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Think your credit card’s welcome worldwide? Think again

Sun., Aug. 22, 2010

When Susanne and Bernie Seidel of Everett traveled to Sweden and Germany two years ago, they had no problems using their Visa and MasterCard at gas stations, grocery stores and restaurants.

On a trip to Sweden and Norway this past April, “they didn’t work,” Susanne discovered.

Their cards were accepted some places – hotels, for instance – but rejected at small grocery stores and a few restaurants, and wouldn’t work at automated gas-station pumps.

Jim Burke, of Bandon, Ore., had a similar experience when he was stranded in Amsterdam after the airport closed this spring due to the eruption of the volcano in Iceland.

Like everyone else, Burke tried to get to where he was going by train. That involved several hours of waiting in line for an agent because his Bank of America-issued Visa card wouldn’t work in the automatic ticketing machines.

The same thing happened later in Paris. After four hours of standing in line while others used the vending machines, he was told the seats were sold out.

“Visa and MasterCard operate under the guise their cards are welcome all over the world,” Burke points out. “Well, no. Not quite.”

What gives?

Most countries, including Canada and Mexico, are gradually replacing “swipe and sign” credit and debit cards – the kind that carry a magnetic stripe and require a signature to approve a purchase – with new smart cards called “chip-and-pin” cards.

These cards are embedded with a microprocessor instead of a magnetic stripe to store cardholder data. Customers enter a PIN – personal identification number – into a device that reads the data on the chip.

Restaurant waiters run the charges through tableside so the card never leaves a customer’s sight.

“The U.S. is (among) just a handful of nations that haven’t embraced the standard,” says Carey Whaley, vice president of payments and technology policy for the Independent Community Bankers of America.

Chip-and-pin cards are considered more secure, but U.S financial institutions, citing the high costs of converting to a new system, have been reluctant to make the change.

So far in the United States, only the United Nations Federal Credit Union, open to U.N. employees and their families, has announced plans to issue the new cards.

“The American traveler is basically stuck,” says Burke, who travels frequently and has had his cards rejected at toll-road gates in Spain and Portugal.

He called Visa and his bank, asking, “What can you do to help me?”

“They said ‘Nothing. We’re sorry for your inconvenience, but we’re not going to do that here. It’s too expensive,’ ” Burke says.

Most of the hassles so far involve people reporting they are not able to use cards in some types of ticket-vending machines, gas pumps and other automated payment terminals that take only credit cards.

In countries where chip-and-pin is in use, hotels, shops and restaurants can still process sign-and-swipe cards. In fact, Visa and MasterCard rules say they must accept both.

In reality though, as the Seidels found, some don’t, or won’t.

“There are merchants who don’t want to take the risk,” says Jack Jania, vice president and general manager of secure transactions at Gemalto North America, a Dutch-owned company that makes cards for Visa and MasterCard.

“In some of the smaller shops, some of the clerks are young, and have not used magnetic stripe cards themselves, so they don’t know what to do, and automatically decline them.”

Given the instances of increased credit- and debit-card fraud and the potential loss of business from American travelers, why aren’t U.S. banks moving ahead?

“I don’t think it’s a question of being unconvinced (of the security benefits). I think it’s a question of timing,” says Whaley, whose organization represents small banks and credit unions.

With a seven- or eight-year transition period needed to modernize or replace payment terminals and issue everyone new cards, bankers are questioning whether the chip-and-pin system could be obsolete by the time they finish.

“Will the security still be robust? It’s a big challenge to take everyone and change what they’re doing, and then, by the time you’re done, find out that everyone wants to be paying by mobile phone,” Whaley says.

ATMs are so far unaffected – using them already requires a PIN – so withdrawing extra cash at your destination and/or carrying travelers checks for emergencies is probably the best precaution in the short run.

But with most countries making the conversion to chip-and-pin, there is hope American travelers will soon have better alternatives.

Wal-Mart plans to install terminals equipped to take chip-and-pin cards in all of its stores worldwide, a sign the big retailer may use its clout to nudge U.S. banks into action.

Visa promotes the benefits of chip-and-pin on its Canadian website, but would not talk about its plans for the U.S.

In a written statement, it insisted that “magnetic stripe cards continue to be accepted everywhere Visa is accepted.”

MasterCard is more realistic. It says it knows customers have had problems, and is working on a solution that could allow financial institutions to issue a “dual interface” card that would also work in other countries, without waiting for the entire U.S. banking system to adopt chip-and-pin.

Gemalto’s Jania says he’s confident “one or more of the larger banks will be offering a product next year.”

He guesses they might start by combining a Visa or MasterCard chip-and-pin card with an airline-affiliated card aimed at frequent travelers. Most of those cards, however, carry annual fees.

“For the bank, it comes down to what kind of services are you going to offer your customers who travel,” says Whaley.

“For many financial institutions, I think it’s still a matter of waiting to see if there’s the demand.”

In the meantime, advises Susanne Seidel, “Definitely take cash, and be prepared.”

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