry, or Acquirer not certified to process the value “80”, so the MDS replaced “80” with “79”. |
| 80x | Chip card or chip-capable terminal was unable to process transaction using data on the chip, therefore, the PAN was entered via magnetic stripe. The full track data has been read from the data encoded on the card and transmitted within the authorization request on Track-2 Data (DE 35) or Track-1 Data (DE 45) without alteration or truncation. |
| 81x | PAN manual entry via electronic commerce. |
| 90x | PAN auto-entry via magnetic stripe—the full track data has been read from the data encoded on the card and transmitted within the authorization request on DE 35 or DE 45 without alteration or truncation. |
| 91x | Contactless MagStripe |
| 95x | Integrated circuit card read, CVV data may be unreliable |
| x | Description |
| 0 | Unspecified or unknown. |
| 1 | Terminal has PIN entry capability. |
| 2 | Terminal does not have PIN entry capability. |
| 8 | Terminal has PIN entry capability, but PIN pad is out of service. |
| 9 | PIN verified by terminal device. |