Why U.S. credit cards fail overseas

September 28, 2011

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 Iā€™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 ā€” which is backed by companies including Visa, Mastercard and American Express ā€” 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.”


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Welcome to the USA, the 3rd world

Posted by GA_Chris | Report as abusive

We in America think we are so far ahead of the rest of the world in every possible way. For that reason, Americans have, for generations looked down on others, as “foreigners,” even when we are in their country. In actuality, we are the one who are behind the curve in technology and many other things.

Posted by rts18202 | Report as abusive

I just checked my Visa card and I have had it since 09, it is my second card with a chip so I have been using a smart card for quite awhile.
I can’t believe that Visa a US company uses smart cards in Australia but not in the US?

Posted by Sinbad1 | Report as abusive

+1 for the comment on America falling behind in many areas. With a weakened America, the other countries are no longer willing to accomodate our “American exceptions”.
I just come back from France and indeed, you can’t use your card for many things such as highway tolls or parking payments… If most businesses have devices able to use both type of cards, I noticed that quite a few small businesses have newer credit card devices that only accept smart cards. You do need to carry cash on you at all time. Also, I encountered some difficulties exchanging $100 bills. You may want to change your currency in the US.

Posted by PhilippeG | Report as abusive

Here in Brazil we have cards with chip and pin too.

Posted by Rainor | Report as abusive