American travelers' 2012 guide to chip-and-PIN cards
Going abroad? What to know about EMV cards (and the obsolete one you have)
If you're traveling overseas this summer, you may want to shop for more than a swimsuit and walking shoes before you go. As EMV smart cards continue to proliferate outside the U.S., it's becoming increasingly difficult to use traditional magnetic stripe credit cards in certain travel situations. But a handful of new U.S. credit cards could help American travelers.
Here's a guide to minimize your credit card hassle as you travel abroad.
Continents drifting apart
The first thing to realize is that the credit card systems of America and the rest of the world are drifting apart.
Europeans have had EMV cards for years. The initials stand for EuroPay, MasterCard and Visa, the three processing firms that agreed in 2002 to a standard for the embedded microprocessor chip in each card. The chip encrypts data differently for each transaction, making it more effective in preventing fraud and harder to clone than a magnetic stripe card.
Rather than swipe an EMV card through a reader, the user inserts it into a terminal that reads the chip and then asks for a personal identification number or prints out a receipt for a signature. Europe began transitioning to chip-and-PIN cards back in 2004, and a total of 80 countries are now in some stage of EMV use, with the U.S. being the most notable holdout (see map).
Clashing with cashiers
While this transition has been going on, American travelers have often been left to fend for themselves. Magnetic stripe cards are still widely accepted in most large tourist destinations, but globetrotters may find themselves in a jam if they're off the beaten path without cash. "A lot of times, people working on the tills just aren't familiar anymore with doing anything apart from having the customer insert the card and the terminal prompting them for a PIN to be entered, so when they come across a card where there isn't even a chip, it can throw people a little bit," says Neil Aitken, spokesman for the UK Payments Council.
Issuers advise cardholders that if they have trouble with a merchant, they should simply tell the clerk that he is required to swipe the card and follow the prompts on the machine. But try doing that in a place where you don't speak the language.
Ken Wakita tried, and found himself out on the street looking for cash. He was in a less-touristy area of Brussels a couple of years ago and tried paying for a restaurant meal with his mag-stripe credit card. The waiter, who barely spoke English, refused the card. Wakita didn't speak French or Flemish, so discussing payment system protocols seemed out of the question. He had to excuse himself and go out to find an ATM so he could pay his bill with cash. "You're supposed to tell them they have to take your card," he says. "Yeah, in theory they have to, but in reality it's totally different."
He was frustrated and embarrassed by the incident. "The U.S. should be aware. Why is it falling behind?" he says.
Late to update
A key reason the U.S. has been slow to adopt EMV is that, unlike Europe, its telecommunication systems have been low-cost for decades -- cheap enough to allow credit card transactions to be verified and completed nearly instantly, by wire. So there hasn't been the same drive to make a costly industry switch -- though that's beginning to change as criminals move their business from EMV countries to non-EMV countries. "The industry joke is the last one to migrate to EMV is the one with the best business case because of all the fraud they're experiencing," says Eric Schindewolf, vice president of product development for Wells Fargo.
Another reason is that the U.S. banking system is highly fragmented, unlike many places where small groups of financial institutions can issue top-down edicts. "We have 15,000 banks and a lot of them issue credit cards," explains Julie Conroy McNelley, research director at Aite Group. "We have four different payment networks just on the credit card side of things and a whole bunch of smaller networks on the debit card side of things. So it was much harder to get the market aligned around a common approach for EMV."
No human = no luck
Complaints from U.S. travelers have been getting louder. Unmanned payment kiosks are a particular pain point. Tom Hiemstra was in a small town in Holland for a cousin's wedding when he realized he couldn't pay for parking -- he didn't have an EMV card or the proper coins for the parking lot kiosk. He drove around looking for a space, parking in what he thought was unzoned street parking; but when he came out to check 10 minutes later, he'd already received a ticket. "I guess it was permit parking because I got nailed for 85 euros," he says.
For Kenneth Aron, a businessman who travels to Europe six or seven times a year for work, the problem has been persistent. He has routinely been stuck in long lines at train station ticket offices because he couldn't use the EMV-only ticket machines. "It's just this chronic frustration," he says. "Oh no, I'm going to Europe, I can't use my credit card."
He got so desperate he asked his daughter, who's studying in Europe for a year, to leave her bank account open when she comes back home so he could use her credit card when traveling.
Where the EMV cards are (and aren't)
American travelers abroad are increasingly finding their magnetic stripe cards are less useful as much of the rest of the world shifts to EMV cards. The map, courtesy of EMVCo., shows EMV adoption worldwide. Click image to enlarge.
Things have changed for Aron, though, and for other travelers like him. As he was preparing for a European trip a few months ago, he received a replacement card for a lost Chase British Airways Visa. To his surprise, the card came with an EMV chip. He used it on his trip with no problems. "I'm thrilled," he says. "It's been life-changing."
Chase is one of several institutions that have begun rolling out EMV cards in the United States on a limited basis (FlyerTalk.com has an ongoing list of cards on offer). The number of cards should be growing thanks to incentives from Visa, MasterCard and Discover for U.S. merchants and acquirers to adopt EMV technology by 2015.
