Whether you know it or not, you’re probably surrounded by smart cards right now. There’s probably a type of smart card in your mobile phone, several in your wallet, and perhaps one in your laptop - among other places in your home and work. Smart cards are truly ubiquitous in our modern lives.
There are an estimated 30 – 50 billion smart cards in circulation today, and the smart card industry is projected to be worth $16.9 billion by 2026. But what exactly are smart cards? How do they work? And what do they mean for you?
What are Smart Cards?
A smart card is essentially a tiny computer that performs a specific function. Smart cards are usually small, flat pieces of plastic or other material embedded with a microprocessor that can process, transmit, and store data. This allows the smart cards to do various tasks. This is why they are so ubiquitous – in fact, smart cards are the most common form of IT processing in the world.
Starting in the 1960s, engineers in Germany, Japan, and the USA began experimenting with adding microchips to payment cards. In 1974, a French inventor named Roland Moreno patented the first version of the modern smart card. The technology advanced over the next decade, until smart cards began to be deployed en masse in 1983 in France as payment cards for public phones.
Smart cards have exploded in popularity since then. They offer greater security than other types of cards, confidentiality, and portability and convenience. This makes them a safe place to store all types of valuable data, from banking access keys to personal identification information.
How Do Smart Cards Work?
In order for a smart card to make a transaction, it needs:
A card reader (which can be anything from a mobile phone to an ATM to a subway turnstile) to which the smart card transmits data.
A microprocessor (sometimes called a “memory chip” or, simply, “chip”) that processes, transmits, and stores data.
A circuit that transmits electronic signals. Often, this circuit is built into the small “chip” that is embedded into common smartcards like credit cards.
For many, but not all smart cards, a “contact pad or plate,” which is an electronic part of the chip that makes it possible for the chip to communicate with a smart card reader. Just like the circuit, this contact pad is often built into the “chip”. Therefore, in many modern smartcards, the “chip” includes a microprocessor, a circuit, and a contact pad all in one.
A smart card transaction works as follows:
The smart card comes in contact with a card reader.
The smart card reader sends information from its chip to the reader.
The smart card reader sends this information to a terminal for processing in order to perform the desired job.
Common Types of Smart Cards
Common types of smart cards include:
Contact Smart Cards
Contact smart cards always include a visibly embedded chip. Contact smart cards must be “dipped” into a reader in order to transfer data from their chips. Contact smart cards include some credit and debit/ATM cards. The SIM card in your mobile phones is also an example of a contact smart card: the SIM card is physically inserted into the phone, which acts as the reader.
Contactless Smart Cards
Contactless smart cards use radio frequency identification (RFID) technology, rather than physical contact, to transmit information with a simple tap or wave against the card reader. Contactless smart cards are often used for public transport, key cards, and contactless payment cards, because they only need to be tapped or waved against a card reader to transmit information.
Hybrid Smart Cards
Hybrid smart cards have two chips: one for contact and one for contactless transactions. Because of this duality, they are very versatile and can be used for any of the above cases.
Dual-Interface Smart Cards
Dual-interface smart cards are like hybrid smart cards in that they are able to carry out both contact and contactless transactions. However, Dual-Interface smart cards only have one chips. This chip is powerful enough to transmit information in both contact and contactless scenarios. This makes Dual-Interface smart cards a very popular choice for payment cards.
Memory Smart Cards
Memory smart cards can store data in their chip. They can also read and write data. Memory smart cards can have low memory and therefore are sometimes used for disposable, single-use products.
Microprocessor Smart Cards
Microprocessor smart cards are just what they sound like – they have a microprocessor in their chip that allows them to store, add, and edit data. Microprocessor smart cards have a much larger memory than memory smart cards.
USB
USB smart cards are relatively rare. They are most often used as hardware security keys. They include a USB interface so that they don’t need a specific card reading device to function.
What Are the Uses of Smart Cards?
Smart cards are used in many industries and all over the world. Some of the most common uses of smart cards are:
Telecommunications
SIM cards, the type you slip into mobile phones, are a type of smart card. SIM cards store customer information and allow people to swap out their phones easily. In this case, the SIM card is the smart card and the mobile phone acts as the card reader – a good example of how smart cards play many roles in modern society!
Identification
Smart cards can be used for identification and access control. Some driver’s licenses, access badges, passports, and federal ID cards include the chip needed to be considered smart cards. Sometimes they store biometric data such as fingerprint information to help identify cardholders.
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Healthcare
Smart cards can store medical and insurance information. In hospitals, they are often used for registration and recording purposes.
Transportation
Smart cards are commonly used for public transportation fares. The next time you ride a subway, you might use a pre-paid metro card that allows you access to the train: this is an example of a smartcard.
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IT
Smart cards are used in IT as security tokens and to encrypt data. They can help workers securely log in to systems and access vital information.
Education
Smart cards can help schools track students, services, goods, and access. Smart cards in education can be used as library cards, student IDS, payment cards for the dining hall, and more.
Financial Services
The financial industry has embraced smart card technology. Smart cards are used as credit cards, debit cards, gift cards, and more. Some of the most influential financial smart cards are the EMV credit cards that billions of people use every day.
Since we’re in the fintech space, let’s dive in a bit more into the specific use of smart cards in finance.
Why Does the Financial Industry Use Smart Cards?
Smart cards offer advanced security for all types of payment transactions. They can encrypt data and even generate unique data to securely authenticate transactions. Additionally, the chips in smart cards are highly tamper resistant.
Smart cards can store much more data than a payment card with a magnetic stripe, and they can store varied types of information, from numeric data to fingerprint, facial recognition, and voice recognition data. They can also work with cellphones, computer systems, point-of-sale machines, and more.
Smart cards are simple to use, especially with the rise of contactless technology. This means that it is easy to introduce smart cards to many different populations, and therefore many different markets.
Smart cards are durable and portable payment tools.
Smart cards are adaptable and can be used with upcoming technologies like blockchain and internet of things; anything that needs a handheld tool for data transfer.
Smart cards are eco-friendly. They have a long life span and small carbon footprint of about 150 CO2eq.
The Future of Smart Cards in the Financial Industry
Smart cards are constantly evolving and bringing new possibilities to the financial industry. Some notable examples of new and groundbreaking smart cards are:
Biometric card solutions that combine fingerprint, voice, or facial recognition with the security of card chips to provide a safer payment experience
Virtual credit cards such as Apple Pay and Stripe Issuing that tokenize payment cards and use NFC technology in mobile phones to allow customers to pay by tapping their phone against a card reader
EVC (Ellipse Verification Code) technology enables EMV credit card chips to display a dynamic, or changing, card security code on a digital screen, replacing the less-secure printed card security code on the back of most smart payment cards
Smart cards have become an integral part of modern life due to their security, convenience, and multifunctionality. While they have a big impact in various industries, from telecommunications to healthcare to transportation, the financial industry in particular has embraced smart cards. As technology continues to evolve, smart cards are poised to become even more advanced, incorporating technologies such as biometric information and dynamic security codes in order to advance the way people pay all around the world.
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