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US travelers face credit snafu

New global system declines the cards Americans carry

Europeans and others worldwide are shifting to the PIN-based system, but US credit card firms are refusing. Europeans and others worldwide are shifting to the PIN-based system, but US credit card firms are refusing.
By Eric Lucas
Globe Correspondent / September 7, 2008
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All I wanted to do was buy gas, so I put my credit card in the automatic card-reader and got ready to fill the tank. "Card not valid," said the error message on the readout, rejecting my Visa. It wasn't until this happened a half-dozen times that I concluded something was seriously amiss.

This was June, in Scandinavia, and the problem I encountered is a transaction-security snafu that is going to afflict more and more Americans traveling overseas. Much of the world - but not the United States - is switching to a new type of credit card. "Chip-and-PIN" cards, as they are called, have an embedded ID chip that requires users to enter a unique code before the transaction is approved. The procedure is similar to that for ATM cards, except that the latter draws money from a cash account, while chip-and-PIN cards charge credit systems such as Visa, MasterCard, or American Express.

Europe is quickly making the shift. Nearly all the credit-card terminals in Britain, Ireland, Denmark, France, and Spain have been changed. Canada is scheduled to convert in 2010. And as many as 50 other countries around the world are converting.

The reason is obvious: A credit card requiring a PIN code is useless to a thief. European officials report that the system has significantly cut the credit-card fraud that grew after former Soviet bloc countries joined the European Union.

But US consumers cannot get these cards.

No US card issuer offers them, and according to the American Bankers Association, there are no plans to adopt the technology.

"It would be costly to change all the transaction terminals in the US," says Don Rhodes, director of risk management policy at the ABA, "and right now the industry doesn't seem to feel the level of fraud justifies it."

In theory, overseas merchants are required to accept US cards (which are called "mag-stripe," for the magnetic stripe that identifies each card) if the cardholder can offer a suitable picture ID to authenticate a signature.

"We have been quite clear that there are instances where a signature rather than a PIN should be accepted," says Sandra Quinn, a spokeswoman for the British payment processing council APACS, about a procedure called a PIN bypass. "But I have heard of problems."

Problems, indeed. Even Rhodes ran into trouble on a trip to London last winter. And over my three weeks in Scandinavia, my Visa card was rejected about half the time, and never accepted at automatic pay points where there was no live cashier. (Officials at Visa International, the world's largest payment network, declined to comment.)

So what can US travelers do when they are in chip-and-PIN countries?

Cash usually works. But carrying large amounts comes with the risk of theft or loss and forces travelers to bear costly foreign exchange fees. Also many businesses such as car rental agencies will not accept cash and require a credit card imprint before handing over the keys to a car, though such companies are the most likely to still accept mag-stripe cards.

Depending on the country, travelers checks are accepted in many places. Scandinavian merchants usually will not take them, and travel specialists have advised against them, as they are theft magnets. To use them you must find a bank that will cash them. And traveler's checks, like cash, do not offer the advantages of credit cards that appeal to frequent travelers: postponing payment for a month, an avenue to dispute charges, monthly and yearly expense tracking, and frequent flier miles.

Debit cards like the ones you use at ATMs (which are ubiquitous worldwide) usually can be substituted for credit cards. But relying on them means you must ensure there is plenty of cash in your account.

If you are planning a trip soon and want to use your credit cards, make sure you have several good picture IDs to back up your signature, a passport or a driver's license, for instance. IDs that have a scannable bar code, such as a passport, are best.

And despite what the payment-processing groups and card issuers say, many merchants will want payment with a code card, period. "No code, no ticket," I was told in Copenhagen at Danish National Railways. "No exceptions."

Eric Lucas can be reached at ericplucas@yahoo.com.

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