Smart cards are electronic devices with a striking resemblance to credit cards, although with a broader range of applications and higher security levels. Typical credit cards are basically all plastic. On credit cards information is stored on a magnetic strip similar to that of the magnetic tape inside audio cassettes, which makes the read/write operations relatively simple. The disadvantage of typical credit cards is that most of the information must be stored in online mainframe computer networks, where it is also verified and processed.

Smart cards however, replace the magnetic storage unit of the credit card with an embedded microprocessor to store information. Since credit cards first appeared in the United States and became popular in Europe just recently, extensive mainframe networks would have needed to be built in order to create the secure environment for the use of credit cards. Albeit, such infrastructure never developed in Europe.

So in order to compensate for this, smart cards have been developed. A smart card doesn't ask for computer security, since all the security required is embedded in the microprocessor. When a computer communicates with the card, the microprocessor enforces the access to retrieve data from the card's memory banks.

A typical smart card has three separate memory banks, two of which are ROMs (read only memory) and one is RAM (random access memory) - 8 kilobytes of RAM, 346 kilobytes of ROM and an additional programmable ROM with 256 kilobytes of memory, controlled through a 16-bit microprocessor.

Except for the usual use in the banking industry, smart cards may also be used for computer security systems, wireless communications, loyalty systems, satellite TV access or even government identification. In Germany for example, each citizen has a smart card used for health insurance. The US on the other hand, still uses the classic credit cards for banking operations, but smart cards are slowly beginning to gather up speed as well.

Some smart cards can also be used via personal computer attachments, to provide secure Internet transactions, or through mobile phones and vending machines.