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Traveling abroad with credit card? You better bring cash

Passport: check. French vocabulary app in your smart phone: check. Trashy novel you bought in the airport for the long transatlantic flight: check.

American travelers prepping for their late summer (or increasingly common September) trip to Europe might consider the above items as standard for their pre-departure list. But there's something that they may not have packed, and that item has become quickly the norm as the worldwide trend towards cashless consumer purchases continues to rise.

Chip and PIN card. Check? Hold on a second.


Tourists ride in a pedicab near the Eiffel Tower in Paris.
Miguel Medina | AFP | Getty Images
Tourists ride in a pedicab near the Eiffel Tower in Paris.

When it comes to the debatable necessity of smart cards, some travelers heading overseas are receiving mixed messages from their banks. To ensure that his magnetic swipe credit card would work abroad, Daniel Hayes, an English teacher from Fort Myers, Florida, called Chase Bank before his summer trip to Europe.

"They said I could use the credit card anywhere, or at least in 99 percent of places—there was no mention of chip and PIN," Hayes said as he strolled along a shaded canal in Amsterdam's tourist-packed Red Light District. Yet Hayes and his friend, David Thorpe of Cape Canaveral, reported that their ability to use their credit cards while traveling cross the European continent had been inconsistent at best.

Anyone heading abroad will likely notice that smart chip cards are quickly becoming the worldwide standard. According to the Smart Card Alliance, 99.9 percent of European terminals are chip-enabled. The United States significantly lags behind other continents on EMV technology, too: more than 86 percent of terminals in Africa and the Middle East are chip-enabled. In Canada, Latin America and the Caribbean, that number is nearly 85 percent.

The phrase "chip and PIN" may draw a blank for American consumers long accustomed to the traditional "swipe and sign" credit cards, in which account information is contained on a magnetic strip on the back of the card. Chip and PIN cards take advantage of EMV "smart chip" technology: data is embedded within a chip, and transactions are verified through a PIN, or Personal Identification Number. Because encrypted chips are hard to counterfeit, smart cards enabled with chip and PIN offer superior security to magnetic strip cards.

Contrary to appearances, American financial institutions have long been aware of the merits of EMV technology. After all, JPMorgan Chase originally developed it. One reason U.S. banks have been slow to launch smart chip cards is their expense: EMV technology remains a pricier option than the status quo of magnetic strip cards.

That's despite an upswing in well-publicized credit card fraud crises that have recently swept the news, including Target's notorious December 2013 security breach. In Target's case, the payment information of more than 40,000 cardholders was compromised when it was "skimmed" from the magnetic stripes on the back of the cards, leaving some experts to question whether EMV technology might have prevented such a debilitating assault on a secure customer data.


No chip? No burger and chips

One country that has fully embraced the Chip and PIN system is the Netherlands. While local businesses tend to take cash, they are less likely to welcome traditional magnetic stripe credit cards. For the Dutch, PIN-enabled cards are such a part of life that a relatively new verb has firmly entered the lexicon: "pinnen" means to pay by PIN-enabled card.

On a Thursday evening in Amsterdam this summer, customers ordered exotic-sounding pumpkin and beef burgers at the Jordaan neighborhood's popular burger joint De Burgermeester. Most paid with chip and PIN cards; a few paid with cash. Sorry, the cashier apologized in perfect English, no "American cards" taken. In the same neighborhood, De Pizzabakkers, a popular local pizza chain, declined to take cash at all: waiters circulated with hand-held portable electronic card readers. At the end of their meals, diners paid table-side by inserting—not swiping—their cards and entering a PIN. Tourists desiring to leave a tip at either Amsterdam establishment must still bring cash—the card readers aren't set up to add tips.

Where should travelers headed across the Atlantic expect to find chip-and-PIN cards required, yet without an alternative to pay with cash?

Automated points of sale remain the most likely culprits: think ticket machines at parking lots, rental kiosks, and public transportation hubs such as subway, train and bus stations. In Amsterdam's bustling Centraal Station, for example, this forlorn sight is familiar: the tourist struggling to buy train tickets from an automated ticket machine. While fluent English-speaking agents offer assistance at the ticket counter, many frustrated travelers end up heading to the ATM to withdraw cash before returning to wait in line: the ticket counters accept cash, but not magnetic stripe cards.

"Paris is still old world—almost everyone takes cash. Plenty of places still don't take cards at all." -Colette Davidson, a Paris-based American journalist

While the U.S. availability of smart chip cards is finally on the rise, there's a caveat: only a handful of U.S. banks offer the kind of PIN-enabled cards widely used in most of the world (Americans are starting to get the "chip" in the mail, but less so the PIN that goes with the most advanced cards.)

