Why Using Credit Cards in Foreign Lands is Dangerous

Before I embarked on this long trip through South America, I had the fortune to be approved for a traveler's credit card that charges no foreign transaction fee anywhere in the world.  Considering that foreign banks generally charge administrative fees for ATM usage, this traveler's credit card has now become by far the cheapest way for me to access money.  Hence, more than anytime I have in the past, I have been swiping credit card anywhere that the option is available.

 

People say that one is more financially prudent when spending cash.  The logic is a visual one.  Because one can see exactly how much cash is being used, one is more cautious about parting ways with the money.  Credit card transactions, in contrast, only output a single number of how much spent when they go through, does not register the gravity of money spent nearly as much as if cash had been spent.  Hence, people think, one is more "trigger-happy" when spending with credit card than cash.

That effect is amplified in a foreign country.  Because getting cash costs money, in the form of ATM transaction fees, commissions for foreign currency exchange, and the general hassle of having to deal with small change in unfamiliar currencies, as well as go to banks and foreign exchange bureaus to get cash that can be spent, credit cards become even more of a convenient alternative to cash.  This reality encourage people to swipe whenever possible.

But swiping abroad presents even more financial risk to the credit card user.  On one hand is hidden fees associated with credit card use.  While the credit card issuer may not charge transaction fees for using the card abroad, the merchants and local financial authorities might.  Many merchants, without specifying to the credit card user, may tag on extra fees to credit card transactions to help pay off fees associated with using credit card terminals installed in their shops.

On the other hand, unscrupulous merchants in some countries may very well use credit card terminals for fraud.  They can copy the card details while the card holder is not looking, and use the cards for their own purchases later on, unbeknownst to the card holder.  It would not be much later on when bank statements are seen that the card holder would know that fraudulent activities took place.  It would not be surprising that there are active black markets buying and selling credit card details obtained this way.

The financial risks associated with credit card use is meant to discourage their use.  But the reality is that move toward cashless transactions is a trend everywhere.  Financial risks associated with likes of credit card, mobile wallets, and e-money are being mitigated by technology, rather than amplified to discourage their usage.  As anti-fraud technologies improve, it is the risks associated with cash usage that are becoming relatively bigger. 

After all, cash is nameless.  Once it is lost, it is lost forever.  The same cannot be said of credit cards and bank accounts.  One can simply place a block when something happens, ensuring no fraud continues, and re-accessing the funds when the threats to fraud have been compromised.  Moreover, ATM frauds, in the form of card copying with tampered machines, and more straightforward post-withdrawal robberies/mugging, are just as risky, if not more, than swiping credit cards, making the cash option unattractive.

Despite all the dangers associated with credit card use abroad, the reality is that cashless transactions are here to stay and become more common.  Perhaps in the near future, as technology develop further, the risks associated with credit card use would be much less than it is now.  But of course, making credit card use faster and safer would only encourage more frivolous spending.  Ultimately, it is the card holder who needs to be prudent, both in terms of spending and risk minimization.