Turn your vulnerable physical magnetic-stripe cards into virtual payment systems that require no card to be present.
Americans are one of the last countries in the world to still use obsolete and vulnerable standard magnetic stripe ATM cards issued by most U.S. banks for the last 50 years. Almost everyone else in the world uses modern chip-and-pin cards that are virtually impossible to hack. American banks have opted to not use chip and pin cards for financial reasons – the cards are more expensive to produce and all card reading machines would have to be changed to read chips.
But it is a false saving – magnetic strip cards are easy to hack. ATM machines are easy to compromise with card skimmers – little inserts that copy only magnetic strip cards. Once your card is hacked, it is easy to clean out your bank accounts. Then your card needs to be cancelled, leaving you with no ATM cards to obtain cash in foreign countries. And in most foreign countries, most small merchants deal only in cash. Credit cards – if even possible to use – incur a 3-5% service charge.
Protect Your Cash with E-Wallets
This advance in transactional security can allow Americans to bank abroad safely even with chip cards.
LevelUp, Square or Snapscan (used by Standard Bank in South Africa). These are simple, secure payment “apps” for Apple iPhones. Then use a U.S. credit card to purchase a prepaid debit card from a local bank that has a partnership with your home or U.S. bank, saving on foreign transaction fees. Enter its details into Snapscan, then walk in to the nearest Standard Bank branch, go to a Snapscan terminal, hold up your phone to the screen with the app open, enter your desired amount, and voilà … out pops a pile of local bank notes.
Besides obtaining cash, purchases can also be made directly.
They are actually safer than credit cards, including the advanced chip-and-pin cards. And e-wallets have the happy side effect of often reducing or entirely eliminating costly foreign transaction fees (for you) and credit card terminal fees (for merchants).
This illustrates the secret to safe banking abroad: “cloud computing.” That’s a fancy term for large “farms” of remote servers that allow centralized data storage and processing for a variety of always-available Internet-based services, like E-wallets. Cloud computing has created endless opportunities for innovative, competitive software companies to develop and deploy new smartphone apps for paying for goods and services, without having to own and run their own expensive server farms.
But Is It Safe? Given the dangers lurking on the Internet — which is where banking is moving – It’s safer than using a traditional debit or credit card. A lot safer. That’s because these payment apps don’t actually store your debit/credit card details on your smartphone or on their own servers. Instead, they use a sophisticated encryption technique called “tokenization.”
This involves converting your Primary Account Number (PAN, a.k.a. your card number) into a unique, randomly generated sequence of numbers and/or alphanumeric characters. This “token” is stored in a special part of your smartphone’s memory that’s impossible to decode — even the phone’s manufacturer can’t read it.
When you make a purchase with a payment app, your card information is “tokenized,” encrypted and sent to the bank, which decrypts it and authorizes the transaction. The token is never stored by either the merchant or the bank. This avoids exposing your real card information number to theft. You, the customer, never notice the difference in the way transactions occur.
Of course, all this encryption magic doesn’t do you any good if your smartphone is lost or stolen … but if you have (a) a passcode to secure the device, (b) a PIN for opening your payment app and (c) a way to “wipe” all the data from your smartphone remotely, as is available with Apple’s “Find My iPhone” app, you are as protected as you can be.
Saving You Money
Besides convenience and safety, cellphone-based transacting abroad can save you a lot of money.
As discussed above, consider the fees when you use a conventional ATM card outside the U.S., or even inside it, when using another bank’s ATM:
• Flat fee from your bank: This is a fixed fee that your bank charges for using ATMs outside of its network. These fees usually vary between $2 and $5.
• Flat fee from the foreign bank: You also have to pay a fixed fee to the foreign bank which owns the ATM you’re using. This again is usually in the range of $2 and $5.
• International transaction fee: Instead of a fixed fee (or in addition), your home bank may charge a percentage fee for foreign withdrawals. These range from 1% to 3%.
• Currency exchange fee: The ATM interbank network — like Plus (operated by Visa) or Cirrus (MasterCard) — will also take a 1% cut.
Now consider an e-wallet. Buy a prepaid foreign debit card in a single transaction using your foreign credit card, on which you pay an international transaction fee of 1%. Load its information into the local payment app, and from that point on, you pay no foreign transaction fees. Of course, you wouldn’t pay any such fees if using the foreign prepaid debit card directly, but then would lose the extra security of encrypted tokenization.
