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Smart cards, first appeared in the mid-1980s in Europe, store data directly on the card via a microchip. It is an innovative application, which is difficult to falsify because the data are encrypted and stored in a microchip. The information is transacted through a reader which is part of a computing system. Nowadays, systems that are enhanced with smart cards are in use in different areas including healthcare, entertainment and transportation.

The transactions with these smart cards can not be authorized without a PIN code. The use of secure smart chip technology and encryption measures makes it extremely difficult for fraudsters to access sensitive information or to create counterfeit cards.

What are the differences between the magnetic and smart cards?

Smart cards have a unique code for every transaction. For each transaction headed to a credit card processor for approval the embedded microchip creates a unique code. The secret code makes sure that the transaction is coming from a legitimate card without giving away the method to validate future purchases.

The secure chip technology is used and these cards are designed and manufactured with features that help to deter counterfeiting. Magnetic stripe cards have minimal security as data can very easily read from and written to a magnetic stripe card and a fake magnetic stripe card can be created. It is easy for a fraudster to collect all of the information from the card just using a magnetic stripe reader that has the ability to capture the information from the card. The thief can then either use that information directly or create a counterfeit magnetic stripe card.

Smart cards don’t need to have online connection with the bank. Magnetic stripe cards support minimal functionality and require an online infrastructure.

Smart cards support digital signatures, which will determine that the card was issued by a valid organization and that the card data has not been fraudulently altered since issuance.

Magnetic stripe cards store only a limited amount of data and chip can give much more opportunities. The smart card has enhanced memory capacity and can accommodate several different applications on a single card.

Card data on a smart card cannot be erased or removed accidentally by any electrical or magnetic means.

The magnetic stripe on the back of a card can be damaged easily by exposure to high magnetic fields or through repeated use. A card with chip will be in use longer.

What are disadvantages of smart cards?

However, there are some disadvantages in using such cards. Not every store or restaurant have the hardware necessary to use these cards. One of the reasons for this is, that since the technology is more secure, it is also more expensive to produce and use smart card readers. While smart cards themselves are fairly cheap, card readers are not (costing between $50 and $200). These readers are not available in all locations and they can have compatibility issues due to the differences of card brands.

Smart cards have also been the targets of security attacks. These attacks range from physical invasion of the card’s electronics, to non-invasive attacks, that exploit weaknesses in the card’s software or hardware. The usual goal is to expose private encryption keys and then read and manipulate secure data. Once an attacker develops a non-invasive irraction for a particular smart card model, he is typically able to perform the attack on other cards of that model in seconds, often using equipment that can be disguised as a normal smart card reader. While manufacturers can develop new card models with additional security, it may be costly or inconvenient for users to upgrade vulnerable systems.

According to the experts, the future of smart cards technology is looking bright. The limitations of the magnetic stripe and the problems with fraud and bad debt made smart cards a better choice.

The potential benefits smart card has to offer raise the interests of many large corporations. As we have seen, compared to the conventional magnetic stripe cards, smart cards can offer security, convenience and economic advantages.

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