The card reader then passes data from the smart card to its intended destination, usually a payment or authentication system connected to the smart card reader over a network connection.

A smart card communicates with readers either via direct physical contact or using a short-range wireless connectivity standard such as RFID or NFC. The smart card itself is powered by an external source, usually the smart card reader. Smart card microprocessors or memory chips exchange data with card readers and other systems over a serial interface. Smart cards are now ubiquitous and have largely replaced magnetic stripe (also known as 'mag stripe') card technology, which only has a capacity of 300 bytes of non-rewriteable memory and no processing capability. The first mass use of smart cards was the Télécarte, a telephone card for payment in French pay phones which launched in 1983. In the United States, smart card technology conforms to international standards (ISO/IEC 7816 and ISO/IEC 14443) championed by the Smartcard Alliance. International standards and specifications cover smart card technology, with some focused on industry-specific applications. Smart cards capable of short-range wireless connectivity can also be used for contactless payment systems they can also be used as tokens for multifactor authentication. Distribution of smart cards in recent years has been driven by the payment card industry's move to support smart cards for the EMV payment card standard.

Smart cards are used for a variety of applications, though most commonly are used for credit cards and other payment cards. Those cards with microcontroller chips can perform on-card processing functions and can manipulate information in the chip's memory. Smart cards are designed to be tamper-resistant and use encryption to provide protection for in-memory information. The chip on a smart card can be either a microcontroller or an embedded memory chip. They connect to a reader either by direct physical contact (also known as chip and dip) or through a short-range wireless connectivity standard such as radio-frequency identification ( RFID) or near-field communication ( NFC). Smart cards are typically the same size as a driver's license or credit card and can be made out of metal or plastic. A smart card is a physical card that has an embedded integrated chip that acts as a security token.

Computer with smart card reader