Differences in international monetary standards make spending money abroad often confusing and even downright difficult. When it comes to traveling overseas, consumers must not only determine the acceptable methods of payment for the countries they plan to visit, but also figure out a way to avoid foreign transaction fees and get the best exchange rates. On the other hand, international businesses—tasked with tackling the logistics of accepting international credit cards—often need to establish international merchant accounts and join international credit card processing networks. Given the obvious importance of international spending in our global society, we have constructed this International Credit Guide to help you learn about and avoid the pitfalls of international credit card use.
- What’s an international credit card?
- What fees are associated with an international credit card?
- Which international credit card is the most highly recommended?
- What are international merchant accounts?
- How can I accept international credit cards?
- How does international credit card processing work?
- How do magnetic stripe credit cards differ from chip-and-pin credit cards?
- Where can I get an international prepaid credit card?
- What are international debit cards?
- Should I get an International Credit Card or an International Debit Card?
- Are we close to global credit card interoperability?
An international credit card is simply a credit card that will work outside the U.S. The two primary factors that impact a given credit card’s suitability for international usage are its network and its technological foundation. Card networks (i.e. Visa, MasterCard, Discover and American Express) control in how many countries and at how many merchant locations a given credit card can be used. Visa and MasterCard cards have the greatest global reach by far, making them your networks of choice for international credit cards.
Most countries around the world have moved on from the magnetic stripe credit card technology that is still prevalent in the U.S. Major business and tourism destinations like Japan, European Union countries, and Canada have all switched to chip-and-pin credit cards. Though you shouldn’t have too much of a problem using a magnetic stripe card in such places in the short-term, technological differences could result in increasing difficulties for international travelers. As a result, major issuers like Chase, Wells Fargo and U.S. Bank have all begun small-scale introductions of chip-and-pin cards in the U.S.
The short answer to this question would have to be, “not if you’re careful.” Card Hub data puts the number of credit cards that assess fees for international use at 90.2%. These fees are usually 2-3% of any purchase processed internationally. Therefore, they could impact things you buy while in the U.S., if the purchase is made through a foreign-based merchant. However, all you must do to avoid these unnecessary charges is open a no international fee credit card.
Credit card offers are always changing, so it’s difficult to pinpoint a single card. Besides, it really depends on how you want to use it. For instance, will you pay your international credit card’s bill in full every month? If you answered “yes,” then the best card for you is the rewards credit card that matches your credit standing and offers the most points/miles/cash back on your biggest spending categories. If “no” was your response, you need a credit card with a low interest rate. So, in response to your original question, we simply recommend finding the best Visa/MasterCard card for your exact needs that does not have foreign exchange fees.
There is no difference between an international merchant account and a traditional merchant account. People refer to merchant accounts as international merchant accounts when they desire the ability to accept payments from around the world. International payments are subject to higher processing fees than domestic payments because of the higher risk of fraud and chargebacks.
So, you might now be asking: What exactly is a merchant account? Merchant accounts are simply bank accounts that allow companies to receive credit and debit card payments. They are marketed by traditional banks as well as through payment processing companies, and merchants who lack the commercial credit history or resources needed to open their own merchant accounts can use an aggregator service like PayPal.
In addition, merchant accounts typically provide a host of small business solutions, which allow for the automated acceptance and processing of payments, the prevention of fraud and the tracking of payment trends.
If accepting a credit card issued outside the U.S. is a rare event, you don’t need to do anything different; your current ability to accept payments will be sufficient. If, however, you rely heavily on international payments, you need to notify your merchant account provider (or include that information on your application).
International payments are considered high-risk because fraud and chargebacks are both more likely than with domestic payments. Given this and the already elevated risk of e-commerce, garnering approval for a merchant account might be difficult. As a result, you might have to use a payment aggregator like PayPal in order to accept payments from international cardholders.
