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Headed to Europe? Why You Need a Chip and PIN Credit Card


Few American banks offer them, but some credit unions do.

Chip-embedded credit cards, common in much of the rest of the world, are coming to the US, but very slowly. Banks mostly offer chip and signature cards, which travelers to Europe have found are useless at unmanned ticket vending machines in train stations, at gas pumps, and at many highway toll plazas across the continent.

Oddly enough, several of the leading chip and PIN providers are credit unions, which makes sense when you see their names -- the UN's credit union, the US State Department Federal Credit Union (SDFCU), and Andrews Federal Credit Union, as in Andrews Air Force base. The latter two are open to the public. They have different types of cards, so make sure you select the chip and PIN. (The SDFCU was included in a good Washington Post story on EMV -- which stands for Europay, MasterCard, and Visa -- cards.)

Most of the world is moving to EMV, explains Ken Paull, CEO of ROAM, a leader in mobile payment technology which was founded in 2005 and acquired by Ingenico (EPA:ING) this year. In Western Europe, more than 84% of the cards issued are chip and PIN.

The persistence of the mag stripe may have something to do with costs. While a traditional magnetic stripe card costs about $2 to deliver to customers, a chip card can cost $15 to $20, according to ROAM, which makes readers and software for secure processing. For merchants, mag card readers typically cost about $20 in volume purchases while a chip reader costs about $40; with a PIN keypad, it can run about $100. Signatures are easier for banks than PIN codes because they don't require systems to manage the codes. Bank of America (NYSE:BAC) said it stuck with signatures because that's what people are familiar with in the US, but that sounds pretty lame when you read about the hassles travelers go through in Europe. The bank did roll out chip and PIN cards to corporate clients in the US last year -- a year after it had issued them to corporate and commercial clients in Europe in 2011.

(A Google doc from FlyerTalk Forums has a list of credit and some prepaid debit cards that have chips and signature or chip and PINs.)

Chips provide a greater level of security in card transactions than mag stripes. In its announcement, Visa (NYSE:V) explained that when a chip card is inserted into the payment terminal, the chip generates a code that is unique to that transaction, which it calls dynamic authentication. This code renders stolen payment information useless.

Chip and PIN cards are typically used in front of the card owner. In European restaurants, waiters will appear with a wireless card reader, insert the card, and hand the device to the card owner who then punches in her PIN. The transaction is completed and the card ejected. In popular tourist spots, the readers also take mag swipe cards, but travelers report that in remote locations, chip and PIN cards are often required.

While the US lags behind much of the rest of the world in chip adoption, that's largely because it has had a very effective domestic system for processing transactions in real time based on cheap telecommunications.

Stephanie Ericksen, head of authentication product integration at Visa, said, "In the US, we can rely on online processing where transactions are transmitted in real time to the issuer for approval. With that in place, there's no need for the offline authentication that was the genesis of chip and PIN."

That doesn't, however, explain why banks are so slow to offer chip and PIN today. Anisha Sekar, the vice president of credit and debit products at NerdWallet, said that there isn't much competition among banks to offer PIN cards, so the leadership has fallen to credit unions like the UN's, which have members who travel a lot.

"Most people don't travel internationally and don't end up in an area where a PIN card would make a difference, and with no one pushing the banks, it is slow going."

Traveler websites report widespread confusion among bank employees -- many call center staffs apparently have never heard of chip cards. Some US cardholders haven't discovered until they are in Europe that their fancy chip card is not PIN-enabled. An unmanned gas station at night or a remote train station where the kiosk requires chip and PIN are not great places to learn you have the wrong type of card.

Chip and PIN may also be required on toll roads and in parking garages. One traveler recounted flying into Charles DeGaulle Airport and finding that the rail ticket machines required chip and PIN cards. The line at the only cashier taking magnetic swipe cards was a two-hour wait, so he jumped into a taxi and paid 60 euros to get to Paris rather than the 10 euros the train would have cost. (Travel writers suggest you play it safe and carry some cash in addition to cards.)

Visa, the first company to offer chip-enabled cards in 2011, said that it had issued 3.5 million by the end of March 2013, but those are mostly signature cards. American Express (NYSE:AXP) offers an EMV chip and signature on its Personal (consumer) and OPEN (small business) Platinum and Centurion Cards. Chase (NYSE:JPM) offers EMV signature cards in select categories. Many banks will issue chip and signature cards on request. Last year, Bank of America announced that it was rolling out chip technology on many of its consumer credit cards, but again with signatures, not PINs.

Merchants in the US face an October 2015 deadline for moving to chip cards -- after that, the liability for fraudulent transactions on a mag card will shift to the stores.

Dan Heimann, consulting manager for back office banking solutions at ACI (NASDAQ:ACIW), said that most of the merchant terminals shipping today are EMV capable. Some banks are issuing chip cards as they replace expiring credit cards.

Fraud reduction won't fully justify the expense of going to chip cards, he added, although he thinks some banks will offer chip cards as a competitive advantage.

Tom Groenfeldt writes about finance and technology, sometimes together and sometimes separately, for and Banking Technology in London, from that as-yet-undiscovered center of the financial universe, Sturgeon Bay, Wisconsin -- 50 miles or so north of The Packers.
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