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Should You Get a Pre-Loaded Chip Card for Europe?

Travelex, the leading foreign exchange agency, introduced the first chip-and-pin debit card available to U.S. travelers. “Chip and Pin Cash Passport” solves the problem many of you face using U.S.-style cards in Europe, but at a stiff price. Unless you put a lot of money on the card, the exchange rate is terrible. {{{SmarterBuddy|align=left}}}

You’ve probably seen reports from traveling Americans who find they can’t always use their credit cards overseas. The problem is that U.S. banks still use the stripe-and-sign system that encodes account information into a machine-readable magnetic stripe on the back of the card, while European banks and merchants have largely switched to an incompatible chip-and-pin system that encodes account information into a memory chip embedded in the card.

Travelex is now issuing the first chip-and-pin card aimed at American travelers. It’s a stored-value debit card, not a credit card; it carries the MasterCard logo and is available in either euros or pounds. You can use it for most payments other than those few, such as renting a car, that require credit rather than debit cards, and you can also use it to get cash at ATMs. Once loaded, the card imposes no transaction or exchange fees, and you pay extra only when the operator of an ATM adds a local fee. When you first get a card, you load funds onto it by cash, debit card, or credit card. As you use the card, the stored value decreases, but you can reload it when the stored value gets too low. And if you have a remaining value, you can reconvert to dollars without further penalty.

All in all, the card seems great, except for one big problem: the lousy exchange rate. When you store $500 worth of euros for the card, you pay 1.52 to the dollar, compared with a bank rate of 1.32. That’s an exchange premium of more than 15 percent, which is far more than you pay with any credit card, most ATM withdrawals, and exchanging cash or travelers’ checks at most locations. You have to store $2,500 or more before you get a decent exchange rate, currently 1.38 to the dollar, still worse than many other options. Pound rates are similar.

Clearly, Chip and Pin Cash Passport is a poor substitute for regular credit and debit cards with both a stripe and a chip. But until the U.S. banks issue such cards, it will have to do. If you’re heading overseas:

  • Continue to use your regular stripe debit and credit cards wherever you can. Airlines, hotels, restaurants, and merchants can still process either system, although some may need a bit of prodding. And most European ATMs still accept stripe debit cards to dispense cash.
  • If you think you’ll need it, buy a Travelex card with a bit more value than you expect to charge, but use it only where you can’t use your regular cards. That’s mainly for automatic merchandising machines—increasingly used to dispense rail and transit tickets, highway and bridge tolls, 24/7 gasoline dispensing machines (more prevalent in Europe than here), and other such devices.

You can currently buy Chip and Pin Cash Passport cards only at retail locations. Visit the Travelex website for locations. Presumably, online sales will be available soon.

So far, at least in public, American Express, MasterCard, and Visa remain in complete denial about chip and pin for U.S. customers. Their party line says that their contracts require all participating merchants to accept any valid card, including a strip card. If you encounter a machine that won’t accept your card, goes the spiel, take it to an attendant to process for you. Fat lot of good that advice is when the nearest attendant is 10 miles away and in bed, or facing 80 people in line.

For now, the Travelex card is better than nothing. But let’s hope it prods the big banks into issuing their own dual-system cards—with better exchange rates.

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