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Big Banks Finally Break Chip-and-Pin Credit Card Logjam

AskEd & AnswerEd
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Credit Card: People Passing Card (Photo: iStockphoto/Marcus Clackson)
Editor's Note: This story was originally published on April 15, 2011. To see the most recent SmarterTravel articles on related topics, please click on any of the following links: AskEd & AnswerEd, credit card, Ed Perkins.

"When will U.S. travelers ever be able to get chip-and-pin credit cards?" If you're one of the thousands of travelers who has been asking that question, the short answer is: "Now – sort of." Chase and Wells Fargo have finally opened up the door to travelers who want to use their credit cards at places that can no longer accept the U.S. standard magnetic stripe credit cards. Although only a few travelers will have access to those new cards initially – cardholders of Chase's premium "Palladium" card and a "test" market selected by Wells Fargo – I expect other banks will fall into line rather quickly.

Editor's Note: This is an update of a story we originally posted last Friday before we received the Chase announcement. The remainder of the story focuses on Wells Fargo, but much of the analysis also applies to Chase. We will keep on top of this story as other banks react.

Chip-and-Pin 101

In case you missed earlier reports, here are the base facts:

  • For several years, banks in most of the world outside the U.S. have switched their credit card security system from the familiar "stripe and sign" system to a newer "chip and pin" system. Instead of having a merchant or machine read information off a magnetic stripe on your card, and having you sign a chit to verify the transaction, the merchant or machine gets data from a chip embedded in your card and you verify by entering a PIN.
  • Virtually all of Europe has embraced the chip-and-pin system, as have many countries in Asia and South America. Canada is switching over by next year. In a few years, the U.S. will be the lone important holdout, just as it is with the metric system.
  • American Express, MasterCard, and Visa contracts require merchants anywhere in the world to accept any valid card, including stripe-and-sign cards issued in the U.S. And even in a chip-and-pin country, you can still use your U.S. card at most merchants – hotels, restaurants, and such – although you might have to push a bit. If you can find an attendant, you can have your card accepted.
  • The problem arises when you try to use a U.S. card in situations where the norm is to use an automatic dispensing machine of some sort: train and transit ticket vending systems, highway and bridge toll booths, parking lots, 24/7 gas stations, and similar situations. In some cases, you find only one attendant – often with a huge line – and in others, the nearest attendant is miles away and asleep in bed. More and more U.S. travelers report problems in making mundane purchases.

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Until now, no U.S. bank available to ordinary citizens has issued chip-and-pin cards. When you ask banks why not, their standard answer has been that it would be too expensive to convert their entire systems to the new system. But that answer is pure hogwash (I have some better terms, but this is a family site). The simple answer is to issue cards with both a stripe and a chip, as European banks have been doing.

For some time, we've been reporting on the problem, and we're pleased to see at least two big banks finally breaking the logjam and issuing a dual-mode card. Wells Fargo was a surprise to be one of the first-out-of-the-gate banks. It wouldn't have been on my short list – it does not co-brand with any major airline or hotel chain. And its reward cards, although competitive, do not feature "miles" or travel rewards.

And the "sort of" qualification is that, so far, you can't just apply for a chip-and-pin card from Wells Fargo. The bank is limiting its first cards to a "test" market of some 15,000 of its customers it has identified as frequent overseas travelers. They will get the new cards automatically, with no surcharge or fee. Wells Fargo will issue cards more broadly only after analyzing the results of this test. So even though the new cards will be out there, you can't automatically get one – yet.

Other Banks – It's Their Move

Now that Wells Fargo and Chase have made the first move, the presumption is that other banks will follow.

My guess is that within a few months you'll see quite a few announcements. And it's also my guess that other banks may offer such cards to any cardholder who wants one, not limit the availability to some sort of "test." After all, what's to test? We know U.S. travelers need such cards, and I see no significant barriers for the other banks outside of sheer inertia. So, as an optimist, I expect other banks to fall into line quickly. But, as I said, that's just a guess. Let's hope I'm right this time.

 
 
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