US Credit Cards no longer work reliably in Europe

2nd August 2010  

It was 20th Century Irish Playwright George Bernard Shaw who said “England and America, two countries separated by a common language”. Also it seems by something you wouldn’t immediately think of, their systems for processing credit cards.

This summer lots of our American cousins are really having a problem paying their bills when they travel to not just the UK, but the whole of Europe.

The problem is quite straightforward, the solution less so. In short the US and European credit card processing and security systems have grown apart over the last 10 years, and serious incompatibility issues are now commonplace.

Some credit the French with the first move towards the Chip and PIN system which is widely acknowledged to offer more security against fraud. However although Chip and PIN technology was first used in France in 1993, it was in fact the UK that lead the way in Europe in adopting global Chip and PIN technology from February 2006.

But in the good old United States of American they still rely on the old fashioned magnetic strip and signature system which is very easy to forge. In the past, a level of dual compatibility has enabled American visitors to Europe to get by. However, this year as automated payment solutions like petrol stations, toll booths and ticketing systems become more prevalent, serious problem are becoming apparent as this technology won’t accept non Chip and PIN credit cards.

Retailers are also reluctant to accept less secure magnetic strip debit and credit cards because if the resultant transaction is subsequently found to be fraudulent, their merchant services provider will claw the funds back, and charge them a weighty fee for the privilege.

So what’s the answer? Well there’s no fix on the horizon at the moment. The latest news this week is that the problem is getting worse not better as even the small level of interoperability that existed is starting to break down. It appears that the technology of the authorisation systems is diverging as the European standard is being developed without much attention to the the fundamentals of the outdated magnetic strip system.

It seems strange that the US Banks are slow to adopt the more fraud resistant technology, clearly every time they miss out on a transaction, its costing them money. It would be easy for US banks and card issuers to issue multi-mode cards that worked on both systems.  Most of South America, Canada, Mexico, and Australia are either switching or planning to switch to the global Chip and PIN system.

Perhaps the card issuers in the US are relying on the fact that less than 20% of Americans ever own a passport. Surely this is short sighted with the exponential rise in internet led purchasing?

One answer for Americans travelling to Britain is to use prepaid credit cards. These simple cards work like pay-as-you-go mobile phones, you just load the credit from a bank account or cash, and you can spend whatever is available on your card in stores, online or at an ATM. When they return to the States, they just notify the issuer and cut up the card.

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