When it comes to business finance, security is top priority.
The problem is, some of the methods we still use to finance business purchases aren’t always secure.
Sure, a magnetic stripe card might be a few steps more secure than cash or a blank check, but it's not exactly up to today’s standard.
If you’re looking to amp up your security and protect yourself against financial risk, you’re going to want to think about switching to a smart card.
In this article, we’re going to dive deep into the world of smart cards, exploring what they are, what technologies they use, what applications they have in the business world, and how they stack up against a couple of other common methods for making business purchases.
What is a smart card?
Smart cards are credit or debit cards that contain an embedded microprocessor chip. These microprocessors are able to store and process data directly. Unlike traditional magnetic stripe cards, they don’t require a remote connection.
Smart cards can perform complex tasks, from secure authentication to data encryption to storing information on the card itself.
This makes them much more secure than other traditional payment types or credit cards with a magnetic stripe, as their ability to store encrypted information and perform cryptographic operations makes them difficult to tamper with or clone.
What does a smart card look like?
As far as appearance goes, smart cards look pretty similar to traditional magnetic stripe-based cards.
They measure 85.60mm long by 53.98mm wide, with a thickness of 0.76. These dimensions are necessarily standardized, to ensure that all cards work with all machines, regardless of how they are supplied either.
The major difference in appearance comes from the embedded chip you’ll find on the surface of smart cards, something which stripe-based cards do not feature.
Most cards are made out of plastic, however, some banks are supplying premium cards made of metal alloys and even titanium.
What kinds of technology do smart cards use?
Smart cards use a microprocessor chip to perform a number of functions.
A single microcontroller chip, which is visible on the surface of the card, contains:
- RAM and ROM memory for storing data, both during computations and after
- A microprocessor that handles data processing
- Input and output circuits for interfacing with the card reader and payment device (like the credit card terminal or an ATM)
The card reader used to take payment supplies power to the card and communicates with it via electrical contacts on the surface of the chip.
Many smart cards also have a contactless communication method, using NFC (near field communication) or RFID (radio frequency identification) technology to enable tap-to-pay transactions. For this, they have an embedded antenna that allows communication in close proximity to the card reader.
Benefits of using smart cards
Smart cards are much more secure than the traditional stripe-based credit or debit card.
Here’s how they help keep your business secure:
- Encryption: Smart cards encrypt data stored on the card, as well as the data communicated between it and the card reader.
- Authentication: MFA (multi-factor authentication) can be used to further secure payments, such as requiring the card to be present and a PIN number to be entered.
- Tamper-resistance: Smart cards are much more resistant to tampering and cloning. Some events include sensors that detect and respond to tampering attempts.
- Data integrity. Digital signatures and checksums can be used to ensure data integrity and dedicated unauthorized modifications.
- Mutual authentication: Both the card reader and the card itself authenticate each other before data is exchanged.
- International compliance standards: Smart cards must be compliant with requirements like ISO/IEC 7816 and ISO/IEC 14443 to ensure security, reliability, and interoperability across devices worldwide.
These enhanced security features mean that smart cards are able to reduce fraudulent behavior like cloned cards, provide greater data privacy by only transmitting data over secure networks, and make it difficult for attacks to reuse stolen data by generating unique transaction codes for each payment.
They’re also effective devices for improving on-site security. For instance, healthcare providers can issue smart cards to staff to prevent unauthorized access to restricted areas, and provide them to patients to store prescriptions and medical history and to verify identification and insurance coverage.
How are smart cards used by businesses?
Smart cards, with their ability to store and process data securely, as well as communicate with external devices without a physical connection, provide a number of important uses in business.
1. Payment processing
Payment processing is the most common use of smart cards.
Most new credit and debit cards, business and personal alike are smart cards. They allow your customers to pay you via contactless transaction or using the chip in their card, or you can do the same when you purchase from suppliers.
This is especially important in retail environments where the majority of transactions happen via card.
2. On-site access control and employee identification
Smart cards can be used for secure access to buildings and facilities, interacting wirelessly with electronic locks and providing a record of who entered when, as each card can be attributed to a specific person.
These employee cards can also be used for on-campus payments, such as facilitating purchases at the on-site cafeteria or restaurant, as well as to track attendance.
Such cards are especially critical in healthcare environments, research labs, and certain manufacturing use cases, where only specific employees should be allowed access to given areas.
3. System access
Smart cards can be used to facilitate two-factor authentication, providing access to corporate networks and systems and ensuring only authorized personnel can access sensitive information.