Other Advantages
Easy Payment Reconciliation. The bank you deal with can provide daily, weekly or monthly transaction reports to reconcile your total payments. Referencing is customizable to suit your exact business need.
Simple Payment. Link your SnapCode to a cell number to receive SMS confirmation of payment. It can integrate with the point of sale giving online access to your payment details in real time. All accounts are settled on the following business day.
Payment Apps You Can Use Abroad
The wave of the future — and of the present in much of Europe, Asia and Africa — is therefore a hybrid system in which banks provide money-storage and credit facilities, but independent application developers provide secure, Internet-based POS systems that largely bypass traditional credit card processors such as Visa and MasterCard. Where can you use them?
Europe remains the leader, with mobile payments averaging 24% in 2014. The U.K. leads Europe and globally, with mobile payments averaging 41%, followed by the Netherlands and Spain at 26%, France 18% and Germany 16%.Asia now has the second-highest proportion of mobile transactions globally, at 17% of total POS transactions.
North America remains steady at 16.7%, and Latin America remains below other regions, at 6% for the quarter.
a. Apple Pay
Globally, Apple-based payment apps are the most popular in every region of the globe. In most places, twice as many people use Apple-based apps than Android (which runs on most non-Apple smartphones). The only place where Android apps are close to Apple levels of usage is Asia.
Apple Pay works only on the iPhone 6 or the Apple Watch. You register your supported credit cards in the device’s Passbook app. When you want to buy something from a retailer that supports Apple Pay, you point your device at the near field communication (NFC) payment terminal, and your payment information is delivered from your iPhone over a radio frequency connection. Then you do a fingerprint scan on your phone’s TouchID sensor to verify your identity. If everything is OK, your phone vibrates and tells you the transaction was approved.
Apple Pay uses tokenization to keep your transaction safe. The token is stored on a special chip called a Secure Element. If the iPhone is lost or stolen, for instance, you can use “Find My iPhone” to suspend all payments from that device. There’s no need to cancel your credit card, because the card information isn’t stored on the device.
Apple doesn’t get to know what you bought, how much you paid for it or any
other personal details. The guy behind the counter doesn’t get to see your name or your credit card number — all of which are potential weak spots of the current system, under which cards are occasionally cloned and ripped off.
Where: Apple Pay is rolling out rapidly in the U.S., U.K. and Europe. Two things are required to use Apple Pay: The merchant must accept it and your bank must authorize use of your card abroad. As things stand, most major and many smaller merchants in these regions will support Apply Pay by the end of 2015. Apply Pay is also making rapid inroads in Asia, but with the popularity of Android smartphones there, it may take a little longer. In those regions, you can use local payment apps in the meantime.
Pros: The safest system of all, with end-to-end tokenization and no storage of your card or personal details on Apple servers.
Cons: You must upgrade to iPhone 6 or an Apple Watch to use it. Also, not all countries allow prepaid debit cards to be loaded into Apply Pay.
Who it’s for: Essentially everyone who uses an Apple iPhone, especially in the U.S., U.K. or continental Europe.
Apply Pay is significantly ahead of the competition, and given the iPhone’s wide and deep penetration in the U.S., U.K. and Europe, it will inevitably set the standard for smartphone-based payment solutions in those areas, even for non-Apple services.
b. Google Wallet
Like Apple pay, Google Wallet involves tapping your phone on a POS terminal, entering your Wallet PIN and completing your transaction as usual. And like Apple Pay, Google Wallet uses tokenization — your real 16-digit card number is never exposed to merchants. But instead of securing the token in a chip on your phone, Google uses something called Host Card Emulation (HCE), which stores your token virtually in “the cloud.” This makes Google Wallet compatible with any near field communication (NFC)-equipped Android phone.
The app also lets you store club cards and gift cards as well as credit and debit cards.
Who it’s for: For security reasons, I would use Google Wallet only if you are resolutely against Apple.
Where: Widely available in the U.S. and expanding rapidly in the U.K. and Europe. Not yet available in most of the rest of the world.
Pros: Increasingly available in the U.S., U.K. and Europe. Also, Google Wallet is potentially compatible with highly secure Android-based phones such as the BlackPhone (although there are rumors that BlackPhone is developing its own super-secure payment systems).
