It uses your PIN, a number from your relevant card, and the time. Your pin is stored in encrypted form by the bank's systems. Your card numbers are also on the systems. The time is known by both systems, albeit not very exactly by your card. A hashing algorithm applied to these data by the bank's system, and your machine, must match. You must use the number generated by your machine within a certain time, or else re-generate the number.
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