Travelers to U.S. may face credit card compatibility hurdles
If the European Payment Council has its way, their mag stripe cards will disappear
While American credit card issuers are taking baby steps
toward using the chip-and-PIN technology that's largely replaced magnetic
stripe credit cards in Europe, they're likely not moving fast enough to prevent
Europeans from facing major challenges when using their credit cards in the
At issue is the technology used to process credit cards.
Unlike in the U.S., where information is stored on a magnetic stripe, European
cards rely on chip-and-pin technology, in which the data is stored on a
computer chip, and users punch in a personal identification number at each
transaction. The technology is also known as EMV, which stands for Europay, MasterCard and Visa -- the developers of the technology's standards. One of the
benefits of chip-and-PIN technology is that it has additional layers of
security and is less susceptible to fraud.
In recent years, American
travelers using credit cards in Euriope have had increasing difficulties, with vendors requiring a PIN or automated machines refusing to accept
cards with magnetic stripes. Europeans haven't had the same types of
difficulties because chip-and-PIN cards have a magnetic stripe that can be read
by U.S. credit card processors. However, the European Payments Council (EPC),
the decision-making body of the European banking industry, is looking to change
Concerns about fraud
now, EMV-compliant cards issued in Europe continue to carry the magnetic stripe
currently important for access to terminals," says Gerard Hartsink, the
chairman of the EPC, and Ugo Bechis, the chairman of the EPC Cards Working
Group, in a joint statement. "The U.S. cards market continues to rely on
magnetic stripe technology, which allows fraudsters to 'skim' data stored on
the magnetic stripe," Hartsink and Bechis add. In order to prevent fraud from
creeping into Europe as a result, the EPC is recommending that European
merchants be allowed to refuse magnetic stripe cards and European card issuers
give out cards that don't contain a magnetic stripe at all.
If that should happen, "international
travelers coming into the U.S. might start to experience problems with their current
card not having a magnetic stripe, and there not being an acceptance
infrastructure in the U.S. to accept the chip," says Randy Vanderhoof,
executive director of the Smart Card Alliance. The Princeton Junction, N.J.-based
organization is working to promote widespread adoption of smart card
Losing the ability to pay by credit isn't just a matter of
convenience, says Sue Norrington-Davies, managing director of the tourism site
DiscoverNewEngland.org. "We've had experiences where people come over from
other countries to rent a car and you can't rent a car in New England without a
credit card in your name," says Norrington-Davies.
Not only would the inability to
process European credit cards in America impact travelers, but it could hurt
American businesses as well. Retailers are unlikely to upgrade their
card-processing infrastructure to accept chip-and-PIN cards unless the cards
become prevalent in the U.S. "Merchants could be in the situation where they're
going to risk losing some business from international travelers," says
Europeans don't like the fact that their card is
taken from them. They're not used to it.
|-- Sue Norrington-Davies
Even if a majority of chip-and-PIN cards retain a magnetic
strip in the near future, American business owners could still lose customers
who are uncomfortable with the higher risk of fraud in the U.S. With
chip-and-PIN technology, Europeans haven't had to hand their credit cards over
to merchants for processing, points out Norrington-Davies, who is from the UK.
In much of Europe, the standard in restaurants is to pay at the table via mobile card readers. Many Europeans now feel skittish when a waiter takes a credit card to the back of a
restaurant, and there's a mental adjustment that Europeans must make when using
a credit card in the U.S. "Europeans don't like the fact that their card is
taken from them. They're not used to it," she says.
Change slowly coming
The American credit card industry has been slow to embrace
chip-and-PIN technology for a number of reasons. "There's no central authority
to lead the market in a specific direction like there has been in other parts
of the world," says Vanderhoof. Also, U.S. merchants would bear hefty costs in
order to buy new terminals to accept chip-and-PIN cards.
While widespread U.S. adoption is likely years away, there
have been some steps made recently toward an American chip-and-PIN market. In
April, Chase Card Services announced it would issue a chip-and-PIN card in June
to users of its JPMorgan Palladium credit card, which is targeted toward
customers who travel abroad frequently. The company also said it would unveil
chip-and-PIN cards to other cardholders within the year. Wells Fargo made a
similar announcement, introducing its Visa Smart Card, which is being marketed
to 15,000 Wells Fargo customers who travel internationally.
"It's a positive sign that banks like JP Morgan Chase and
Wells Fargo are going to be effectively testing the waters by issuing EMV cards
and processing EMV transactions from their customers on a small scale," says
Vanderhoof. "That will give them the
level of comfort and experience that they're going to need before they look at
a much broader rollout."
For both European and American travelers, that could mean
that financial transactions become not only more seamless but more safe. "We're at a point now where we're moving into
the trial phase of what EMV might look like and how banks might change their
infrastructure to support the issuance of those cards and the acceptance of the
cards," Vanderhoof says.
See related: U.S. magnetic stripe credit cards on brink of extinction?,
U.S. credit cards becoming outdated, less usable abroad, UNFCU to launch first U.S. chip-and-PIN credit card,
Published: April 28, 2011