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What is a chip-and-PIN credit card?

By Justin Boyle

What is a chip-and-PIN credit card?

At first glance, your U.S. credit card may seem ideal for traveling abroad. You can just bring your foreign-fee-free card on your next overseas trip and cross borders without having to worry about losing spending power to unfavorable exchange rates, right?

As many world travelers have found, it isn't always that easy.

The rise of chip-and-PIN cards

In 2004, card issuers in many parts of the world started changing their credit card format. The old signature-verified model began falling by the wayside in these places in favor of EMV smart chip cards, commonly referred to as chip-and-PIN cards.

Increased security is cited as the primary advantage of a switch to chip-and-PIN cards, which feature two authentication methods: the traditional magnetic stripe, as well as an encrypted microprocessor that broadcasts payment information to the card reader. Experts in India, where the national reserve bank has mandated a switch to EMV cards for international transactions, say that the chips are practically impossible for fraudsters to decode.

But after much of Europe switched to EMV technology, travelers from the U.S. began to fall victim to the incompatibility of their U.S. credit cards in some places. Gas stations in rural France, for instance, may take only EMV cards at their unmanned pumps, leaving you stranded in your rented Citroën, dejectedly waving a 20-euro note in the general direction of an attendant who will never come.

So if EMV is so widely used in Europe, why does the U.S. continue to use the reportedly less secure stripe-and-signature method?

Follow the money

Because it's not profitable, that's why. At least that's the reason given in a report detailed at the 2013 annual conference of Card Services for Credit Unions (CSCU). The report was presented by a senior vice president at FIS, the company that processes card payments for CSCU members.

Part of the problem lies in the initial cost to manufacture and distribute the cards. FIS calculates that EMV cards can cost between $2 and $4 more per card than the magnetic stripe variety, and financial analysts in India forecast an average additional cost roughly $1.25-$2.00 per card for their own EMV conversion efforts.

Indian issuers have an incentive, however, that their stateside counterparts lack. The international transactions mandate from the Reserve Bank of India trumps the profit-loss issue.

CSCU executives who heard the presentation said they agree with the agency's findings -- namely that there wasn't a very strong business case to make the switch -- but added that the extra card security afforded by the smart chips might be worth the financial hit at some point.

The big chip-and-PIN question

If you want one of these cards and you live in the U.S., can you get it? The answer, for now, is "sort of."

The American divisions of several major issuers offer EMV-equipped cards, although not precisely the same type as those in Europe. Many of the chip cards available to U.S. consumers are chip-and-signature, rather than chip-and-PIN. Regardless of whether you sign with your name or your PIN, the American EMV cards may provide greater flexibility for cardholders who travel overseas, as many European merchants can also handle chip-and-signature cards.

If you're determined to be an early adopter of globally accepted credit, you may also want to look for a card with no foreign transaction fee. There are a few options for this among the chip-and-signature set, including offerings from several major issuers. Make sure to read your agreement thoroughly before making the switch, though -- issuers in the U.S. are relatively new to offering chipped cards and the terms of their contracts may change from one quarter to the next.

Of course, if you don't travel internationally, there's no hurry to jump into an EMV credit card. There are already about 1.2 billion of these cards in the world, so you won't be left too far behind if you wait a little longer.

Justin Boyle is a freelance writer and journalist living in Austin, Texas.

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