A smart card is a physical card that has an embedded integrated chip that acts as a security token. Smart cards are typically the same size as a driver's license or credit card and can be made out of metal or plastic. They connect to a reader either by direct physical contact -- also known as chip and dip -- or through a short-range wireless connectivity standard such as radio-frequency identification (RFID) or near-field communication.
The chip on a smart card can be either a microcontroller or an embedded memory chip. Smart cards are designed to be tamper-resistant and use encryption to provide protection for in-memory information. Cards with microcontroller chips can perform on-card processing functions and manipulate information in the chip's memory.
Smart cards are used for a variety of applications but are most commonly used as credit cards and other payment cards. The payment card industry's support of smart cards for the Europay, Mastercard and Visa (EMV) card standard has driven the distribution of smart cards. Smart cards capable of short-range wireless connectivity can be used for contactless payment systems. They can also be used as tokens for multifactor authentication (MFA).
International standards and specifications cover smart card technology. Some of those standards and specs are industry-specific applications. In the United States, smart card technology conforms to international standards -- International Organization for Standardization/International Electrotechnical Commission 7816 and ISO/IEC 14443 -- backed by the Secure Technology Alliance.
The first mass use of smart cards was Télécarte, a telephone card for payment in French pay phones, launched in 1983. Smart cards are now ubiquitous and have largely replaced magnetic stripe -- also known as mag stripe -- card technology, which only has a capacity of 300 bytes of nonrewriteable memory and no processing capability.
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Advantages of Smart Cards
The first main advantage of smart cards is their flexibility. There
is no need, for example, to carry several cards: one card can simultaneously
be an ID, a credit card, a stored-value cash card, and a repository of
personal information such as telephone numbers or medical history. Such
a card can be easily replaced if lost, and, because a PIN number (or other
form of security) must be used to access information, is totally useless
to people other than its legal bearer. At the first attempt to use it illegally,
the card would be deactivated by the card reader itself.
The second main advantage is security. Smart cards can be electronic key
rings, giving the bearer ability to access information and physical places
without need for online connections. They are encryption devices, so that
the user can encrypt and decrypt information without relying on unknown,
and therefore potentially untrustworthy, appliances such as ATMs. Smart
cards are very flexible in providing authentication at different level
of the bearer and the counterpart. Finally, with the information about
the user that smart cards can provide to the other parties, they are useful
devices for customizing products and services.
Other general benefits of smart cards are:
Smart Cards and Electronic Commerce
Smart cards are turning out to be a fundamental piece of the transformation
of retailing into electronic commerce. The impressive growth of the Internet
is making electronic shopping at least a real possibility, if not a habit,
among computer users. However, the business model used in current electronic
commerce applications still cannot enjoy the full potential of the electronic
medium. Moreover, concerns about the reliability of an invisible counterpart
and about the safety of the Internet for credit card information increase
the wariness and thereby limit the use of the electronic shopping on the
part of customers.
Of the estimated 360 billion payments that took place in the United States
in 1995, approximately 300 billion could not have taken place using the
existing electronic media. Such transactions involved micro-payments p;
i.e. payments for less than $10 p; which are virtually outside of
the electronic arena for lack of a payment method compatible with such
low amounts. Credit cards or checks are simply too expensive to use for
micro-payments, and the e-cash currently being experimented on the World
Wide Web does not seem to have the characteristics to appeal to shoppers.
For this reason, smart cards could be a fundamental building block of widespread
use of electronic commerce, since they are an instrument to pay at a low
cost for transactions involving small amounts of money.
Another big advantage of smart cards for electronic commerce is their use
for the customization of services. It is already possible to purchase tailored
services on the World Wide Web p; MyYahoo and FireFly are well known
examples. However, in order for the service supplier to deliver the customized
service, the user has to provide each supplier with her profile p;
a boring and time consuming activity. A smart card can contain a non-encrypted
profile of the bearer, so that the user can get customized services even
without previous contacts with the supplier.
Finally, smart cards are a key technology enabler for financial institutions.
The processing power, the portability and the interactive properties of
smart cards will constitute the basis for a revolution in the relationship
between consumers and banks. PC-based home banking and phone banking will
give way to card banking: a phone equipped with a smart card reader will
be all that is needed for any kind of transaction.
Go to next section: Disadvantages of Smart Cards
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