Why did the developers of EMV specify a smart card chip, or integrated circuit chip, inside of every credit and debit card? For one reason - security.
A smart card chip is a small computer (or microprocessor) that has its own data storage, processing power and application software. Smart cards provide much higher levels of security than magnetic stripe cards because they are designed to store data securely and are resistant to cloning due to unique security keys placed in the microprocessor during the manufacturing process.
Almost all EMV bank cards today are "contact" smart cards. Instead of swiping, end users "insert" the EMV bank card into payment terminals and ATMs and leave them in place during the transaction. The chip in the card makes "contact" through a built-in smart card reader and communicates with the terminal. With smart card chips, information can actually be sent back and forth between the chip and the payment terminal.
In the past four years (2003–2007) RBC Avion cardholders have been using chip in over 100 countries worldwide, most often in Europe and South America, but also in Saudi Arabia, Australia, and South East Asia.
"Contactless" smart cards exchange information with payment terminals using short-range wireless communications. This is the technology used in contactless payment cards issued in the U.S. and other countries.
Finally, there are also "dual interface" or dual technology cards that provide both contact and contactless communications in a single chip.
Almost all EMV bank cards today are "contact" smart cards.
Instead of swiping, end users insert the EMV bank card into payment terminals
Gemalto Clarista payment cards
Gemalto rolls out its all-in-one ticket production and packaging solution for travelers in France
Clarista [ PDF - 604kb]