They can also store encryption keys and digital certificates to improve the security of email communication.
IT service providers, as well as banks and legal firms, can benefit from the use of smart cards for this purpose.
4. Customer loyalty programs
Smart cards can be issued to customers as a more modern alternative to the traditional stamp-based loyalty card.
With these smart cards, customers can track points and rewards and access personalized discounts, all of which can be connected to a dedicated mobile app.
Smart cards can also be used to collect customer behavior to deliver more personalized marketing and improve business decision-making.
These types of cards are ideal for retail environments, airline frequent flyer programs, and hospitality providers like hotel and restaurant chains.
Smart cards vs. other kinds of payment technologies
Smart cards aren’t the only kinds of cards businesses use to make purchases. Let’s see how they stack up against a few other common options.
Smart cards vs. credit cards
Most credit cards today are smart cards.
A credit card is simply a card that gives you access to funds that you can borrow and pay back. The “smart” element is the technology employed to interact with payment devices.
Before smart cards, all credit cards used magnetic stripes. Today, smart cards are rapidly overtaking traditional stripe-based cards.
They offer much greater security thanks to their use of encryption, tamper-resistant hardware, and multi-factor authentication (MFA). Magnetic stripes are much more easily cloned, making them susceptible to fraud. They’re also easy to damage, wear out, or demagnetize.
Smart cards are also much more convenient than traditional credit cards, as they can offer contactless payment and faster payment processing.
The main downside with smart cards as compared to traditional cards is that they cost more to produce and implement, and require vendors to have compatible readers. As smart cards become more and more ubiquitous (they are already the standard in most developed countries), this is becoming less of an issue.
Smart cards vs. debit cards
The same goes for debit cards as for credit cards.
The majority of financial institutions issuing debit cards — which is a card that gives you access to the funds in your bank account — are using smart cards as the technology behind them.
Smart debit cards are better than traditional magnetic stripe-based debit cards as they offer greater security as a result of:
- Data encryption
- Tamper-resistant hardware
- Multi-factor authentication
Smart cards vs proximity cards
Proximity cards facilitate contactless payment with technology such as near-field communication or radio frequency identification.
Smart cards, on the other hand, communicate with payment devices via a microchip embedded in the card’s surface.
Proximity cards are more vulnerable to theft, as it's possible to access funds from the card if a payment device is placed in close proximity. They offer a lot more convenience and faster payments, though, as you don’t need to insert the card and wait for communication.
All of this said, most smart cards today also offer contactless payment using one of these technologies, meaning they are also proximity cards.
Smart cards vs. mobile payments
Then, there are mobile payment options, such as Apple Pay and Google Pay.
These are very secure payment options (much more so than magnetic stripe cards), especially as they can use tokenization and biometrics such as fingerprint or face recognition.
That said, there are some potential concerns about the security of mobile devices themselves.
Mobile payments provide some additional convenience, as you don’t need to carry a physical card, though they do require you to have a compatible smartphone with a charged battery!
Also, not all merchants accept mobile payments. At least with a smart card, if the merchant doesn’t have contactless payment capabilities, you can insert the chip.
Best practices for using smart cards
Before you make the switch to using smart cards, let’s cover a few important best practices to help you improve security and get the most out of your newest financial management tool:
- Use multi-factor authentication, such as combining the use of the card with a PIN or facial recognition, to improve security.
- Choose a card provider with a strong focus on data encryption and regular firmware and adherence to industry standards like EMV (Europay, MasterCard, and Visa) for global interoperability and security.
- Develop and distribute clear policies related to the usage of smart cards for business purchases, such as spending limits, approval processes, and authorized suppliers.
- Provide training to employees about the importance of financial security and the potential risks of misusing smart cards, as well as what to do in the case of loss or theft.
- Use smart cards with integrated spend management functionality to set spending limits and enforce approval workflows.
- Make sure you have backup payment methods available for employees in case the smart card dies or is lost or stolen.
Integrating smart cards with smarter financial management
Smart cards are a huge step up from traditional magnetic stripe-based cards in terms of data security as well as functionality and practicality.
The best cards, however, are those that integrate directly with your spend management solution.
BILL Spend & Expense is the all-in-one expense management solution that offers business credit, an integrated spend tracking and reporting dashboard, and virtual spending cards.
Plus, our built-in rewards system helps your business earn as you spend.
Get started for free today, and begin using BILL to track spending and improve business forecasting and decision-making.
