The US is rolling out chip-enabled credit cards nationwide, but the more fraud-resistant technology still relies on people using signatures. That’s a dumb security measure — heck, not really a security measure at all — that makes fraud easier, and Walmart wants to do something about it. Even though forcing PINs would make transactions far more secure, Visa is saying no.
The rest of the world uses Chip-and-PIN to verify card transactions in stores. It’s much the same as how chip transactions work in the US right now, only rather than drawing a meaningless scrawl on a receipt, customers enter a unique four-digit PIN to prove that they own the card.
Signatures are effectively meaningless — they’re only useful when you’re making a chargeback against fraud later, and provide no on-the-spot security. It’s one of the reasons the US accounts for 72 percent of credit card fraud worldwide.
Unsurprisingly, the merchants that have to deal with fraud want to fix the system. Walmart invested heavily in PIN-capable payment systems, and when chips were first introduced, it only allowed PINs when using a chip-enabled debit card. (Unlike credit cards, debit cards are already tied to a PIN.) But Visa didn’t like that — it thinks customers are more comfortable with signing, so it forced Walmart to accept signature payments as well. To try to rectify the situation, Walmart has filed suit in New York, trying to compel Visa to only accept PIN verification.
According to Walmart:
“PIN is the only truly secure form of cardholder verification in the marketplace today, and it offers superior security to our customers. Visa has acknowledged in many other countries that chip-and-pin offer greater security. Visa nevertheless has demanded that we allow fraud-prone signature verification for debit transactions in our U.S. stores because Visa stands to make more money processing those transactions.”
Dimitri Sirota, CEO of security firm BigID, says the suit isn’t just about PIN vs. signature. Signature payments go through Visa’s system, whereas PIN authentication goes directly to a customer’s bank. Signature payments make Visa more money (about five cents a transaction), but more importantly, they tie merchants, banks and customers into Visa’s system. Sirota told BGR that “by allowing for signatures, Visa makes sure that those transactions go over its authentication network.”
That’s a big deal at a time when everyone is fighting for control of the payments system. