Chip-and-PIN vs. Chip-and-Signature
It's become a common question for international travelers: Will my credit card work abroad?
Central to this determination are the differences in credit card fraud prevention technology being employed around the world. While the United States continues to rely on the magnetic stripe technology adopted in the 1970’s, most places – including popular tourist and business destinations like Europe, Asia, and Canada – have progressed to chip-based smartcards based on the EMV standard.
This disconnect means that in rare occasions, magstripe cards may not work outside of the United States. To compensate and appease savvy international travelers, a few major U.S. issuers have begun offering chip cards on a limited basis – a move that’s raised a whole new set of questions:
What’s the difference between chip-and-PIN credit cards and chip-and-signature credit cards?
Chip-and-PIN is the most secure type of credit card technology. Instead of a signature being used for identity verification, it requires you to enter a four-digit Personal Identification Number (PIN) that must correspond to information contained in a computer chip embedded within the card. The inclusion of the computer chip in chip-and-PIN cards makes them exponentially harder for fraudsters to replicate, and even if they do manage to get ahold of your card, they won’t be able to rack up charges with it because they’d need to know your PIN to do so.
Chip-and-signature credit cards differ from chip-and-PIN cards in that you verify your identity with your signature, rather than via PIN. They are therefore not quite as secure as chip-and-PIN cards but are more so than magnetic stripe credit cards in light of the embedded computer chip. Chip-and-signature credit cards are generally accepted everywhere chip-and-PIN cards are, with the exception of certain unmanned payment terminals equipped to take chip-based cards.
Are there any disadvantages to the chip-and-signature cards offered by US issuers?
The majority of smartcards yet introduced in the United States are chip-and-signature credit cards (which, like all chip-based cards, also have magnetic stripes). Credit card marketers are intentionally vague about the specific chip-based technology they use, but the truth is that chip-and-signature is generally viewed as a half-measure that doesn’t solve the biggest problems that international travelers have.
First and foremost, in countries that have made chip-and-PIN their credit card standard, chip-and-signature credit cards are useless at certain unattended automated kiosks, such as you might find in European train stations or, as one of our readers informed us (See Comments below), certain small restaurants and parking garages. While such kiosks are certainly the exception rather than the rule, according to Stephanie Ericksen, the head of authentication product integration for VISA, who says there is very little acceptance disparity between chip-and-PIN credit cards and chip-signature cards, that will likely offer little solace if you find yourself stranded in a train station late at night with no means to buy a ticket to your destination.
You probably won’t care that unattended kiosks don’t necessarily have to require PINs either, according to Randy Vanderhoof, executive director of the Smart Card Alliance. He claims that the inapplicability of chip-and-signature cards to unmanned kiosks is a product of the way they’re set up, rather than the technology itself. Regardless, all that will matter to marooned travelers is the simple fact that they cannot use their cards to purchase the tickets they need to reach their destinations. Besides, do we really expect European officials to go back and change all of their machines just to accommodate U.S. tourists, who are viewed on that side of the pond as using outdated credit card technology anyway?
In rare occasions, there are also logistical issues involved with trying to use chip-and-signature credit cards at places that are supposed to accept them. Poor merchant training about when a PIN is truly required for payment processing has been known to create confusion despite the fact that 1) VISA and MasterCard require that all attended point-of-sale machines be equipped to accept chip-and-signature transactions and 2) when a chip-and-signature card is inserted into a payment terminal, the terminal will generally recognize that no PIN is required and will instead print out a receipt saying “verified by signature.” Even if you have a firm grasp on the language, which most tourists do not, trying to convince a foreign merchant who is accustomed to only processing payments via PIN that your card does not require a PIN could prove pretty frustrating.
To be fair, the credit card infrastructure in a lot of countries – namely Spain, Portugal, Italy, Germany, Turkey, Mexico, Australia, New Zealand, China, India, Russia, and most of Southeast Asia – is based on chip-and-signature or online PIN technology. But given that the chip-and-signature cards being offered by US issuers don’t come with corresponding PINs for even online verification, you might still run into problems.
