What is a Smart Credit Card?

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  • Written By: Mary McMahon
  • Edited By: Kristen Osborne
  • Last Modified Date: 06 October 2019
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A smart credit card is a credit card with an embedded microprocessor used to process transactions. The technology behind the smart credit card was developed in Europe, where smart cards were developed in the 1970s. Smart credit cards have a number of advantages over credit cards that utilize a magnetic strip, including enhanced security and flexibility.

These credit cards are the same size and shape as traditional credit cards. A small gold contact area provides an interface that allows the card's microchip to communicate with a reader. Some smart credit cards are also equipped for contactless technology. This allows users to wave their credit cards near a reader for payment, rather than having to make physical contact with the reader.

The microprocessor encrypts information about the account holder and the account. On debit/credit cards, users can choose between which type of transaction they would like to use. The smart credit card technology is more secure than that of a magnetic strip because specialized equipment is needed to read the card successfully. This reduces the risk of fraud, access by unauthorized personnel, or modifications without the user's consent.


Information stored on the microchip can also include information about rewards programs and other data that may be useful. Store credit cards associated with bonuses for people who spend a certain amount can embed information about store rewards eligibility into the microchip, updating it whenever the card is used to provide people with instant rewards. In addition, the chip may contain a spending profile that can be used to track consumer habits, although some consumers view this as a violation of privacy.

This credit card design is not invincible. A smart credit card can fail if the chip is damaged by heat, extreme cold, or other environmental factors. Because the card is flexible, it is possible to bend the card far enough to damage the contacts or the chip and render the card unreadable. Improvements in microprocessor technology that shrink and strengthen the chip are designed to address this problem.

Smart card technology is available from all major credit card companies, although not all issuers of credit cards support the technology. In the United States, where significant infrastructure was developed to support cards with magnetic strips, the smart credit card was slow to catch on. In Europe, such cards are widely used, along with other smart cards. Smart cards are commonly used for transit and can be used as identification for government programs, access to secured buildings, and other purposes.


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