Finance
Fact-checked

At WiseGEEK, we're committed to delivering accurate, trustworthy information. Our expert-authored content is rigorously fact-checked and sourced from credible authorities. Discover how we uphold the highest standards in providing you with reliable knowledge.

Learn more...

What is a Chip Card?

J. Airman
J. Airman

A chip card is a plastic banking prepaid or membership card with embedded circuitry. The integrated microchip in chip cards is an electronic storage device that holds and relays security protocol as well as personal and usage information about the card user. Chip cards offer a higher level of security to the user by employing increased authorization criteria and tamper-resistant encryption. Memory storage capacity in a chip card far exceeds the basic magnetic strip credit card. Many smart card designs are hybrid designs that employ chips, magnetic strips, and wireless data transfer.

Some chip cards are used to hold prepaid balances that are electronically withdrawn. Once the chip card is inserted into a payment machine, the balance is reduced for the amount of the transaction. Cards with no balance can often be refilled by inserting cash into these same machines. This system allows the owner of an arcade or laundromat to store all the incoming cash in one machine to increase security and make collection easier. Unfortunately, there is no way to recover the balance on a lost prepaid chip card.

Some analysts believe chip cards will soon be integrated with cell phones to make it an all-in-one device.
Some analysts believe chip cards will soon be integrated with cell phones to make it an all-in-one device.

Regular use and storage of a chip card may cause sufficient damage to affect the function of the circuitry. Some automatic teller machines bend and crease smart cards as they are inserted and ejected. The delicate microchip inside the chip card is only protected by a couple of thin layers of plastic and metal held in place with a very small amount of glue. A crack or split in the plastic of the card may actually release the chip. Institutions that issue chip cards are usually understanding when a broken card needs to be exchanged for a new working one.

Advances in smart cards are combining multiple technologies to improve on the design of the basic chip card. Hybrid chip cards with integrated radio frequency, or RF, technology do not need to be removed from the wallet to pay for a transaction. Information about the payment is relayed between the chip card and the payment machine with invisible radio waves when they are in proximity of one another. These contactless chip cards are often used in mass transit and other public transportation services, where speeding up payment transactions reduces the long, crowded lines. Many analysts believe the next step in chip cards is to integrate with cell phones for an all-in-one secure payment and personal information device.

Discuss this Article

Post your comments
Login:
Forgot password?
Register:
    • Some analysts believe chip cards will soon be integrated with cell phones to make it an all-in-one device.
      By: sanjagrujic
      Some analysts believe chip cards will soon be integrated with cell phones to make it an all-in-one device.