International credit card transactions are typically processed in the following manner:
- A customer submits payment information electronically, via telephone or in person with an international credit card
- If the transaction takes place online, payment information is relayed to a merchant’s payment gateway (the virtual equivalent of a physical point-of-sale terminal) via a secure, automatic connection with the merchant website’s shopping cart
- If the transaction takes place over the phone, the merchant keys the payment information into the point-of-sale terminal
- If the transaction takes place in person, the merchant keys or swipes the payment information into a point-of-sale terminal
- The point-of-sale terminal or payment gateway forwards it to the merchant bank’s payment processor, which in turn relays the information to the respective credit card network (i.e. Visa, MasterCard, American Express etc.)
- The credit network requests authorization from the international bank that issued the customer’s card
- The information makes its way back to the payment processor, the payment gateway/point-of-sale terminal, and eventually both the customer and the merchant
- Authorized purchase information runs in batches back through the payment processor, credit network and international bank, which pays the merchant’s bank, resulting in funds finally being deposited into the merchant’s account
Steps 1-4 take approximately 2-3 seconds. The entire process is generally completed within three days of a payment first being sent.
The main difference between credit cards in the U.S. and other nations lies with their fraud prevention technology. U.S. credit cards store personal financial information on magnetic stripes. Upon being swiped at the point of sale, the information contained on this magnetic stripe is cross-checked against a database of known fraudulent credit card accounts and is subsequently either approved or denied. Canadian, European and Japanese credit cards use chip-and-pin technology, which requires consumers to enter a Personal Identification Number (PIN) that must match information contained on a computer chip embedded within the card for a transaction to be approved. Chip-and-pin credit cards are considered to be more secure than magnetic stripe cards.
International prepaid credit cards don’t exist. “Prepaid credit card” is made-up term that is sometimes used by prepaid card issuers for marketing purposes. You aren’t extended a line of credit with a prepaid card; it’s more like you are using a debit card without the associated bank account. As long as your prepaid card bears the MasterCard or Visa logo and you notify your issuer of your travel plans, you should be able to use it abroad and it is an “international prepaid card.”
International debit cards are simply debit cards that can be used outside the U.S. They can be used to make purchases and/or withdraw money from foreign ATMs. As is the case with international credit cards, the main differentiator between international debit cards is the amount of the foreign exchange fee.
When it comes to using debit cards for cash withdrawals while aboard, there are a couple of factors to consider. First, while you know that the owner of the foreign ATM will charge a fee for withdrawals, you must determine whether your issuing bank will also institute ATM charges. Second, you need to find out what foreign transaction fees, if any, will apply to such a transaction. Both of these things impact the cost of using a debit card internationally and both must therefore be considered when comparing international debit card offers.
International debit cards are integral to any trip abroad given that not all merchants accept plastic, and some cards might not even be compatible with certain aspects of a foreign country’s payment infrastructure.
People often wonder which will better protect them from fraud: an international credit card or an international debit card. All major-issuer credit cards and debit cards come with $0 liability guarantees, meaning you won’t be held liable for any unauthorized charges. However, credit cards do make fraud easier to deal with. Having said that, our suggestion is to use international credit cards for purchases and international debit cards for cash withdrawals while traveling abroad. The answer to this question is therefore “both.”
Credit card interoperability has been a source of contention between the U.S. and Europe basically since MasterCard, Visa and Europay (now part of Mastercard) joined forces to create a global standard for smart card technology. While European nations were early adopters of this standard, which improved fraud security relative to the magnetic stripe, the high cost of converting magnetic stripe cards to chip-and-pin kept the U.S. from following suit…until 2011. Wells Fargo, Chase and U.S. Bank have all started offering chip-and-pin credit cards on a limited basis and Visa is becoming increasingly more aggressive in establishing the infrastructure necessary to support chip-based payments. Still, it’s unlikely that the U.S. and Europe will truly find common ground in traditional chip-and-pin cards. Rather, it looks as if common ground will be found with the contactless form of chip-and-pin cards, enabled by Near Field Communication (NFC) technology. NFC already has the support of major corporations like Visa, MasterCard, Google, Apple, AT&T, Verizon and T-Mobile.