EMV choices in the U.S.
Here's how the EMV offerings in the U.S. shake out so far:
• Corporate cards -- Bank of America, Merrill Lynch and a few other issuers are offering EMV cards to corporate customers only.
• Existing cardholders -- Some Citi cardholders report on Internet travel forums that the bank has been willing to upgrade their MasterCards to chip-and-signature cards. The requests seemed to work best when made by tweeting @AskCiti.
• Pilot programs -- Wells Fargo was one of the first banks out of the gate with a pilot program that issued 15,000 EMV cards to select customers last year. But that pilot is now closed, and the bank will only say that it will be looking at "moving into production in a very graduated way."
• Credit unions -- Some credit unions, such as the United Nations Federal Credit Union, issue cards, but for their members only.
• Chip-and-signature for new cardholders -- US Bank has added a dual interface to its FlexPerks card that includes contactless payment and chip-and-signature capabilities. Chase offers a number of chip-and-signature cards for new and existing cardholders. Wakita, who had the trouble paying his cafe bill in Brussels, got the Chase Hyatt credit card and had no trouble using it on a recent trip to Canada and Japan, though he didn't try to use it at any unmanned kiosks.
• Prepaid chip-and-PIN -- Travelex's MasterCard Cash Passport is a prepaid foreign currency card that you buy online and have shipped to you or picked up at a Travelex office. But there is a pickup fee (up to $10) and the currency conversion rates are less than favorable. "It's a pretty egregious rate," says Victoria Hawkins, a flight attendant who has used the card.
She has other complaints too. She ended up emptying the card in the U.S. soon after she bought it and found she couldn't refill it online within 24 hours of purchasing it. The phone number provided didn't work, and the Travelex office in Paris insisted she buy a new card for a fee rather than refill her existing card. Bottom line: proceed with care.
• Chip-and-PIN - The only chip-and-PIN credit card available for the general public in the U.S. right now is the Globe Trek Rewards Visa from Andrews Federal Credit Union. It charges a 1 percent foreign transaction fee but has no annual fee. The credit union serves civilian personnel at Andrews Air Force Base, but is open to pretty much anyone who wants to join by becoming a member of the American Consumer Council for free and depositing $5 into a savings account.
If you don't see your credit card company here, ask them about it. They may have something in the works. It's also a good idea to let them know if you're going on an international trip. Any unusual activity is a red flag for fraud, so the card may be declined even if the magnetic stripe isn't a problem. Finally, try to carry some cash if possible. It's always good to have a backup form of payment.
EMV showdown: PIN vs. signature
As U.S. issuers roll out EMV credit cards for travelers, they are making decisions about whether to equip them with personal identification number technology or signature capability. PIN technology is what's used in most of Europe and it is considered safer. "PIN transactions have a lower instance of fraud," says Troy Bernard, director of chip technology at Discover.
Chase has chosen signature over PIN technology, and a company official would not explain why. Although chip-and-signature cards should work in most chip-and-PIN situations, there are some places where an offline PIN is required -- that is, the terminal collects the PINs for authorization at the end of the day. Signature cards won't work in those circumstances.
It may have something to do with their plans for a domestic EMV roll-out. A blog post from Stephanie Erickson, Visa's head of authentication product integration, earlier this year agreed with an analyst's opinion that there was no business case for the U.S. to support offline PIN transactions. "In fact, as a late adopter of EMV, there's a great upside for the industry in the U.S. because we can avoid much of the cost and complexity involved in deploying older-generation chip cards, while still reaping all of the benefits of reduced counterfeit fraud," she wrote.
Aite Group's McNelly thinks that cost isn't necessarily the reason. She says that banks didn't want to overwhelm American cardholders with too much change. "I think that convenience for the U.S. consumer, who's not used to having to input a PIN for a credit card transaction, was a lot of the driving line of thinking for those financial institutions that are choosing a chip-and-signature strategy," she says. "But against the international travel use case, I don't think that's the wisest option."
Wells Fargo's Schindewolf agrees that chip-and-signature doesn't make sense for travelers. The bank issued chip-and-PIN cards to 15,000 customers for a pilot scheme in 2011. "There seemed to be a little incongruity by only supporting chip-and-signature for travelers when in essence what they needed was chip-and-PIN," says Schindewolf.
PIN card hunting
The shifting card landscape leaves American travelers uncertain and scrounging for chip-and-PIN cards before they go overseas.
Wakita. the frequent traveler, got a Chase Hyatt EMV card that he has successfully used overseas, but he also got the Andrews FCU card as a backup. The Chase card gets first preference because it charges no foreign transaction fees, while the Andrews card charges 1 percent.
Actually, calling the Andrews FCU Visa a chip-and-PIN card may be a bit of a misnomer. Justin Redman, a university employee in Arkansas, used the card on a recent trip to Europe and was disappointed to find that in most cases, he was handed a receipt to sign. Only the Madrid Metro ticket machines asked him for a PIN. The card defaults to signature unless there is no other option. "It seems more efficient to use a PIN than to have to sign," he says.
See related: Credit card magnetic stripes get smarter
Published: June 21, 2012
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