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Credit Cards With Smart Chip – A credit card is a small plastic card issued by a bank for the consumer to purchase items on credit and pay off at a later date. It allows the holder to purchase goods or services on credit. There is no doubt; it is a gift of technology having various benefits. People use them daily to buy things easily. It is also called a smart card because it can provide personal identification, authentication, data storage and application processing, and much more.

Types of Credit Card

  1. Travel card: this is the most common type of credit card. It has three main types which include airline, flexible, and hotel. You can earn a bonus by purchasing groceries and gas.
  2. Surcharge credit card: These cards come with lavish benefits; like traveling and getting a free airport sitting lounge etc. these offer mostly flexible rewards. You can get it with positive payment history.
  3. Business credit cards:  As you can know it helps us to maximize business purchase. There are different types of business cards which can help you to buy goods and also it help out to redeem travel points etc.

There are different types of credit cards which either one of them can help your credit card score enhance as long as you manage responsibly.

Smart Chip:

A smart chip is an incredibly small piece of hardware that contains a computing microprocessor, or other high-level data handling resources. The smart chip on the card enables the card to act as a computer device. It looks like the debit and credit card but the only chip makes it different from other cards. It can store a wide range of data that other cards cannot.

Different kinds of smart chips include a smart card with different kinds of features. Some functions much like a small USB flash drive or pen drive but they simply have a data storage memory. But it can perform various functions that other devices cannot do like it can store your personal information, keep your bank records, student identity, and their access to the library, and even it can store your contact numbers as a mobile phone.

It is also known as EMV which stands for “Euro pay, Master Card, and Visa,” three companies that started this technology. It is an alternative to a magnetic card. It’s a lot safer and secure than a magnetic card. In 2019, it has been approved to improvise this technology in credit cards but still, there is a magnetic technology lack of banking cooperation. This chip is placed in front of a credit card. There are two main types of smart chips.

  1. Chip-and-Signature: it requires a signature to process transactions just like in the past credit cards.
  2. Chip-and-PIN: it requires a 4 digit pin to process the transaction. A great secure way to process transactions just like a debit card.

Advantages of EMV cards over others:

The basic advantage is a security which makes it better than other technologies. It builds the trust of people because of its unique features. It is very difficult to copy it like magstripe.

Better security should cut down on credit card fraud, in general, which should make the finance industries better for businesses and consumers alike.

Purpose of Chip in a Credit Card

A chip card is a standard-size chip card that consists of one microchip and a magnetic strip. The purpose of the chip is to increase the data security when you make a transaction through ATMs or any store or terminals or especially when you use your card in shopping malls for paying bills.

Function of smart chip

Chip card acts and looks like Magstripe cards, but it is placed in front of credit card which is much more secure than magnetic stripe card technology. It is also known as EMV technology; denoting the Europay, Master Card, and Visa. It is an actual computer chip placed on top of a credit card that communicates with the terminal. These chips are more secure and intricate transaction process to occur.

How it works

There are seven steps which are given below:

  1. Insert card into terminal
  2. Terminal makes contact with the chip which is inside card using pins
  3. Soon, chip is activated and terminal verifies the issuer from the chip which is mentioned on the card
  4. Chip can automatically verify PIN details
  5. Terminal signs transaction with a public key which it receives from the chip
  6. Information is sent to bank for official authorization
  7. The transaction is completed

Advantages of Chip Card

It is an advanced technology like debit or credit cards but chip cards are more useful and secure than other cards. A small microchip on the card makes it more valuable. It increases the security of your data when you use your card anywhere.

Increased Security

Smart cards have a higher level of security than other cards and storage devices. These smart cards consist of a computer that processes your data directly and you don’t need any remote connection. The data is encrypted individually and you can access your data with a secure key. Without a secure key, no one can reach the data. So, the smart card is a good choice to save your data confidentially because that is protected by federal or state law. The data is highly sensitive because it consists of your card numbers; social security numbers your health records and many more. 

Various Types of Data Support

Smart cards can save various types of data that other cards like credit cards and debit cards can’t do. Credit cards only store your financial information but smart cards can store your contact information, telephone numbers, and your business information as well. So, these qualities of highly storing data make it more valuable than other cards.

Data Integrity

Data integrity is the best quality of smart cards that make them valuable and different than other cards. Unlike many other technologies of data storage, it is more secure because once we store information on a smart card no one can replace it. It will be safe forever. Even no one can change or erase it. So, it is safer than other technologies. If you want to store your data for a long time or want no one to steal your data then the smart card is a good choice.

Disadvantages of Smart Card

There is only one disadvantage of a Smart card.

Cost and Compatibility

The cost is the most significant disadvantage of the smart card. Smart cards are costly than other cards and not everyone can easily afford them. Where Smart card readers can be very expensive compared to ordinary card readers, and many companies feel that they are not worth the extra cost. This Smart card readers are not always compatible with all forms of the smart card, or even with one another, in addition to the higher cost. There is a variety of distinct smart card, some of which use proprietary software which is not compatible with other readers.

Features of Smart Card

Smart cards have various features that enhance the privacy policy.


The best feature of the smart card is Authentication.  Such a function can protect privacy by ensuring that a banking application is certified and have sufficient access right before accessing financial data or card function.

Secure Communication

This feature of a smart card secures the communication between the reader and the card. The smart card allows sharing data in a very private manner.


This feature uses to enhance privacy policy. Smart card provides different ways to store biometric models safely and carry out the biometric matching function.

