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Smart card

Smart card is a money term you need to understand. Here’s what it means.

What is a smart card?

A smart card is a card that stores information on a microprocessor or memory chip rather than the magnetic stripe found on ATM and credit cards.

Deeper definition

Smart cards have embedded microprocessor chips that provide an extra layer of security for users. They look like normal credit cards or driver’s licenses, but instead of being a single piece of plastic, they are actually constructed like tiny boxes that contain the microprocessor itself.

Because they don’t utilize magnetic strips like regular credit cards and debit cards do, smart cards cannot be read in the same way that normal cards are. They are read either by physical slots meant for reading chips or through short-range Wi-Fi via near field communication, or NFC.

Smart cards are not used for transferring financial information alone and can be used for a variety of identification purposes. Some companies give their employees smart identification cards as an added measure of security for the organization and for the individuals who work there.

Smart cards are important for security purposes in all of their applications. In an age of increasing technology hacks and security challenges, smart cards give users and institutions extra protection for transactions and account information.

Transactions made with smart cards are encrypted to protect the transfer of information from party to party. Each encrypted transaction cannot be hacked and doesn’t transfer any additional information beyond what’s needed for completing the single transaction.

Smart card example

If you have a smart debit card, your card will display a small golden chip in one of the corners. When you visit a retail store and use your card, the salesperson or clerk will direct you to stick it into a special slot that can read the card, or you may be able to swipe it across a special monitor that can read the chip, without physical contact.

Your employer also may use smart cards for employee identification. Your smart card may be used to open doors by waving it in front of a small monitor that can read the embedded chip’s data and give you access to certain parts of building where you work.

Need some smart tips for using your credit card? Here are six ways to be smarter with credit card spending.

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