Smart cards are cards that are embedded with either a microprocessor and a memory chip or only a memory chip with non-programmable logic. The microprocessor card can add, delete, and otherwise manipulate information on the card, while a memory-chip card (for example, pre-paid phone cards) can only undertake a pre-defined operation.

Smart cards, unlike magnetic stripe cards, can carry all necessary functions and information on the card. Therefore, they do not require access to remote databases at the time of the transaction.Integrated Circuit (IC) Microprocessor Cards (generally referred to as "chip cards") offer greater memory storage and security of data than a traditional mag stripe card. Chip cards also can process data on the card. The current generation of chip cards has an eight-bit processor, 16KB read-only memory, and 512 bytes of random-access memory. This gives them the equivalent processing power of the original IBM-XT computer, albeit with slightly less memory capacity. Such cards are used for a variety applications, especially those that have cryptography built in, which requires manipulation of large numbers. Thus, chip cards have been the main platform for cards that hold a secure digital identity.

Integrated Circuit (IC) Memory Cards can hold up to 1-4 KB of data, but have no processor on the card with which to manipulate that data. Thus, they are dependent on the card reader (also known as the card-accepting device) for their processing and are suitable for uses where the card performs a fixed operation. Memory cards represent the bulk of the millions of smart cards in use, and are popular as high-security alternatives to mag stripe cards.