Why U.S. credit cards fail overseas
For comedian Dan Nainan, who has traveled to 10 countries already this year, trying to use his U.S. credit cards to buy train tickets in Hong Kong or rent a bike in Toronto was no laughing matter. Each time he swiped his card, the transaction could not be processed.
“The machine has no idea that any country would be so stupid as not to have the same kind of credit card the rest of the world does,” he says. “It’s really, really frustrating.”
Having a credit card when you were traveling outside the U.S. used to mean you’d be able to get something you needed, no matter where you were. Sure, you might face steep transaction fees, or find a mysterious exchange rate. Now it’s a crapshoot whether your card will get accepted.
That’s because the rest of the world has moved away from the magnetic strip which provides the guts of most U.S. cards to a technology dubbed chip-and-PIN. Those magnetic strips rely on the information carried through a network to authorize the sale. Not so with the chip-and-PIN smart cards, which uses a microchip embedded in the card containing all the relevant information for a purchase and are generally used with a PIN, which has reduced fraud significantly.
Magnetic stripe cardholders have the biggest problems when they are traveling outside major cities and when there is an automated machine to accept payments, rather than a person who can use one of the older processors, the credit card industry backed Smart Card Alliance says.
Sally Treadwell of Boone, North Carolina, was in England in December when she swung by a mobile phone store to buy new sim cards (to avoid international roaming charges) when the sales person looked blankly at her credit card.
“This was a business expense and I ended up using my personal cash,” Treadwell says. “I felt a little embarrassed that we are so behind the rest of the world in terms of credit card security. And I’m still kind of mad that my credit card companies have never made any attempt to inform me of potential problems or give me the opportunity to acquire a chip-and-pin for overseas trips.”
The technology gap might be temporary. Visa announced last month that it was speeding up plans to institute a microchip-based card and said it was offering incentives to ramp up use of the technology in the U.S. market.
“After years of tinkering with the idea, it looks as if the card industry is finally migrating toward chip-embedded cards,” says Dan Ray, editor of CreditCards.com. It will start offering incentives to merchants that move toward the new technology, he says.
Bill Hardekopf, founder of LowCards.com, says the cost of changing equipment has been the big drag on the transition. He says mobile devices soon will be equipped with chips so they can be used at point of purchase as an alternative to cards.
“Retailers don’t want to install readers until there is a market that will use them,” he says. “Consumers may be reluctant to sign up for enabled phones until they are certain that they can use them where they shop and eat. Smartphones will also have to prove to consumers that the wireless payments are secure and provide anti-virus protection.”
The Smart Card Alliance — which is backed by companies including Visa, Mastercard and American Express — notes that several U.S. banks have rolled out chip-enabled cards, including some aimed squarely at international travelers.
The new cards didn’t find their way to Greg Cohen of Dallas-based Patron Spirits, who was with a group of friends in September trying to race the clock to buy train tickets from a machine in Cannes, France to get to Monaco. They pulled out a variety of cards (Visa, Mastercard and American Express) and all failed to work.
“Working feverishly to buy the tickets, we finally saw something written in French about needing a microchip of some sort on the credit card, which none of us had on our U.S. cards,” Cohen says. “Fortunately another friend with us is from the Philippines and apparently his MasterCard had the chip.”