— Imagine the frustration and anxiety of being in a foreign country and finding out that your credit cards don’t work.
It happened to John Kiernan at a train station in France last month. Kiernan, from Washington, D.C., and some friends were on a European trip after graduating college. Their train from Spain arrived late and all the ticket windows at the Montpellier station were closed. The automated ticket kiosks would not accept their credit cards, so they could not buy tickets for the train to Nice.
“It was kind of a bummer,” Kiernan remembers. “We were all tired after being on the train for so long and just wanted to get going to Nice. This was the last thing we needed.”
Stranded, they had to spend the night in a hotel, an added expense that was not in their budget.
“It created all of this hassle for us, put a kink in our trip and set us back a day,” Kiernan says.
The same thing could happen to you if you head overseas this summer and try to use a traditional credit card issued by an American bank. That’s because more than 130 countries in Europe, Asia and Latin America have switched from the old-fashioned magnetic strip to smart cards with microchips embedded in them. Canada is in the transition phase.
In these countries, unattended machines — at toll booths, parking garages, gasoline stations and ticket kiosks — can only accept smart cards. They are not designed to read a magnetic strip.
“Six or seven years ago, when chip cards were first introduced it really didn’t impact traveling Americans,” says David Porter, Manager of Card Services at JPMorgan Chase. “Now it really does.”
Kevin Ebi, a nature photographer based in Seattle, Wash., has experienced the problem on various trips. One time he was in a remote area of Iceland where the gas stations are all pay-at-the-pump. His credit card would not work. Ebi had to drive a couple of hours to find a station with human attendants, hoping all the way that he wouldn’t run out of gas.
“It was incredibly annoying,” Ebi says. “We had to buy prepaid gas cards to get around the country for the rest of our visit.”
The world is moving to smart cards
It’s being done to reduce fraud. Cards with a magnetic strip are fairly easy to counterfeit. Smart cards are harder to duplicate because the account information is encrypted and stored on a chip embedded in the card.
The transaction is not authorized without the correct personal identification code. That’s why this technology is called chip-and-pin.
“There is no question that chip-and-pin cards are more secure,” says Odysseas Papadimitriou, CEO of the website Card Hub.com.
These chip cards are often called EMV cards because they were developed by Europay, MasterCard and Visa. Merchants outside the U.S. who accept EMV cards are also required (by Visa, MasterCard and American Express) to accept magnetic strip cards issued by American banks. But that doesn’t always happen.
“Some merchants who are not accustomed to seeing cards with magnetic strips simply don’t know they’re supposed to swipe the card,” says Randy Vanderhoof, executive director of the Smart Card Alliance. “Others believe those cards are less secure so they tell they customer that they won’t accept them.”
Card Hub’s Papadimitriou encountered this at a well-known clothing store in London when he tried to use his non-chip credit card from an American bank. The store clerk demanded to see his passport which was back at the hotel.
“Long story short, they did not allow me to purchase the clothing I wanted and I had to leave the store empty-handed,” Papadimitriou says.
Stuck in such a situation, you could always use cash — if you have it. But don’t count on using your American-issued credit card at the local ATM in a foreign country. Vanderhoof tells me U.S. banks often block these ATM transactions in order to prevent fraud.
Smart cards come to America
American bankers have heard complaints from their customers who travel abroad and they want to eliminate this hassle. So, they (and some credit unions) are slowly testing chip-enabled smart cards.
In April, JPMorgan Chase introduced its first EMV credit card, the J.P. Morgan Palladium card. This is a high-end card only offered to a select group of customers. Earlier this month, Chase added a second chip card, the J.P. Morgan Select Visa Signature card, which is more widely available.
Wells Fargo launched its first chip card in April. The bank issued the Visa Smart Card to 15,000 U.S. customers who travel internationally in what it calls a “pilot program.”
This month, U.S. Bank started a “soft launch” of its EMV credit cards. About 20,000 current cardholders were sent the new card. The bank says all of its American credit card customers should have a new smart card in about a year.
“We see this as another benefit to help our customers travel more easily and that includes having a card more readily accepted overseas,” says U.S. Bank spokesman Bob Daly. “We’re trying to alleviate that frustration as much as we can.”
Most of these new cards will be chip-and-sign rather than chip-and-pin cards, but they will work in other countries. They also have a traditional magnetic strip on the back. The idea is to make them easy to use in both the U.S. and abroad.
Maybe your bank doesn’t offer a smart card yet. Or maybe you don’t qualify for one. You do have another option: buy a Travelex chip-and-pin card before you leave home. This MasterCard debit card is available in pounds or Euros.
“Travelex gives you a really bad exchange rate,” says Ed Perkins, columnist for SmarterTravel.com.
But there are no transaction or exchange fees. The only time you get dinged with an extra fee is if you use the card at an ATM with a surcharge.
“This is a stop-gap measure,” Perkins advises, “for those limited situations where you are overseas and your regular credit or debit card doesn’t work.”
Sure, you’ll lose some money on the exchange rate. But it’s better than not being able to make the transaction.
Share your story
If you’re an international traveler who has experienced a problem using your credit card, you can share your story at www.GetFluentc.com. You can also add your name to the list of cardholders who would like to have a chip card option for international travel and get updates when U.S. issuers make it available.