Editorial Policy

Travelling Overseas? Don’t Bring Just Your Credit Cards

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By Eva Norlyk Smith, Ph.D.
October 21, 2009

Most Americans traveling overseas have gotten accustomed to using credit cards as their payment form of choice. Credit cards afford greater convenience and, generally speaking, are a lot safer to carry around than cash.

Unfortunately, for your next trip overseas, be sure to stuff your suitcase with a cash as well. Many Americans visiting Europe and other overseas countries are finding that their credit cards are no longer as universally accepted as they have been.

Why? European credit cards now commonly use an embedded microprocessor chip, which stores credit card information and processes transaction data. Credit cards issued in the U.S., in contrast, still use magnetic-stripe technology for card transactions. And herein lies the problem: not all overseas merchants and vendors are able to process magnetic stripe cards; many Americans trying to swipe cards without a chip have found their cards rejected.

The new type of credit cards is popularly referred to as chip-and-PIN cards, because instead of signing for purchases, the user punches in a personal identification number. The chip-and-PIN technology is an extra security measure introduced to protect cardholders from credit card fraud. The embedded microchip stores vital information on the credit card itself, rather than in a central database, thwarting the efforts of hackers and other counterfeiters to make away with credit card information or other sensitive personal data. (Please note that chip-and-PIN cards are different from the so-called RFID cards, which are cards with an embedded radio frequency chip currently used on some American credit cards, such as Visa’s payWave or Amex’ Expresspay cards, which don’t offer additional security features.)

The new chip-and-PIN cards are credited with cutting credit card fraud in the U.K. by nearly a quarter during the first half of 2009, according to the U.K. newspaper The Daily Record. Credit and debit card fraud fell to £232.8 million ($380 million), a 23 percent drop compared to the same six-month period in 2008. Other security measures may have helped as well, particularly new systems introduced to make it harder to use stolen cards over the internet. In contrast, the cost of fraud on foreign-issued cards used in the U.K. jumped to £81.1 million ($132 million), a 36 percent increase.

If you’re travelling overseas, however, don’t leave your credit cards at home just yet. Most stores or restaurants overseas still have credit card terminals for reading cards with magnetic stripes, and most ATM’s are equipped to accept both types of cards. Where American cardholders usually run into issues are in places where there are no cashier, such as gas pumps, automated ticket kiosks at train stations, toll booths, or parking garages. For purchases like this, you might find yourself wishing that you had brought a wad of cash.

More and more countries are expected to adopt chip-and-PIN cards. The cards have already been introduced in twenty-two countries, including Canada, much of Europe, Mexico, Brazil, and Japan; another 50 other countries, including India, China, and most Latin American countries, are expected to transition to the new technology over the next two years.

Don’t expect to see chip-and-PIN technology in the U.S. anytime soon, however. According to Javelin Strategy and Research, a consulting company for the financial services industry, the cost to adopt the new technology in the U.S. would be an estimated $5.5 billion, mainly to cover the costs of the new payment terminals. In the current economic climate, neither retailers nor banks are rushing to shoulder that expense.

So, if you’re heading overseas, what should you do? Well, for train tickets or subway cards, consider buying them online ahead of time. Or, simply do what travelers have done for hundreds of years: make sure to bring enough travelers’ checks and cash.