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What is a Smart Card?

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The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless. The authors and reviewers work in the sales, marketing, legal, and finance departments. All have in-depth knowledge and experience in various aspects of payment scheme technology and the operating rules applicable to each. The team holds expertise in the well-established payment schemes such as UK Direct Debit, the European SEPA scheme, and the US ACH scheme, as well as in schemes operating in Scandinavia, Australia, and New Zealand. See full bio

Last editedOct 20212 min read

Many countries have phased out magnetic stripe card technology in favour of the smart card. First launched in 1983 with a French card for pay phones, this type of card comes with its own memory chip included. So, what is a smart card, and how does this type of technology work? Here’s what you need to know.

Smart cards explained

Used to make payments or to carry easily scannable information, smart cards are designed with an integrated chip built into the system. The chip is often embedded directly into the card and connects to a smart card reader either through wireless connectivity or physical contact. Although plastic smart cards are most common, you’ll also come across designs crafted from metal. All required information for transaction processing is encrypted and included on the smart card’s chip, which also serves as a security token for various applications.

Some smart cards include a microprocessor and memory chip for greater functionality, while others will only include the memory chip. However, in both cases there’s no need to contact remote databases to process a transaction. Everything you need is on the card. Smart cards must conform to international security standards, including the ISO/IEC 14443 and ISO/IEC 7816.

How do smart cards work?

What happens when you connect a plastic smart card with a smart card reader? The smart card reader provides the power needed for the card to function. A smart card’s memory chip and/or microprocessor is capable of exchanging data with the card reader. Depending on the type of card, it uses either direct contact or wireless connectivity via RFID or NFC standards. The card reader acts as a middleman, passing the card’s data along to a separate authentication system for processing.

Types of smart cards

There are several types of smart cards you might come across, each designed for slightly different functions.

Contact smart cards are the type you’re most likely to come across. These are inserted directly into the smart card reader. A conductive contact plate on the card’s surface physically connects to the card reader’s touchpoint, allowing data to be sent and received.
Contactless smart cards are becoming increasingly common, requiring no physical contact with the card reader. Instead, the card and reader connect using antennae and wireless radio frequencies. You can simply place the card near the reader to connect the pair.
Dual-interface smart cards combine the two types of technology. With both contact and contactless capabilities, they’re easy to use in any setting. There are also hybrid cards out there which include multiple technologies, such as microprocessors as well as RFID chips.
Memory chip-only smart cards are meant to provide a single function. Prepaid phone cards and key fobs are a common example of this type of card, which includes a memory chip that stores, reads, and writes data. However, the data can’t be modified, and the card isn’t programmable.
Microprocessor smart cards include both a memory chip as well as a built-in microprocessor for increased function. The card’s data can be managed with smart card reader software.

Uses of smart cards

With built-in memory cards and microprocessors, it’s perhaps unsurprising that smart cards can serve multiple functions. This technology is used in:

Credit and debit cards
Government ID cards
Corporate ID cards
Transit fare cards
Health insurance cards
Prepaid telephone cards
Digital key fobs
Electronic visas and passports

In the case of payment processing, smart card reader software helps manage these functions at the point of sale.

The bottom line

There are plentiful benefits to smart card technology. Smart cards are more secure than magnetic stripe cards, because there is no need to connect remotely to a separate data processing centre. Instead, microprocessors create a self-contained system. There’s also more space to store valuable data with less risk of it being deleted or altered in any way. Not all businesses are equipped with smart card readers, but as the technology becomes more common this is less of an issue worldwide.

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