Magnetic Cards and Smart Cards

Magnetic Cards

In magnetic cards, the information on the card, card holder and card issuer is encrypted in the magnetic strip that is integrated on the backside of plastic cards. The magnetic strip consists of three lanes.

In the magnetic strip, no information on the financial condition of the client; therefore, authorisation has to be performed when the card is used to check that the amount of money in the client's bank account is sufficient for the transaction. Magnetic cards are less protected against forgery, compared to chip cards, but they are cheaper to manufacture.  Magnetic cards make 70% of the total amount of all cards.

At early stage of development of payment cards, the information on card holder was provided with relief embossing of digits and letters. With this technology, card information could be read only visually and an imprint of the card made on paper.

Smart Cards

Smart cards are plastic cards that have a microprocessor chip instead of the magnetic strip. The chip is able to store more information than cards with magnetic strip. Actually, a chip card is a computer that is made of one microprocessor, which is placed inside the card. Chip cards are technically more expensive than magnetic cards but they have a number of pluses in the use process– not always authorisation is not needed; all the information is stored in the chip, therefore, with a chip card, transactions can be authorised without connecting to the issuer bank.

The chip manufactured in the card makes cards ‘smarter’, which allows using it for a number of additional functions. Smart cards can be used to access a credit line, current, deposit and savings account, pay bills on public utilities and other services; it can be used as a debit card and both for local and international payments. A chip makes a card multi-functional, which allows using it as a means of electronic payments. Smart cards can contain information on the card holder, e.g. health condition, driver’s licence data, passport data. Smart cards can be used also for special discounts or loyalty programs.