CHIP AND PIN - THE NEW PARADIGM
Chip and PIN - The New Paradigm
If you've tried buying tickets at a train station in Europe you'll probably know what I'm talking about: U.S credit cards don't work.
There are a number of differences in how credit cards are accepted in Europe (and elsewhere), but the one that affects the typical American traveler is the inability of nearly all automated platforms to accept magnetic credit cards.
Credit cards that are issued in the U.S. generally use a magnetic stripe on the back of the card to access the account. This is true regardless of the card - Visa, MasterCard or American Express. And when the account is accessed, a signature is all that is needed to verify the purchase - merchants generally don't verify your ID to see that you are who you claim to be. The result is that there is a lot of fraud. The reason is that magnetic stripe credit cards are easy to copy. During the few minutes the card is out of your sight, an unscrupulous waiter can slide the card through a card copier, and presto... your information has been copied and your card can now be duplicated. Since all that is required is a signature, anyone can use the card to go on a spending spree and rack up thousands of dollars on your account before a fraud alert gets triggered, if it ever does.
If your credit card company is diligent, or you've signed up for e-mail or text alerts, either for international transactions or for higher than usual charge amounts, you'll know pretty quickly that there's a problem, and you can call the company and have the card blocked right away. And you won't be held liable for the fraudulent charges.
But if your credit card company is lax, you may not know your card is being used fraudulently until your own legitimate charge is denied because the card is over it's limit, or possibly not until you get your next statement.
Shortly after returning from Prague three years ago, I checked my online balance with American Express and discovered nearly ten thousand dollars in fraudulent charges that had occurred all in one day, in Italy. Oddly, on exactly the same date, there was a legitimate charge in California. And yet this never raised any suspicions at American Express - even though I am the sole cardholder.
Fortunately I was not liable for these purchases, but I'll admit that my blood pressure went through the roof during the time it took to contact American Express, speak to a representative and be reassured that this was the case.
So what have the U.S. credit card companies done to reduce or prevent this type of fraud?
Answer: Pretty much nothing. While you may get a call once in a while asking if your card is being used legitimately, this is hit and miss. Or worse yet, one single "unusual" transaction, even if legitimate, can lead to your card being blocked while you are traveling. And that's another headache!
Much to the chagrin of American travelers in Europe, the Europeans have taken a major and significant step to prevent the fraudulent use of credit cards. Their answer is the chip and PIN system.
It's very simple yet very effective. Each credit card is embedded with a RFID (radio frequency) chip that provides the information necessary to access the account. This chip serves the same function as the magnetic stripe but is much more difficult to copy. And in addition to the chip, rather than a signature, a pre-assigned personal identification number, a PIN, is attached to the account.
So even if the card is copied, the PIN is not. If the PIN is not entered, or not entered correctly, the transaction is denied.
In many European venues a signature can be provided instead of a PIN, but only if the transaction is being handled by a real person. So if you try to buy a ticket at an automated kiosk in a train station, your card, if it can be read at all, will be rejected if you do not have a PIN to enter. Your only alternative is to stand in line at the ticket counter and wait for a real person to handle the transaction. In Paris, this means getting into a queue and waiting for an hour or more to be served, while hoping you don't miss your train!
A second major difference in how credit cards are handled in Europe is the hand-held portable wireless reader, a device that is used in nearly all European restaurants and is brought to the table by the server so that the transaction is completed without the card ever leaving your sight.
We are starting to see this in the U.S., but it's still the exception rather than the rule. Most restaurants take your card to a hard-wired reader up front to process the transaction, then return for your signature.
It's been nearly a decade since the Europeans first introduced the chip and PIN technology and it's been gradually spreading around the world. The only place where it hasn't spread to is the U.S. Why?
There are several likely explanations for this. Cost is a major factor. The U.S. market for credit cards is enormous and dwarfs that of any other market, even the European Union, where chip and PIN technology dominates. The cost of making this change would likely run into the millions, possibly billions of dollars, and each issuing bank, credit union or other financial institution would have to absorb this expense.
The second major factor, generally unspoken, is nationalism, or some close approximation. To put it bluntly, corporate America prefers to lead rather than follow, and even when it's clear that technologies developed or applied beyond U.S. borders are superior, there is often a stubborn refusal to implement them.
Let me give you an example.
How many times have you forgotten to remove your debit card from an ATM and had it swallowed by the time you realized it? At least once, I'm sure - sooner or later we all make that mistake. And getting it replaced is an enormously aggravating waste of time.
If you are in Europe, or Asia, or Russia or pretty much anywhere outside the U.S., the ATM tells you to remove your card before it completes the transaction. Your card is clutched in your sweaty palm by the time your money spews forth! Result - you can't forget to take your card. Simple but effective.
So why isn't it done this way in the U.S.? Answer: Cause we didn't think of it first!
So as you can see, things we take for granted are often done differently elsewhere, sometimes for the better and sometimes for the worse.
OK, I'm getting pedantic. What's the solution to the credit card problem?
The solution is to get a card, issued by a U.S-based financial institution, that uses the chip and PIN system.
The problem is that this is not easy. Most U.S. banks, etc., do not offer chip and PIN cards. Capital One, which is often touted as the best U.S. credit card for international use, does not. This is unfortunate since Capital One is one of the few credit card companies that does not charge international transaction and conversion fees. There are a few institutions that provide chip and PIN cards but only upon request. Several U.S. banks offer chip and "signature" cards which are pretty much useless since they don't have a PIN and don't work any better than a magnetic stripe card.
I have found only a handful of financial institutions that routinely offer cards with chip and PIN: Andrews Federal Credit Union (click here) appears to be the one with the fewest restrictions and their GlobeTrek chip and PIN card is available to anyone who joins and has a decent credit rating. American Express offers a chip and PIN with the Platinum card only, which has a hefty fee. USAA, which is available only to active or former military and their families, has a chip and PIN card, and apparently Citi MasterCard offers a chip and PIN card although it must specifically be requested.
You can also buy a pre-loaded card from Travelex, but frankly this organization is notorious for ripping off travelers with excessive fees and terrible exchange rates. For example, when we were in London last week I noticed that Travelex was charging $1.84 for one British pound even though the international market rate was only $1.54. On a purchase of £100 that's $30.00!
So the bottom line is this: If you are planning on traveling extensively in Europe, especially if you will be traveling by rail, get a chip and PIN card. It will likely save you time and aggravation. And if you have any questions about chip and PIN, feel free to drop me a note at email@example.com.