Misleading story in Daily Mail on prepaid

1st June 2011  

Our friends at the Daily Mail have an interesting story in their Money section on 29th May about avoiding the disconcerting problem of declined credit cards when travelling and using credit cards abroad.

The article appears to advise us to all get a prepaid travel payment card on the basis that these won’t be subject to the same draconian automated security checks as mainstream credit cards that actually offer a line of credit. You know; the ones that cause red faces when our credit cards are declined just because we’re taking a well earned break overseas!

Unfortunately the article is wrong. We telephoned two of our top travel payment card providers (Virgin Money and Caxton FX) to be absolutely sure this afternoon and word is that they use similar automated fraud prevention mechanisms as their mainstream credit card counterparts. In other words if you travel with a prepaid card expecting to have less chance of it being declined for no apparent reason, you could be in for a nasty surprise!

The Daily Mail article seems to imply that because prepaid cards aren’t tied to your bank account or a potentially large (and maybe unused) credit limit, this makes their online automated fraud prevention systems less effective, sensitive or intrusive.

This isn’t the case, mainly because under UK law, if you’re using your credit card or debit card within the issuers Terms and Conditions, you the card holder won’t be held responsible for any fraudulent transactions. Therefore the banks and card issuers want to make very sure they do their utmost to prevent any card in circulation from being used dishonestly.

These automated computerised systems are supposed to look for unusual patterns in your spending and out of character transactions so if your card is stolen or misused, card issuers computers can block further transactions on the card before too much damage is done.

Prepaid cards issued in foreign currencies (we like to call them overseas credit cards) are an excellent tool for travellers, but for a completely different reason. These new hybrid counterparts of the common-or-garden credit cards allow you to side step the foreign exchange surcharges levied by most mainstream UK credit card companies. These charges (often of around 3%) apply to all transactions you make in any currency other than the one the card is issued in.

Many overseas cards also allow you to make cash withdrawals at ATM’s and cash points abroad with no withdrawal fees.

The idea being you ‘buy’ (most are free to set-up and have no credit check, you just order them online) a prepaid card in the local currency of the country you’re travelling to. You pre-load your available spending money on the card and then when you’re away, no foreign exchange surcharges. (Here’s our selection of overseas credit cards for you to compare.)

If you’re working to a tight budget these prepaid cards will also only allow you to spend the cash you’ve preloaded on the card, avoiding any heartache when you open the post on your return.

The Daily Mail article is correct in that the best way to prevent embarrassing and unexpected declined transactions is to let your credit card issuer know in advance that you will be travelling abroad, and the dates and countries you will be visiting. Also ensure that they have your mobile number on their files so that if a suspicious looking transaction comes onto their system they can quickly call you and check if its you using the card.

When travelling anywhere its also worth carrying with you the telephone number of Customer Services department for any cards you plan to take with you. All credit card companies provide a number that’s easy to call from abroad that’s manned 24 / 7 to assist if you think your card is misplaced or stolen.

Here’s more advice on using your credit card abroad which is updated regularly.

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