Understanding Europe’s Credit Card System

Business Travel, Travel Products & Services — By on March 8, 2012 at 12:38 pm
credit cards abroad By Cathy Martin
Special to Lost Girls

When attempting to check in at a budget hotel on a recent trip to Toulouse, France, my aunt and uncle’s Bank of America credit cards were received with confusion and ultimately refused, the well-meaning staff contending the Visa cards were incompatible with their machine. Although they allowed us to stow our luggage until we could produce the cash, we were forced into the less-than-ideal position of being obvious tourists carrying a purse full of hundreds of euros.

We were frustrated and perplexed because this wasn’t the first time they’d run into trouble using their cards. French retailers often studied them intensely before eventually swiping them through, and one waitress asked for a four-digit code before refusing the card outright without further explanation.

Why was my Visa card, newly issued from a French bank, facing no resistance while my family’s American ones were being rejected? Was it nationality discrimination or were the machines really incapable of processing American cards?

Payment Pains

The answer, it turns out, is neither. France and the rest of Western Europe have switched credit card security systems, now issuing EMV-enabled cards in lieu of the magnetic stripe ones still used in the United States. Nicknamed “chip-and-PIN” cards, they are imbedded with a microchip and transactions are verified with a personal identification number rather than a signature.

Hence the dumbfounded reactions upon seeing our “old fashioned” cards. While Visa insists that all vendors who accept Visa must accept magnetic stripe cards and are capable of processing them (whether by swiping or manually entering the card number), leaders at the European Payments Council specify that European businesses can choose not to accept them according to their customer base.

“U.S. travelers to Europe might experience that their magnetic stripe cards are not accepted…at a few local merchants,” Gerard Hartsink, European Payments Council Chair, and Ugo Bechis, Chair of the EPC Cards Working Group, wrote in an email.

Even when a business has made no such decision, employees may resist taking the card anyway—a potential problem about which Bank of America did not warn my relatives when they called to say they would be traveling to France. The European staff may be unaware of their processing ability in areas where American business is rare (i.e. not in Paris), or even play ignorant to avoid paying the accompanying fee.

Being persistent and explaining the problem surpass many American travelers’ knowledge of French. Worse still, in those exceptional situations when automated payment is the only option, such as in some parking garages and gas stations, cash-less Americans are often stuck.

A New Standard

Europe began slowly implementing the EMV system (named for the original participating companies—Europay, MasterCard and Visa) in 2003 to cut down on its annual 1.5 billion euro cost of credit card fraud. So far, it’s working. A 2011 analysis by the European ATM Security Team reports that losses due to ATM fraud dropped by 63 percent in five years.

The cards protect account information by storing it in a way that’s impossible to clone or skim. Plus, a thief cannot use a stolen card in most transactions without knowing the corresponding PIN.

Only in the last couple years has EMV technology been fully integrated within the European Union. Currently, most cards still feature the magnetic stripe along with the microchip. However, the European Central Bank recommends that all new cards issued from 2012 onwards be chip-only cards.

EMV has also become the standard in Canada and regions of Asia, Africa and Latin America.

Chip-and-PIN in the U.S.

Some in the American banking industry say this type of security hasn’t been necessary in the U.S. because its fraud-preventative measures are already more effective than the rest of the world’s. Most American banks track card usage instantly and put holds on them the moment a suspicious payment is detected (which can in itself cause problems if the “suspicious” payment was in fact legitimate).

But leaders at the European Payments Council say that due to the success of chip-and-PIN in Europe, fraud is now migrating rapidly to “points of least resistance,” or countries which continue to use the older system.

“Much to the concern of European banks, the U.S. is one of [those countries],” Hartsink and Bechis wrote.

In August 2011, Visa announced plans to expand and accelerate chip-and-PIN technology adoption in the United States. According to Visa spokesman Ted Carr, American financial institutions have issued an estimated one million Visa EMV-enabled cards, which demonstrates “the significant progress the industry is making toward implementing Visa’s U.S. chip roadmap.”

Chase, the first major U.S. bank to issue chip-and-PIN, currently offers three cards targeted at frequent international travelers. Chase spokesman Rob Tacey said the cards have streamlined purchases in Europe for travelers whose troubles using their magnetic stripe cards had become a “pain point.”

“This technology allows the cardholder to live like a local when traveling overseas.”


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