Can you explain the difference between chip-and-pin and chip-and-signature?

By , CardRatings contributor
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If you've traveled to Europe anytime in the past few years, you've probably encountered a challenge when trying to use your plain, old, American credit card. For decades, we've relied on simple magnetic strips to carry secure account information. However, criminals have figured out easy ways to steal that data, just by swiping your card through a "skimmer."

In Europe, banks overcame this challenge by offering better transaction processing rates to merchants who steer customers toward using "chip-and-PIN" cards. These cards have an embedded "smart chip" instead of (or in addition to) a magnetic stripe. After sliding your card into a merchant's reader, you must enter a personal identification number to authorize the purchase.

Cloned credit cards have become such a problem in some parts of Europe, many merchants flat out refuse to accept a purchase made with a magnetic stripe card or without a PIN. Even though payment platforms promise "universal acceptance," many merchants would rather pay a penalty than stay on the hook for fraudulent transactions. Therefore, your barista in Prague may not take your platinum Visa card.

Rather than adopt "chip-and-PIN" as-is, American banks and merchants have leapfrogged to a new generation of "contactless" smart chips built on the same security standard. While not foolproof, these contactless chips are much harder to clone than their magnetic counterparts.

Over the next few years, American merchants will have to prove that they scanned a valid chip and collected an accurate signature to ensure coverage against fraudulent transactions. Hence, the phrase, "chip-and-signature." As a customer, you'll eventually start "waving" cards instead of swiping them. By the time contactless merchant terminals become ubiquitous in the United States, you should see them throughout the rest of the world, as well.

In the meantime, Americans can use a chip-and-signature credit card for most transactions overseas where chip-and-pin cards are the standard. However, some Americans have reported challenges with automated machines that require a PIN (e.g. train ticket machines). And yet some cardholders report that the chip-and-signature card works fine and skips the step of requiring a PIN or signature.

To date, chip-and-signature cards remain the best solution for Americans traveling abroad to ensure as much acceptance as possible. The majority of card issuers offer a chip-and-signature card, or you may be able to add the feature into your existing card. Call your card's customer service department for more information.


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