Smart cards are also distinguished from ‘SuperSmart’ or ‘token’ cards. These use a small LCD to display the time of day encrypted using an internal key that is programmed at the time of manufacture. Such cards have no storage capabilities and no interface to external computer systems. They perform a single, well-defined function that can be used in authentication protocols — users manually type the digits displayed on the card (which are updated periodically) as part of authenticating to a host. These cards are not capable of performing more extensive functions as part of a security system, and thus are not evolutionary.

A magnetic stripe card has a strip of magnetic tape material attached to its surface. This is the standard technology used for bankcards. Optical cards are bank card-sized, plastic cards that use some form of laser to write and read the card. Memory cards can store a variety of data, including financial, personal, and specialized information; but cannot process information.

Smart cards with a microprocessor look like standard plastic cards but are equipped with an embedded Integrated Circuit (IC) chip. Microprocessor cards can store information, carry out local processing on the data stored and perform complex calculations. These cards take the form of either "contact" cards that require a card reader or "contactless" cards which use radio frequency signals to operate.

There are two types of smart cards:

Contact smart cards require insertion into a smart card reader.Contactless smart cards require only close proximity to an antenna.

The contact smart card has a small gold chip about 1/2" in diameter on the front, instead of a magnetic stripe on the back like a "credit card". When the card is inserted into a smart card reader, it makes contact with electrical connectors that can read information from the chip and write information onto the chip. A contactless smart card looks just like a plastic "credit card" with a computer chip and an antenna coil inside, which allows it to communicate with an external antenna. Contactless smart cards are used when transactions must be processed quickly, as in a mass-transit toll collection. The CombiCard is a single card that functions both as a contact and contactless card.

Smart cards have the following advantages:

lProven to be more reliable than the magnetic stripe card.

lCan store up to 100 or more times the information than the magnetic stripe card.

lReduces tampering and counterfeiting through high security mechanisms.

lCan be disposable or reusable.

lPerforms multiple functions.

lHas wide range of applications (banking, transportation, healthcare).

lCompatible with portable electronics (PCs, telephones).

lEvolves rapidly applying semi-conductor technology.

The size of the card is determined by an international standard (ISO 7810). This standard also defines the physical characteristics of the plastic, such as temperature tolerance and flexibility, the position of the electrical contacts and their functions, and how the integrated circuit (IC) communicates with the outside world. There are several types of plastic used for smart cards. The main types are PVC and ABS. PVC can be embossed but is not recyclable. ABS cannot be embossed but is recyclable.

A smart card can restrict the use of information to an authorised person with a password. However, if this information is then transmitted by radio or telephone, additional protection is necessary. One form of protection is ciphering, which is like translating the information into some unknown foreign language. Some smart cards are capable of ciphering and deciphering (translating back to an easily understood form) so the stored information can be transmitted without compromising confidentiality. Smart cards can cipher into billions and billions of "foreign languages", and choose a different language at random every time they communicate. This authentication process ensures only genuine cards as well as computers are used. This makes eavesdropping virtually impossible.

The important thing about smart cards is that they are everyday objects that people can carry in their pockets, yet they have the capacity to retain and protect critical information stored in electronic form. The "smartness" of smart cards comes from the integrated circuit embedded in the plastic card. The same electronic function could be performed by embedding similar circuits in other everyday objects, such as key rings, watches, glasses, rings or earrings. Smart keys are already being used for pay TV subscriptions.

The development of contactless card technology was the catalyst for what is known as tags. Tags function like contactless smart cards but are in the form of a coin, a ring or even a baggage label. They are generally attached to objects such as gas bottles, cars or animals and can hold and protect information concerning that object. This allows the object to be managed by an information system without any manual data handling.

Smart cards are a relatively new technology that already affects the everyday lives of millions of persons.