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Roger Clarke's 'Intro to Chip-Cards'

Introduction to Chip-Cards and Smart Cards

Roger Clarke

Principal, Xamax Consultancy Pty Ltd, Canberra

Visiting Fellow, Department of Computer Science, Australian National University

Version of 23 May 1998

© Xamax Consultancy Pty Ltd, 1993, 1996, 1998

Available under an AEShareNet Free for Education licence

This paper is an extract from a report on the Swiss PTT's Multi-Function Card Project, dated January 1993, and re-published in 'Chip-Based Payment Schemes' in September 1996

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A chip-card is a standard-sized plastic card that "contains an integrated circuit or 'chip' which gives the card the ability to store and/or process data" (Walters 1992, p.18).

For descriptions of chip-cards, see Svigals (1987), Chaum & Schaumüller-Bichl (1989), McCrindle (1990), Lokan (1991) and Chaum (1991). A series of international standards define the predominant form, which is used by placing the card in contact with an appropriate device (ISO 1987, 1988).

Chip-cards are of three different kinds:

The mainstream area of development is in smart-cards, and this paper concerns itself exclusively with that form.


The key advantages that a smart-card offers over magnetic-stripe technology are:

The more sophisticated smart-cards offer further capabilities, including:

The key disadvantages of chip-card technology are:


Trials commenced with storage-only chips in the late 1970s and with smart-cards during the early 1980s. Much of the initiative in the area has emanated from France and French companies, but Japanese and American suppliers have also been active in the area.

Smart-cards have been applied to a variety of functions, including:

Smart-cards have been used in or proposed for a variety of settings, including:


Analysis of the economics of payment systems shows that the cost of collecting value from customers is significant, particularly in the case of low-value purchases (Walters 1992). There is a wide range of circumstances in which large number of low-value transactions generate in total a significant volume of cash; for example at public telephone-boxes, for tickets for trains, buses, ferries, cable-cars, etc., for tickets for cinemas, theatres, museums, exhibitions, and other entertainment and public events, and for purchases from vending machines for such goods as newspapers, stamps, cigarettes and confectionery. This gives rise to the need for cash-handling, and a significant risk of crime and vandalism

Chip-cards offer the potential to save costs by replacing physical cash with electronic cash. It has been estimated that 80-90% of the costs incurred in transaction processing are in order to ensure correct accounting, and that these costs can be greatly reduced by cumulating value rather than fully processing every transaction; for example, such cumulation may be carried out by counting down the value of prepaid cards (Ascom 1991). From the privacy perspective, it has been shown to be feasible to ensure that such electronic transactions are both secure and anonymous (Chaum 1985).

As with most technologies which have potentially revolutionary consequences, there have been a considerable number of false starts, and pilot projects which satisfied the participants that the proposal as then conceived should not proceed. The accumulation of experience from the many pilots in many different settings is leading to increasingly well-conceived pilot projects, and promising results.

Next Steps

More advanced information on the subject of chaip-cards is available elsewhere on this site.

The reader should note that technology has continued to develop since this piece was written in 1993. The most important improvements have been in the emergence of contactless chips, and more recently the hybridisation of contact and contactless technologies. With maturation of the industry, and increased card-volumes, costs have fallen appreciably.


Chaum D. (1985) 'Security Without Identification: Transaction Systems to make Big Brother Obsolete' Commun. ACM 28,10 (October, 1985)

Chaum D. (Ed.) (1991) 'Smart Card 2000' North-Holland/Elsevier, Amsterdam, 1991

Chaum D. & Schaumüller-Bichl I. (Eds.) (1989) 'Smart Card 2000' North-Holland/Elsevier, Amsterdam, 1989

ISO (1987) 'ISO 7816-1 'Identification Cards - Integrated Circuit(s) Cards With Contacts, Part 1: Physical Characteristics' Int'l Standards Org.

ISO (1988) 'ISO 7816-2 'Identification Cards - Integrated Circuit(s) Cards With Contacts, Part 2: Dimensions and Locations of the Contacts' Int'l Standards Org.

Lokan C.J. (1991) 'The Design and Applications of Smart Cards' Austral. Comp. J. 23,4 (November 1991) 159-164

McCrindle J. (1990) 'Smart Cards' Springer-Verlag, 1990

Svigals J. (1987) 'Smart Cards' Macmillan, 1987

Walters M. (1991) 'EFTPOS - National Asset or White Elephant?' in Clarke R. & Cameron J. (Eds.) 'Managing Information Technology's Organisational Impact' North-Holland/Elsevier, Amsterdam, 1991

Walters M. (1992) 'An Argument For 'Smart' Financial Transaction Cards in the Australian Payments System' in Clarke R. & Cameron J. (Eds.) 'Managing Information Technology's Organisational Impact, II' North-Holland/Elsevier, Amsterdam, 1992

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Created: 23 May 1998 - Last Amended: 23 May 1998; addition of FfE licence 5 March 2004 by Roger Clarke - Site Last Verified: 15 February 2009
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