Why Your Credit Card Won't Work In Europe
- Foreign banks have moved to smart credit cards, equipped with computer chips.
- Those cards offer better fraud protection, and are rapidly becoming standard.
- Your U.S.-issued card may not work in some automated kiosks.
On a recent trip to Amsterdam, I thought to take the train from Schiphol airport to the city. The ticket kiosks take credit cards or coins only, but it should have been no problem – the Visa and MasterCard logos were on it. The card went in and the machine asked for a PIN.
Not understanding what was happening, I tried a Visa and an American Express as well. No dice. At the ticket counter, a hand-lettered sign (in English) said that some cards from the United States might not work, and that it was best to use cash. Luckily I had no problem with the ATM.
The above scenario is becoming more common for Americans traveling outside the country. The reason is the smart card, which is rapidly becoming the standard credit and debit card in Europe, Asia, Canada and Mexico.
A smart credit card contains a tiny computer chip. Once put inside a payment terminal, the chip prompts the card's owner to punch in a security pin, authorizing a purchase. While most credit cards issued by European banks have both the chip and the magnetic strip, Americans are still using cards with magnetic strips only.
Why is this so? Randy Vanderhoof, executive director of the Smart Card Alliance, which works to influence standards and provide a forum for the industry, said one reason is the cost – to the merchants, rather than the card issuers. (While MasterCard and Visa process the payments, the bank is the one that actually issues the card).
The point of sale terminals at gas stations and retail outlets are bought by the store, and buying new terminals is not something merchants will want to do without a good reason. "The card issuers, third party payment processors and merchants all have to be aligned around the chip technology," he said.
(There are cards issued in the United States that have chips on them, but those are for contactless payment systems, such as ExpressPay, payWave and PayPass from American Express, Visa and MasterCard, respectively. They use a different technology than those mentioned above and can't be read by the European card readers).
The computer chip on a smart card generates a special code whenever the card is used, and that code is unique to every transaction. Nicholas Rigg / Getty Images
Another reason is that fraud is a bigger concern overseas than in the United States. Vanderhoof noted that many fraudulent transactions happen overseas, even though Americans are often the targets. Europeans also took to paying with debit cards sooner than in the United States, which just multiplied the incentive to try cloning cards. Those two factors made finding an alternative to the magnetic strip more of a priority.
The credit cards many Americans use store the account information in the magnetic strip on the back, in the same way a disk drive does. (This is why magnets near a credit card are a bad idea). But that information can be duplicated, or "cloned," and the equipment to do so isn't hard to get or expensive – a good magnetic strip reader can be had for under $100. From there, a little hacking is all that's needed to clone the card.
This kind of fraud was less common in the United States, though, largely because there were more profitable ways to defraud credit card companies. Fraud generally was a bigger problem in Europe, so banks quickly realized they need another solution.
Smart cards (using a standard called EMV, for Europay, MasterCard, and Visa) encode the account information onto a microchip. That chip generates a special code whenever the card is used, and that code is unique to every transaction. The issuer uses that to verify that the card is real and the right one, and the PIN adds another level of security.
Magnetic strip-only cards can't do that. Smart cards' can be duplicated, but it's more difficult to copy them than cards with magnetic strips. Even if the smart card information is cloned, the code generated won't match the original card, so the transaction will be rejected.
So are U.S. travelers out of luck? Not quite. Spokespeople for MasterCard and Visa also noted that the clerk at the counter should be able to make a U.S. card work – it's only the newer, fully automated systems with no human beings involved that aren't designed with magnetic stripes in mind. American Express in particular has pushed to make sure its cards will work where they are accepted (the company made its name as a traveler's card, after all).
And ATM machines for the most part will still work, too, as they tend to be older -- just make sure your bank has a partner institution in the relevant country. The problem arise when the sales clerk doesn't know what to do when the machine asks for a PIN -- a problem that I have encountered at least once, and it took some fiddling to find out that hitting "enter" on the POS terminal would work.
For those really worried about getting a card that works, Travelex offers a chip and PIN card that can be filled with a prearranged amount of money. Some financial institutions (often smaller credit unions) will offer smart cards if the customer specifically asks for it.
U.S. cardholders will be getting the new technology in the next two years in any case. Visa and MasterCard have both released timelines for adopting it, bringing the United States in line with the rest of the world. Visa announced it will require payment processors to support the chip technology by April 1, 2013, and is offering incentives to merchants to use the chip-enabled POS terminals. MasterCard made a similar announcement with a road map for adopting them.