We use them to get money from the bank, when shopping, getting fuel, and even identification. The magnetic stripe works by encoding an identification on a magnetic tape similar to how a computer writes information onto a floppy disk. This method, though powerful, has proved to be insecure in many instances. These cards use a one way authentication method. The card passes it's information to the reader and the reader verifies that the information exists on the reader side.
Magnetic cards are easy to reproduce and many use no form of encryption on their identifier.
Cards without PIN numbers can be used by anyone. Credit card numbers can be passed out over the phone making purchasing power easy to fraudulate. The Smart Card is different. By using multi directional interaction between the card and the reader true authentication of identity can be met in a more powerful way that is much more secure than the traditional magnetic stripe card. The card holders identity is held on the card via a secret key.