Why Your Credit Card Might Not Work in Europe

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While Europeans can occasionally act snooty toward Americans, their payment systems hold our credit cards in the utmost contempt. Example…

I arrived in Milan on a recent Sunday, eager to explore its magnificent cathedral, opera house, and other treasures. Yet my attempt to purchase a subway ticket with a credit card was immediately thwarted. I was well within my credit limit, and I had notified my bank that I was traveling to Italy. Still, I received a message that my card could not be read.

The same situation occurred repeatedly at gas stations and other unattended machines that accepted credit cards. Although I witnessed the frustration of many fellow Americans, as a credit card expert, I recognized the source of our problems: the “Chip and PIN” system that has come to dominate kiosks throughout much of the world.

What is Chip And PIN?

Chip and PIN is pretty much what it sounds like. Credit cards issued in Europe have a microchip embedded in them, and the automated machines that accept them require a four digit Personal Identification Number (PIN) much like any standard ATM card.

The vast majority of credit cards issued to Americans lack this system – rendering them worthless at train stations, gas stations, and vending machines around Europe. The benefit of this system is that it replaces the vulnerable magnetic strip with a more secure chip as well as the PIN, a system security experts call “two-factor authentication.”

What you can do

American credit card issuers often portray this problem as a mere inconvenience. Their response has been, “Just ask the attendant to swipe your card.” This does work, but only if there are attendants. I can tell you that on my particular Sunday, there were no attendants at many of the subway stops in Milan. Many gas stations are also unattended throughout large portions of the day.

The easiest way to prepare for these contingencies is simply to carry cash – the very thing credit cards were supposed to avoid. All the kiosks I saw accepted paper money, but oddly, not coins. The worst-case scenarios were at gas stations where cash was accepted, but no change was given back! Only by presenting a receipt to the attendant, if present, could you get a refund for gasoline you didn’t pump.

Another alternative is to purchase a stored-value card called the Cash Passport sold by Travelex.

This is like any prepaid cash card, but it includes the Chip and PIN system and can be reloaded online. The major downside is that they offer terrible exchange rates: about 5 percent worse than the current interbank rates.

While this may be only 2 percent worse than a standard credit card’s foreign transaction fee of 3 percent, it works out to be 7 percent worse than a Capital One Venture Rewards card that has no foreign transaction fee and a 2-percent reward. Nevertheless, this can be a good value if you plan on using it for small purchases such as subway fares and at vending machines.

Finally, you can sign up for one of a small but growing number of American credit cards that have the Chip and PIN system. Currently, Chase is offering its premium Palladium Card with the Chip and PIN and is rolling out the system to holders of its other cards this year. Wells Fargo is also beginning to offer this system to some customers.

Finally, the United Nations Federal Credit Union in New York and State Employees’ Credit Union of Raleigh, N.C., offer cards with the system. (Find the best credit cards at the Money Talks News search tool.)

By taking a few moments before your trip to understand how credit cards work in Europe, you can be the one to explain it to your fellow tourists, rather than scratching your head in confusion.

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