The Problem Using American Credit Cards Abroad

The way monetary systems work, I am told, is that they replaced the old system of barter (where I would give you a sheep, for example, in exchange for a train ticket) with more convenient forms of payment like cash or credit cards. As I stood at the German railroad office in Düsseldorf, I found myself in need of a sheep.

The Problem with American Credit Cards

American travelers like me are increasingly running into problems trying to use credit cards in other parts of the world like Europe. While credit cards are widely used in the United States, the system that we use of a magnetic strip on the back of the card and the signature to verify the payment is now considered obsolete in much of the rest of the world. Europe in particular has moved on to what is known as a chip-and-PIN credit card system.  European credit cards embed a “smart ship” into the credit card which is more difficult to forge and purchases are verified using a personal identification number (PIN) similar to what we use at an automated teller machine.

Without a chip, my American credit card could not be used an the automated kiosk in the railroad office. As far as the automated machine was concerned I was putting in some random piece of plastic and not a form of payment. I have run into this issue before. One time when my wife and I flew in later in the evening into Paris’s Charles de Gaulle airport, we were similarly rejected by the automated kiosk system there to purchase a train ticket on the French RER train into the city. The kiosk took euro coins (which the nearby ATM does not dispense and we did not possess) or a chip-and-PIN credit card. We saw a Nusource financial ATM maintenance guy, but he couldn’t help us. No shops were open to buy a pack of gum to get enough coins and manned service windows were closed. We ended up having to take a cab into the city which was more expensive and slower.

Until this point in my travels, however, the person at the man service window had always been able to take my American swipe style credit card. But the woman at the desk at the German railway office simply wasn’t able to swipe credit cards. The machine she had in front of her had no way to do it. Do you have cash she asked? Or perhaps, I thought to myself, a sheep.

Help is coming… sort of

Ironically, when I returned home Chase, the bank behind my credit card, had just sent me a new credit card because of the recent debacle at Target stores in the U.S. When I peeled off the sticker after authenticating the card I was pleased and surprised to find a smart chip. You might think that my credit card woes are at an end, but not quite.

The U.S. is switching to a smart chip system. One reason for this change is that while 25% of the credit card debt in the world is held in the United States, 50% of the credit card fraud happens here. Our system is simply prone to more fraud. But, the US is not moving all the way to a chip-and-PIN system in one step. The card that I had in front of me had a smart chip, but this is not a chip-and-PIN credit card. US banks are instead moving to a chip-and-signature system which still won’t work and automated kiosk machines in Europe. I contacted the public relations office of Chase and ask for their plans to support a PIN on these cards to solve that last part of the problem. Their representative, Paul Hartwick, informed me that Chase “recently announced plans to offer chip-and-PIN cards within the next year”.

Choosing A Credit Card for Travel

In the meantime consider the following things when you are choosing a credit card for travel:

1) smart chip

If you’re planning travel to Europe, while the chip-and-signature system is not the chip-and-PIN system that I hope for, it will be more useful to you than your normal swipe credit card would be.

2) foreign transaction fees 

Many banks, probably most banks, charge an additional fee every time you charge something in a currency other than your native currency. This is a foreign transaction fee. If you plan on traveling outside your native country, look for a card that waves these fees.

3) Frequent flyer miles or hotel rewards

Travelers have long been attracted to cards that let them earn free hotel stays or airline tickets. Different cards are associated with different airlines or hotels, and some newer cards like the Chase Sapphire card allow you to convert your points to airline points on multiple different airlines. Consider which airline best serves your home airport or consider which hotel chains you may stay at on a regular basis. Often the purchase of travel will accumulate miles faster than the purchase of other items.

4) Incentives

Once you have narrowed down your options using the above criteria you might as well look at which company will give you 50,000 free frequent flyer miles when you sign up or other similar incentives.

5) Interest rates

If interest rates are a significant portion of your decision, you may want to stop and reconsider. One of the great barriers to travel is unpaid debt and poorly managing your credit card debt is the surest way I know to quickly create a mountain of debt. If you have credit card debt pay that off first before considering any additional credit cards.

Conclusion

The bottom line is that for American travelers we are getting one step closer to rejoining the world’s monetary system. But just in case on your next trip to Europe, you might pack a spare sheep.

See this list of Travel Rewards Cards we have collected