Consumers are starting to notice a growing adoption of embedded microchips in credit cards as opposed to magnetic stripes. These chips, often called EMV smart chips, have been in use in Europe and other parts of the world for more than a decade. Now that U.S. consumers are being issued cards with these chips, it would appear these cards would be compatible with credit card terminals around the world.
Unfortunately, that's not always the case.
Two EMV Chip Implementations
There are two different ways EMV chips can authenticate transactions. The first is called chip and signature, and it works like traditional credit cards. Once the card is authenticated in the retailer's terminal, a customer signs the receipt electronically or on paper. The other implementation is called chip and PIN and works more like an ATM card. The merchant's credit card reader authenticates the transaction, and then the cardholder is required to enter a four-digit personal identification number, or PIN.
Where Each System Is Used
According to the nonprofit Smart Card Alliance, credit cards with microchips are currently accepted in more than 80 countries worldwide. In the U.S., chip and signature is becoming the standard, as migration to chip-enabled credit cards began in 2015. In Europe and other parts of the world, chip and signature is used for most transactions, but chip and PIN is often the standard for unattended terminals such as those at train stations, toll booths and gas pumps.
Should you encounter a terminal requiring a chip and PIN transaction but have a card with a chip and Signature implementation, you won't be able to use it. Needless to say, this can be a major inconvenience since these merchants are theoretically supposed to have an attendant nearby to manually process the card.
It's a dilemma that's plagued Americans traveling abroad for years, but fortunately it's starting to change. Some credit card issuers, like Barclaycard, are giving customers cards compatible with the Chip and PIN implementation. Other card issuers plan to offer compatible cards later this year. In addition, Visa recently changed its acceptance rules to require businesses with unattended terminals to accept international chip cards without PINs or signatures regardless of an attendant's presence. That should help travelers use their chip cards at train ticket kiosks, bike-sharing stations, vending machines and parking meters without problems.
Interestingly, Visa has even sent teams of secret shoppers to test for compatibility in countries such as Denmark, France, Italy, Spain and the U.K. It found more than 90% of transactions were approved without chip-and-PIN cards, up sharply from previous surveys. The 10% of declined cards was due to a number of factors, not just a lack of Chip-and-PIN compatibility.