Personal Device

A smart card is a personal and portable device that you can take with you everywhere. It is associated with a specific cardholder. The smart card plastic is also customizable, providing the cardholder with an even stronger binding. Although somewhat obvious, this feature is beneficial to increase privacy. For instance, to increase the quality and privacy of patient orders, a healthcare application might opt to store prescription details on the card rather than on paper.


A broad range of encryption capabilities, including key generation, secure key storage, hashing, and digital singing are supported by smart cards. In several ways, these features can be used to preserve privacy. A smart card system, for instance, can create a digital signature for an email address, offering a way to verify the validity of the email.

Magnetic stripe card

Magnetic stripe cards are known as classic credit cards or magstripe or swipe cards. Stripe is placed on the backside of the card. It is modified iron-based magnetic particles to communicate data between the strip and the receiving credit card. It’s an old technology which is nowadays used in the U.S.A. it is a common type of card which is commonly used by the Americans. It can be black-brown or in silver color. It is also known as a “swipe card”; because the card is activated by swiping through a device that can read the data in the stripe.

It contains three tracks of data. Each track is about one-tenth of an inch wide. The first two tracks are encoded with information about the card cardholder’s account; there are the user’s name card’s expiry date and country code. Moreover, the third track contains additional information. Magnetic stripe cards are simple and their storage devices read by the terminal. The function of the terminal is to perform a card swipe and signature capture function. In a new generation of credit cards such as chip cards, there is no need for a magnetic stripe.

How it works

  1. Card can be swiped
  2. The terminal sends an authorization request to the desired bank.
  3. Terminal, then, sends an authorization request to the issuing bank.
  4. The terminal gives a response from the issuing bank to the acquiring bank.

The main defect of the stripe card is when it is scratched or dirty it is of no use.

Difference between smart chip and magnetic stripe cards

A magnetic card is “swiped” on side of the retailer’s payment device. Smart chip cards are “dipped” into a slot at the front of the machine. Furthermore, the smart chip card is the latest technology which is far better than magnetic cards; as in case of security issues, easy transaction and fast.

Why there is still a magnetic stripe on the back of credit cards while having an EMV chip?

In the U.S.A there are still magnetic stripes because merchants need time to adjust to this new technology but now in other countries, people use smarts cards mostly. There are a lot of reasons for having magnetic stripes on the back of credit cards. The main reason for having magnetic stripes is, less than 2% of sale terminals have been enabled with hardware-software which can accept chip-based transactions.

Most banks issue cards to make money and it will not happen if cardholders use their credit cards to pay for the purchase in stores. According to a recent survey even US merchants of 75% adoption of the stage but it would still be prudent to include a magnetic stripe on the back of cards for a surety that no payment transaction will be lost. As a result of the lack of an updated merchant payment system.

Even you can see in the European Union, chip cards are a default technology for over a decade but there are still magnetic stripes on cards to ensure payment capabilities. It is approved technology but it will probably take at least three more years to execute.

Card data is encrypted while read out from the chip

One can use magnetic technology in some countries, but most of the countries switched to chip card technology many years ago because it is much safer. The benefit of a chip card is you can’t copy this chip. On the other hand, it is super easy to read out the magnetic strip and one can easily copy it on a blank card. It can be said that next-generation terminals have direct encryption. In other words, card data is encrypted while read out from the chip. There is no chance of a communication line between the card terminal acquirer and the card provider. So for this purpose chip is essential and you can’t do that with the strip.

Furthermore, credit cards having an EMV chip which card is “aware” that it is a “chip card” and when a merchant swipe on an EMV device it will show an error and direct the user to insert the card in the chip reader. This is the fact that can force users to use the more secure way which is a chip as opposed to the magnetic strip. The reason why there is still a magnetic strip on all cards is for use on devices that do not have EMV capability.   

As one can see in the US there are still a large number of ATMs that can only read the magnetic strip. It’s a dilemma, however, machines get serviced and more of them can read and process chip transactions. It can be expected that at last ATM cards will be converted to chip cards which will make it possible to get rid of magnetic card technology but it is just a slow process.

Replacing magnetic stripes

As mentioned above that magnetic strip cards are old technology, now it is replaced with EMV microchip chip or pin the technology especially used in credit cards. Microchip cards are superior to magnetic cards; unique and single use encrypted signature that is impossible to copy. PIN system is highly secured and needs an additional level of security. Magnetic cards are not altogether disappeared; retailers are processing a transaction with both technologies. Magnetic cards are swiped whereas chip cards are dipped.

RBI mandate

According to the RBI mandate on December 31, 2018, all private, as well as public banks, deactivated all magstripe credit cards. Some banks improved their cards to EMV technology but still many customers have not upgraded credit cards to EMV cards. Magnetic cards can store data on magnetic strip present on the card but the data of EMV cards are stored in a chip on the card. It is far better technology than magnetic cards.

United States least-secure usage of credit cards America is the most developed country in the world but they still use magnetic credit card technology which is less secure than EMV cards. Companies get profit from different ways in credit card transactions. Most people are involved in the theft of credit cards. There is the hold of companies that don’t want to use EMV cards because instead of eliminating crime they reduce it and cover the crime. Individual cards can be used by others and the owner of the card could be caught under fraudster’s charges.

It facilitates both parties that’s why they are so liable to use magnetic technology. If someone else uses one’s card to buy a ticket for the train for instance then Bank of America will not come into action and instead of getting that criminal they recover one’s credit card with the transaction. It is a magnetic technology massive chain. They work out very differently for the companies behind the transaction. “As everyone else migrated to EMV, the U.S. became more of a beacon for global criminals,” explains Jeremy King.

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