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If you're planning to travel abroad, you may already know to use a credit card without foreign transaction fees, but you might also have heard you need a card with "chip-and-PIN" capabilities.
In the U.S., "chip-and-signature" is the typical process. Most credit cards today come with an embedded microchip, and after you dip or tap the card at a payment terminal that reads the chip, you might be asked to sign your name.
Outside the U.S., chip-and-PIN is more common. You dip the card at a point-of-sale device and are often then asked to type in a personal identification number. But what if you're traveling with a card that doesn't have chip-and-PIN capability?
The short answer: It used to be a bigger problem, but it's not as much of an issue anymore. To understand why, it helps to know some background about chip-enabled cards.
In the U.S., you dip or tap the card, and then you might be asked to sign. Outside the U.S., you dip the card and are often then asked to type in a personal identification number.”
What is an EMV chip?
The little metal square you see on your credit card is an EMV computer chip (named for Europay, Mastercard and Visa, the companies that developed the technology).
EMV chips were designed to make credit card transactions more secure by preventing thieves from stealing your information — aka "skimming" — when you swipe the magnetic strip on the back of your card.
EMV chips can:
Carry your account information.
Create a cryptogram for each transaction.
Use the encrypted information to verify that the transaction is valid.
Why aren't chip cards the same in the U.S. and abroad?
EMV-enabled chip cards were launched in 1994, although they didn't come to the United States until much later. But even initially, there were two types:
Chip-and-PIN, which required a personal identification number to verify the transaction.
Chip-and-signature, which depended on a cashier comparing your signature at the register to the one on the back of the card.
(Magnetic-stripe cards with no EMV chips at all were still being produced at the time, as well.)
"Chip-and-signature [verification] by itself provides little to no account takeover protection," says Robert Siciliano, CEO of Safr.me, which educates consumers about fraud prevention and personal security. "Chip-and-PIN is more secure since no one can use it without that PIN code, the same way that a debit card can't be used for a transaction without the PIN."
Robert Siciliano, CEO of Safr.me
"Chip-and-signature [verification] by itself provides little to no account takeover protection. Chip-and-PIN is more secure since no one can use it without that PIN code."”
Unlike European banks, which made chip-and-PIN their new standard, the U.S. opted for "chip and choice," meaning the issuing banks could choose for themselves whether they wanted to add a PIN requirement for an additional layer of security or use the cardholder's signature, says Randy Vanderhoof, director of the U.S. Payments Forum, which represents the payment industry.
The majority of U.S. banks ultimately settled on using chip-and-signature, since verifying a cardholder signature at the point of sale was already being done. This also meant that a business that accepted credit cards didn't have to make any costly upgrades to accept chip payments, since the new cards also kept the magnetic stripe intact.
Chip cards start to catch on
U.S. issuers rejected the use of EMV for years, mainly because card fraud in the United States had been lower than in the rest of the world.
But in October 2015, a policy change was mandated by the U.S. divisions of the Visa and Mastercard payment networks, creating a powerful financial incentive for chip cards to become the dominant technology. The networks agreed that the liability for credit card fraud would now be the responsibility of any merchant that didn't upgrade its payment terminals to chip cards. This "liability shift" also applied to card issuers that were still making magnetic-stripe-only cards and not including chips in them.
The shift meant that a mom-and-pop store that didn't invest in a chip reader would be on the hook for any purchases made in their store using a counterfeit card. Previously, the payment networks themselves were generally responsible.
"Brands have the power to define certain rules. By mandating that chargebacks go to the least compliant party in EMV acceptance, [Visa and Mastercard] were able to ... get the market on one platform," says Brian Riley, director of the credit advisory service for Mercator Advisory Group.
So do I need a chip-and-PIN card abroad?
The good news is that you probably don't need a chip-and-PIN card when traveling internationally. It was a bigger issue when the two different types of chip cards first came on the market. Payment terminals in parts of the world that adopted chip-and-PIN initially didn't recognize chip-and-signature cards and would ask cardholders to enter their PIN to complete their transaction. If you were at an unmanned terminal — say, at a train or bus station — you were out of luck if you tried to use your card.
Randy Vanderhoof, Director, U.S. Payments Forum
"A large majority of those unattended kiosks have been updated. Out of the United States, the terminals should be able to tell that a PIN wasn't issued on your card."”
But once the U.S. began to widely adopt EMV technology, the global brands that control the specifications in payment terminals worldwide made changes, enabling cards without PIN technology to be recognized and therefore for transactions to be completed.
"A large majority of those unattended kiosks have been updated," Vanderhoof says. "Out of the United States, the terminals should be able to tell that a PIN wasn't issued on your card."
It's more important, he says, to notify your issuing bank that you're traveling and plan to use the card abroad to avoid triggering a suspicious activity alert that could temporarily prevent you from using your card.
And, of course, it may not hurt to carry a little cash on you when you travel internationally, just in case you do find yourself in a situation where a card won't work.