October 13, 2015

Moving Abroad? Prepare Your Finances Early

Part I: The Basics of Chip-and-Signature, Chip-and-PIN, and Magnetic Stripe Cards

By Rich Alossi in Planning 4-minute read

This blog is written from the perspective of two Americans moving to the Netherlands.  Even though all of the scenarios may not apply, hopefully you’ll be able to learn from our experiences.

One of the first things to do after moving abroad is to open up a local bank account, but that doesn’t necessarily mean you’ll cut all financial ties with the U.S. You may have ongoing liabilities to pay for back home, wish to help family members, want to get paid by American companies, or simply want easy access to your cash when you visit. Whatever the reason, you’ll need to do some preparation to make sure your bank makes it as easy and cheap as possible to access your money in your new country.

When it comes to preparing for an international move or a vacation abroad, finances are nearly always the most frustrating aspect, especially when you’re accustomed to an entirely different banking system. Not to mention that you can’t even guarantee your American credit or debit card will be accepted at every restaurant, shop or terminal. What better way to start off a trip than by nearly missing your train because all of your credit cards are inexplicably declined at the ticket machine?

Starting with the Basics: Chip-and-Signature vs. Chip-and-PIN vs. Magnetic Stripe

credit cards on a blue background, selective focus. closeup.

Europe and much of the rest of the world has now completely transitioned to a relatively secure chip-and-PIN system for accepting credit and debit card transactions, while the United States has taken its time, clinging to old-school magnetic stripe technology. Chip cards were designed to help prevent those cards from being duplicated by credit card skimmers, while the mandatory four-digit PIN (personal identification number) provides security in the case of the card being stolen.

Most Americans have either been the victim of credit card fraud or have a close friend or family member who has — some of us multiple times. This has been fairly straightforward to clear up by making a call to your credit card issuer and explaining the fraudulent transactions; your money is normally refunded, and then it becomes a matter for the banks to deal with. Fraud has soared recently, though, and the banks have had enough.

Even worse, if fraud occurs on a debit card connected to a checking account, thieves can potentially take out large sums of cash before anyone notices. That’s why we here at Expat Journeys haven’t touched our debit cards in a long time.

Coming Soon to Your Wallet: Chip Cards!

Now there’s a light at the end of the tunnel. Media reports have been detailing the very recent U.S. transition to chip cards, a big change to the American retail scene in which business must now be using the newer terminals that accept chip cards or risk being liable for any fraudulent transactions. Call your bank to see when you will be issued a new chip card if you haven’t been already.

One caveat: Unfortunately, these new cards are generally chip-and-signature, not the more secure chip-and-PIN. With this system — a half-measure designed to prevent the most common forms of credit card duplication fraud — you insert your card into the credit card terminal, follow the prompts on the screen, and then sign either directly on the terminal or via a paper slip, as we do now. Chip-and-signature still protects against card skimmers due to the encryption on the card itself, but thieves can still fake your signature if your card were to be lost or stolen. Well, at least we’ve gotten part of the way there.

Using Your Cards Abroad

Europe globe mapNow back to those old stripe cards. You’ll find that these may work a majority of the time, but they’ll also most assuredly get you a strange look outside of the most tourist-oriented areas. Most people simply can’t understand why we would be using something so susceptible to fraud.

In the Netherlands, one shopkeeper dug out an ancient credit card processing terminal from a drawer, dusted it off, and then proceeded to run our transaction before handing us a yellowed slip of paper for signature. Others (mainly at restaurants) had no idea what to do with it. Hint: There’s usually a menu option on terminals to force the printing of a receipt for signature, which you may have to explain to your server or cashier if they’re unfamiliar.

Other times, though, stripe cards may not be accepted at all. In our experience traveling Europe in 2013 (before many major credit card issuers had a chip option), our cards were not accepted in approximately 20% of transactions. Luckily we had prepared with ample cash reserves, but a failure rate of 20% is simply unacceptable to many travelers when a language barrier is involved or after business hours in a train station with no live ticketing agent to help. I’ve noticed that most card issuers will swear up and down that your card MUST be accepted, but that’s cold comfort when you’re faced with an entirely contrary scenario in real life in a foreign country.

With a new chip-and-signature card, transactions should clear just fine, though you may have to explain that a signature will be required rather than a PIN, and prepare yourself for many bashing of buttons and furrowed brows. For anyone traveling or moving abroad, it is essential to upgrade your debit and credit cards to chip technology as soon as possible, which should simply be a matter of a phone call to your credit card issuer or bank. Smaller banks and credit unions won’t have the option just yet, though, so you may need to look into moving your accounts to a more traveler-friendly institution.

Stay tuned for Part II in which I will cover how to choose the best American bank for your move abroad, how to get paid by American companies, and how to migrate your hard-earned dollars to euros, pounds, kroner, francs or dinars.

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