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The "smart" credit card is a novel function that involves all aspects of cryptography (secret codes). A smart card has an inbuilt microprocessor.
Cryptography is necessary to the functioning of these cards in several ways-
The user must confirm his identity to the card each time a transaction is made.
The card and the card reader perform an order of encrypted sign or countersign-like exchanges to authenticate that each is dealing with a valid counterpart.
Once this has been established, the transaction itself is carried out in encrypted form to prevent anyone, including the cardholder or the merchant whose card reader is involved, from spying on the exchange and later impersonating either party to cheat the system.
This whole process is invisible to the user.
The chips in these cards are capable of different transactions, like purchases from your credit account or debit account. The smart card can hold identification information, keep track of your participation in a loyalty program or provide access to your office.
The smart card will eventually be available to anyone who wants one, but for now, it's available mostly to those participating in special programs. Visa and MasterCard, to name a few, are using the smart card technologies in the America today.
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