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Are Chip and Pin Credit Cards Coming Soon?

We still use magnetic stripe credit cards in the U.S., and it doesn't seem like a change is on the way anytime soon. On the other hand, many countries outside the U.S. have ditched the swipe and sign process for chip-and-PIN cards - also known as "smart cards". The best part of using these credit cards is that they never leave your hands. They are safer, more efficient, and are arguably better at preventing credit card fraud.

Some of the countries exclusively using chip-and-PIN cards include France, Italy, Germany, Canada and Spain. A few others are currently in the process of making the change as well. In fact, a friend of mine who recently visited the U.K., said he was out to lunch with an associate and the server just brought a device that looked similar to an old cell phone and swiped the chip-and-PIN card right at the table.  His associate then entered his pin and a receipt was printed right there on the spot. No need to take the card to the cash register or remove it from his hand. Pretty clever and time saving, if you ask me.

How Do Chip-and-PIN Cards Work?

The chip-and-PIN credit card is simple to use, but it's also somewhat sophisticated in technology. There is a small chip placed on the front (or back) of the credit card, which contains all of your credit card information; i.e. balance, available credit and verification via PIN. When it's swiped, your credit card account information is immediately accessed and then approved after you enter your pin number. It's different than a regular credit card because it requires a PIN number and no Internet connection for verification. With the Smart Card, the connection occurs over radio waves and connects directly to the credit card company. The issue that arises for American credit card users is that many countries, mostly in Europe, are no longer accepting magnetic stripe cards. So U.S. travelers are having problems overseas because the credit card machines may allow you to swipe your magnetic stripe card, but they also require PINs and US credit cards do not require pin numbers. One woman I read about was staying at a hotel in Paris, and when checking out, using her American Express credit card, she could not pay for the room with her card as their payment method required a pin number. She had to go to an ATM to get cash to pay for her charges.  What a hassle!

Is the U.S. Ready for Chip and PIN?

U.S. credit card companies are balking at making the switch.  There are so many swipe terminals at grocery stores, restaurants and every other retail store, that replacing them or adding the chip-and-PIN system would be extremely expensive, not to mention the issuance of all new cards to their clients. In addition, some other countries, such as Canada and France, are considering a total ban on magnetic stripe cards within the next couple of years. That's going to force the United States' hand in tackling this situation rapidly.  In fact, according to the Smart Card Alliance, some card issuers are thinking about launching a new chip-and-PIN card for customers that travel overseas often, especially if this ban on magnetic stripe cards is enforced in the near future. While nothing has been done yet, at least there are a lot of considerations in the mix. Sadly, U.S. banks and credit card companies only have a couple of years to come up with a practical solution or cash may be the only viable form of payment for Americans traveling abroad. Do you think the U.S. needs to get on the ball and quickly jump on board?  Or are you not a big fan of the chip-and-PIN credit card?  Leave a comment and let us know your thoughts.

Ally is part of the team that manages Australian Credit Cards, a free low interest credit cards service in Australia. Before joining ACC, she was a Media Planner with McCann Worldgroup Philippines, Inc., with award-winning executions, including the Levi's 501 "Live Unbuttoned" global campaign.

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Alice Bryant's picture

Alice Bryant is the Editor of Creditnet and a personal finance expert with over a decade of experience writing about credit cards, credit scores, debt repair, and more.

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J.G.'s picture

The reason it is taking so long for EMV cards to come to the U.S. is that credit card companies have been willing to tolerate mag-stripe related losses. Switching to EMV would cost U.S. issuers about $3 billion, according to one estimate, and merchants would have to pay not much less to upgrade their point-of-sale equipment.

Now that Visa has made it mandatory for all U.S. processors to support acceptance of chip-based transactions by April, 2013 (http://blog.unibulmerchantservices.com/nfc-ascent-pushes-visa-to-speed-u...), the dynamics have changed completely. The banks have no option but to build the infrastructure, so once that's done, they might as well start using it. After all, if the U.K. chip-and-PIN experience is anything to go by, switching to it would result in hundreds of millions of dollars in savings from lower fraud losses. U.S. banks would certainly take the windfall if it comes their way.