Memory card is only a card that has the cappability to store information. Smart card on the other hand has the necessary hardware and logic to store as well as process information.
If a user has a memory card, he only needs to enter the user id or a PIN and then swipe the memory card against the reader. The memory card contains the user’s password. This combination of the PIN (or user id that the user entered) and the password (read from the memory card) is sent to the authentication server. If this combination is correct, then the user sees a green signal on the card reader and is allowed to access the resource. This is a two-way authentication process as the correct user needs to have the card (what you have) and needs to remember the correct PIN (what you know).
The memory cards are mostly used for entering a company’s building or facility, and are also commonly used in ATM. User enters his PIN and swipes the card against the card reader. The memory cards can also be used with the computers, but are not used often as they require a memory card reader, one for each computer, which adds cost besides complication to the authentication process.
Smart Cards, provide processing power to the information stored inside the card, as it has a microsprocessor and the Integrated Circuits on the card itdelf. The smart card also provides a two-factor authentication as the information stored inside the card can be locked with a PIN. So, in order for correct authentication the user must remember to put in the correct PIN (what you know) and must have the smart card (what you have).
To get authenticated using a smart card, the user enters a PIN and inserts the smart card into the reader. The reader performs one-way transformation of the PIN and stores the result in the memory of the card reader. It then performs one-way trnasformation of the information stored inside the smart card and compares it to that it had stored in the memory (transformation of PIN entered by the user). If the two match, the user is authenticated and allowed to access the resource.
The information stored inside the smart card is secure as it is not readable until the correct PIN is entered. Also, the information can be stored inside the smart card, in an encrypted form, and can be programmed to detect any tempering to the card. In case any tempering to thecard is detected, the information on the card can automatically be erased.
Smart cards can be used as a method of authentication on computers to provide one-time passwords, or for providing the private key for authentication using Public Key Infrastructure (PKI). They are comapritively more resilient to reverse engineering, but have are a more disadvantage than memory cards, as they are more expensive and add extra cost of the readers for every computer.