Why are US issuers primarily offering chip-and-signature credit cards?
That’s a good question because while Ericksen says that US issuers of chip-and-signature cards have seen increased international acceptance relative to magstripe cards, practical experience and consumer feedback indicate that you can still use magnetic stripe credit cards pretty much anywhere that will accept a chip-and-signature card. And the few places where magstripe cards don’t work (i.e. certain unattended kiosks), chip-and-signature cards don’t tend to work either.
The most obvious answer is marketing. Credit card companies can market chip-based credit cards as having special new features and thereby charge more as well as attract new customers, even though the specific technology they’re advertising doesn’t have much practical benefit.
Liability shifts also play a role. While banks have long been held accountable for fraud, new VISA/MasterCard policies designed to increase the prevalence of chip cards will largely shift liability to merchants who have not equipped their stores to accept chip cards beginning in 2015. Banks who do not offer these cards will apparently retain some of the burden, however, and it’s the appeal of free liability insurance that will drive them to bring chip cards to the US, according to Jack Jania, senior vice president and general manager of secure transactions for Gemalto, Inc., a Netherlands-based smartcard manufacturer. In fact, Jania says Gemalto is already seeing large-scale orders coming in from U.S. issuers.
In addition, there are certain transitional, regulatory and logistical issues for banks that explain why they have not simply adopted chip-and-PIN credit cards.
Much, according to Jania, depends on the infrastructure needed to support PIN management. Debit card PINs, he says, are handled in a back-office fashion and are stored in a centralized location. With chip-and-PIN credit cards, though, the PIN is essentially coded into the card’s computer chip. You can change the PIN at an ATM, but that obviously requires an ATM that can read and modify a chip card.
“[Chip-and-signature] is a half-step,” said Jania. “The reason it is a half-step is it’s going to take some time to upgrade all the ATMs.”
According to Ericksen, if you’re not using your PIN at home, you might not remember it when you head overseas, rendering your card unusable. This is especially problematic in light of the fact that most US banks currently do not have the requisite agreements with foreign ATM operators that would allow customers to reset their PINs while out of the country, according to David Porter, the general manager of card services at JPMorgan Chase.
US Chip-and-PIN Credit Cards
Whether you buy the above excuses or not, the bottom line is that there aren’t many chip-and-PIN credit cards available to US consumers. There are some, though, including the following:
- Diner’s Club credit cards are now being offered with chip-and-pin technology.
- Travelex’s Cash Passport Prepaid Currency Card has chip-and pin, though it charges an unfavorable exchange rate.
- State Employees' Credit Union debit cards are now embedded with smartcard chips, making them chip-and-PIN capable.
- The United Nations Federal Credit Union’s Elite Card has chip-and-PIN
- The Andrews Federal Credit Union’s GlobeTrek VISA Rewards Card offers chip-and-PIN
- In Dec. 2013, Wells Fargo announced that it would begin offering chip-based credit cards to consumers upon request. "Technically speaking, they are chip-and-signature," says Weels Fargo Spokesperson Natalie M. Bowrn, "though the chip does have a PIN and can accommodate a PIN-based transaction if the situation required it (e.g. an unattended or offline kiosk.)"
Chip-and-PIN credit cards are the only type of credit card that will be universally accepted in fully EMV-compliant countries, but given that there are relatively few chip-and-PIN cards being offered to US consumers, a no foreign transaction fee magnetic stripe credit card will in most cases still be the best available option for international use since chip-and-signature credit cards don’t provide much benefit relative to magstripe credit cards when used abroad.
Ultimately, there are a few key points that future international travelers can take from all this:
- Chip-and-PIN credit cards are needed for purchases made at some unattended kiosks.
- Chip-and-signature credit cards don’t provide much or any benefit relative to magnetic stripe credit cards when used abroad.
- We can expect to see more and more chip-based cards being offered by US banks as the country continues its migration to the EMV standard.
Image: Johan Swanepoel/Shutterstock
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