If you're heading to Berlin or Stockholm with a smart card, does it matter if it requires a signature rather than a PIN? That answer, for travelers, remains a maddening one—it depends. It depends on what country you're in, and what kind of transaction you're trying to make.

In Europe, most credit cards are chip-enabled and require a security code––rather than a signature––to complete the transaction. Travelers heading overseas, especially to Europe, should be mindful of the times they may need to be prepared to pay cash or have a smart chip card at their disposal. Those who plan on using credit cards frequently would be wise to request a smart chip card, something that banks are increasingly willing to provide. While large hotels, along with upscale restaurants and shops, often take swipe-and-sign cards, merchants at small businesses are far less likely to do so.

Chip and pinned? Maybe not

Worst-case scenarios for those heading overseas without a smart card revolve around transportation. Some travelers report that the least desirable place to get stuck without a smart card is on the road, at toll roads and gas stations where automated machines, rather than cashiers, can be the only payment option.

Yet according to Natalie Brown, a Wells Fargo spokeswoman, the reality is rarely as dire as being stranded on the Autobahn. The data that Wells Fargo has gathered on this issue, Brown said, pointed to only a tiny fraction of point of sale terminals in the world that require that smart card transactions be verified by PIN. "We've found it's less than one percent," Brown said.

In addition, Brown said that the new chip and signature cards offered by Wells Fargo will default to a PIN code prompt at unmanned automated kiosks. Customers are issued PIN numbers for these cards but as they are usually used with signature, people tend to forget the PIN.The PIN is an extra security feature. "In the old days that transaction would be declined," Brown said. Travelers would be prudent to memorize their PIN numbers even for credit cards where the default is chip and signature, Brown said. "Follow the same common sense procedures that you know from the debit world—don't write your PIN down."

While the newest Wells Fargo cards feature the PIN backup, it's not clear how many banks are offering similar technology, or how well it works. One traveler using a Barclaycard recently posted a blog saying that his chip and signature card did not work in automated ticket machines, and after failing to find a way to make the PIN feature work, he had to get cash and pay in person.

Jeremy Woodhouse | Photolibrary | Getty Images

Even as some merchants favor cashless transactions, can't one still get by in Europe with good, old-fashioned cash? Many Americans who work and travel abroad say yes.

"Paris is still old world—almost everyone takes cash," said Colette Davidson, a Paris-based American journalist on a recent afternoon in the Marais, a trendy district where shoppers flock on Sundays while most Parisian stores traditionally remain closed. "Plenty of places still don't take cards at all."

Those whose Parisian fantasy involves bicycling while carrying a fresh baguette under one arm should be forewarned: while cash will suffice for the baguette, the bike may be another story. One exception to Paris' cash-friendly ethos remains the city's hugely popular Velib public bike rental system, used by residents and travelers alike. Without a smart chip card, you'll be out of luck. The Paris Metro doesn't take magnetic stripe credit cards either, but it does still take Euro coins.

If negotiating the business of smart cards sounds so complicated that you're considering trading the plane tickets to Prague for a cruise with the in-laws, some good news: several U.S. banks are finally offering new chip and PIN options to cardholders. The Wells Fargo Propel World American Express card is one new option; the steep $175 annual fee is waived in the first year. From Barclaycard, two new chip and PIN cards are the Arrival Plus and the Hawaiian Airlines World Elite Mastercard, both carrying an $89 annual fee. USAA members can request a Chip and PIN version of the Platinum World Mastercard, which offers a 1 percent foreign transaction fee but no annual fee.

JPMorgan Chase Bank has also offered a variety of smart chip cards to cardholders in recent years. Yet though the bank has recently added chip and signature capabilities to several new cards, a JPMorgan spokesman said by email that the bank has no current plans to introduce PIN-enabled smart cards.

After lagging behind for so long, when will U.S. banks fully commit to joining the rest of the world on the practically unanimous migration to smart cards? While American Express and Wells Fargo are among a growing group of financial institutions that offer chip and signature cards by request, a looming deadline will soon mean that more banks must follow suit. By October 2015, banks and merchants will be required to adopt EMV technology or risk liability for fraud.

Yet with no requirement for these cards to be PIN-enabled, renting a bike in Paris with your credit card may still prove more difficult than learning to correctly pronounce je voudrais louer un vélo, s'il vous plait (I would like to rent a bicycle, please).

By Sarah Chandler, Special to CNBC.com

Follow Road Warrior on Twitter at @CNBCtravel.

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