Sunday, January 29, 2012

We Got a Smart (Chip-and-PIN) Visa Card

Have you ever heard of a "Smart Card" or a chip-and-PIN card?  We, living in the United States, hadn't either, until we ran into some information during our research in preparation for our upcoming RTW trip.

A smart card is a credit card that has an embedded computer chip which requires a PIN for most transactions.  Hence, the more common name of chip-and-PIN cards.  This system is called EMV after the 3 pioneering companies, Europay-Mastercard-Visa.  A thorough explanation of smart cards in general, and its multiple uses can be found here.

Apparently, much of the world is converting their credit card transaction terminals to accept a chip-and-PIN card, in lieu of the traditional magnetic strip type cards that we are used to using in the States.  It started in Europe, and many Asian and South American, and North American (Canada) countries are doing the same.

The primary purpose of the chip-and-PIN card is the added security layer of requiring a PIN to authorize payment, similar to a debit card process.  The PIN requirement prevents merchants from accepting a fraudulent signature-based authorization, and it also ensures card never leaves the cardholder's presence.  For example, because of the PIN requirement, a waiter in a restaurant would have to bring the point-of-transaction to the customer at the table instead of taking the credit card to the back somewhere.  From what I have read, the chip-and-PIN cards are also more difficult to replicate for fraud than a magnetic strip card.

The added level of security is nice, but the real reason we got a smart card is because we have heard that many places abroad are starting to not take credit cards with magnetic strips.  Not that they don't want to, but their transaction terminal isn't compatible with a magnetic strip.  For small purchases, it's probably not a big deal because we should have some cash on hand, but what a pain if we couldn't make credit card purchases because our cards don't have the chip-and-PIN. has several anectodal evidence of travelers finding difficulty paying for things without these smart cards.  In fact, it seems many merchants don't even know that there is a non-PIN option.

Of course reminds us that there are some things to be cautious of.  Because of the added level of security, banks consider these cards fool proof.  If somehow, our card and PIN are both stolen and transactions are made, it would be very difficult to get the bank to reverse the fraudulent charges.  Of course there is always the fear of amnesia - what happens if I forget my PIN?  Better not punch in the wrong PIN consecutively, or else the card will not work.  It also reminds us that the PIN protection doesn't exist with online purchases, of course.

It may not be our go-to credit card, but we certainly want the ability to pay with a card that is compatible with the EMV system.  Only a few companies offer a smart card in the States.  We went with the JP Morgan Chase Select Visa.  Because it is a U.S. issued card, it has both the magnetic strip and microchip, so we are doubting its security features so long as the magnetic strip is used for the transaction.

You may be wondering why the U.S. hasn't jumped on this EMV bandwagon.  In this global economy,  people who visit the U.S. will have the same reverse issue of not having a magnetic strip to complete a credit card transaction. The articles point to the resistance by banks and merchants to change all of their point-of-sale terminals to those that accept chip-and-PIN cards.  There is also less incentive when the banks do not see the cost of fraud as being uncontrolled.  There will most likely be a tipping-point in the near future when the rest of the world firmly goes to this type of card, and the U.S. scrambles to catch-up.