Cons: In order to use Google Wallet in stores, you’ll need an NFC-capable Android phone, which is only 25% of Android phones on the market right now. Major players such as Samsung are rapidly adopting NFC technology. If you aren’t an Apple fan, you should choose one of their phones if you’d like to use Google Wallet in future.
The biggest con, however, is that is that anything that operates in the cloud — instead of locally, on your phone, as with Apply Pay — is automatically more vulnerable to security attacks.
A third drawback is that the HCE technology Google has chosen requires that your phone be connected to your cell service to use, because the phone needs to retrieve its tokens from the cloud. That could be expensive if you’re traveling abroad.
c. PayPal
Like Apple Pay and Google Wallet, PayPal transactions are tokenized and encrypted, and merchants never see their customer’s complete identity, personal information or financial data. Plus, if your phone has a fingerprint scanner (like the Samsung Galaxy S5), you can use that to authorize transactions.
Where: Restricted to U.S. merchants at the moment (Jan 2016), particularly on the West Coast.
Pros: Secure and widely accepted in the U.S. You also have the option to make purchases at credit card terminals using your phone number and a PIN code.
Cons: Because it moved in early and missed some more recent technological innovations, PayPal has struggled to get merchants to sign on to its systems and is therefore likely to be eclipsed rapidly by Apple Pay. Like Google Wallet, you need cell service in order to use PayPal.
Who it’s for: People who already have PayPal accounts and for whom adding another payment option is essentially costless. But not for overseas travellers.
d. Other Apps
In most countries outside the major markets of North America, Europe and Asia, you will need to use a local smartphone app to make payments. For example, use SnapScan in South Africa using your Apple iPhone.
However, you are allowed to do so because SnapScan allows you to load a local prepaid debit card into the app. That might not always be an option in every country. Most foreign countries will not let a foreigner open a bank account without permanent residence. In such cases, you might want to stick with cash until your U.S. bank issues you a chip-and-pin card sometime in the coming year.
Of course, if you have a bank account in a foreign country, you can probably use a compatible local app with their bank cards.
When using a foreign payment app, the key is to ensure that it uses tokenization to encrypt your card details. At the moment, the only sure way to know that (other than to research the app yourself) is to see whether it is compatible with all types of smartphones. If it is, it’s probably not secure. Token-based apps only work with iPhone 6 and recent Android phones.
The Key to the Puzzle
Where your money is ultimately stored is not a major issue. But the ultimate source of your banking facilities does indeed matter. For reasons of privacy, wealth protection and overall peace of mind, having at least some of your money in a secure offshore bank account that you can access via payment apps — or directly — is essential.
That’s where the i-Account is the essential linchpin of your offshore transaction strategy. The i-Account is based on one of the world’s safest and most private banking jurisdictions, Hong Kong. Funds are stored in a Chinese bank with the highest possible global ratings, far beyond the prying eyes of Uncle Sam. Even though you must report i-Account balances if you fall under FATCA and FBAR thresholds, the actual data related to your overseas transactions is entirely inaccessible to the U.S. government.
That fact alone makes the i-Account the preferred choice for the debit card I’d load into Apply Pay or another app for use when travelling. Besides the intrinsic security of your i-Account details, tokenization means even those i-Account details will be completely secure.
But there’s another huge advantage to the i-Account that basically makes it the ultimate deal for global travelers.
You can hold your i-Account funds in any one of 10 currencies (USD, EUR, JPY, GBP, NZD, CAD, AUD, SGD, HKD, CHF), with more on the way. You can exchange among these currencies instantly with no added fees at competitive rates. So instead of having to pay your U.S. bank currency exchange fees when using a payment app, either on every transaction or when purchasing a foreign prepaid debit card, you can simply load your i-Account with the appropriate foreign currency — say, euros — and away you go … no currency conversion costs at all.
With Payment Apps, the Future is now
Payment apps have already started to make inroads in the U.S., but mainly amongst merchants that cater to younger and more tech-savvy shoppers. That will change rapidly in the next 12 to 18 months as such payment options expand to nearly all merchants.
Follow this strategy for transacting securely and cheaply in foreign countries and protect your hard-earned money from hackers and bank fees.