Cryptography used for login and signing transactions
While I am not familiar with this particular device or bank, this looks a lot like Chip Authentication Program (CAP)

It's fairly standard in the UK, where banks use this to authenticate initiating a bank transfer to a new recipient. There is a python implementation (for study - it's obviously a bad idea to actually use this, as it would permit your PIN to be captured by malware on your local PC) available at http://sites.uclouvain.be/EMV-CAP/Application/

As I understand the protocol, your smartcard is used to sign a "cancel transaction" request using a shared MAC key (the key being securely stored on the smartcard). There is more information on the protocol at the wikipedia page: https://en.wikipedia.org/wiki/Chip_Authentication_Program#Protocol_details