Smart Cards: Definition, Uses & Examples

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  • 0:03 A Smarter Way to Shop
  • 0:32 What Is a Smart Card?
  • 2:22 Smart Card vs. Other Payments
  • 3:38 Lesson Summary
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Lesson Transcript
Instructor: Beth Hendricks

Beth holds a master's degree in integrated marketing communications, and has worked in journalism and marketing throughout her career.

Smart cards offer a slightly different way to pay for your purchases, while protecting your valuable personal information. In this lesson, you'll learn more about smart cards and how they're used.

A Smarter Way to Shop

The last time you went shopping, how did you pay? Cash, check, credit card? What about a smart card? You probably have a smart card but don't know it by that name. Take a look:

A smart card in your wallet typically contains an embedded microprocessor that stores information.

Maybe this picture helps and you recognize a card similar to a credit or debit card that you currently carry. Did you know this a type of smart card? Let's take a closer look at this unique card type which is becoming more common among everyday consumers.

What Is a Smart Card?

A smart card bears a striking resemblance to a regular credit card - partly because it is one! If you have a card with a microprocessor chip to pay for a purchase, you're the proud owner of a smart card.

The small microprocessor chip embedded in a smart card, which stores personal information, is used to authenticate your data and ensure that your personal details aren't easily stolen. The microprocessor is hidden beneath a small, rectangular, gold contact pad on one side of the card. In many instances, this chip replaces the more traditional magnetic strip usually seen on the back side of a credit or debit card.

Unfamiliar with what a microprocessor chip is? It's basically a fancy way of saying you have a mini-computer inside of your credit card. The purpose of the microprocessor is to offer enhanced security for your personal data and financial transactions. When the chip is processed by a chip reader, it basically talks to the host computer and transmits your data quickly and securely.

Smart cards come in two basic types: contact and contactless. While the two are pretty self-explanatory, a contact smart card requires contact with a card reader, like a chip reader at a cash register, while a contactless smart card utilizes radio frequencies or Near Field Communication (NFC) to send information through the airwaves wirelessly. A good example of a contactless smart card is an identification card used by an employee to gain access to a particular room or protected floor of a building.

Smart cards have a variety of uses, ranging from health care IDs that store patient information and medical histories to transit passes that make travel easier. Some of the most widespread uses are for employee identification and security, and for banking and other financial transactions.

Smart Card vs. Other Payments

In many ways, smart cards are similar to other non-cash methods of completing financial transactions. Here are a few examples of how they compare:

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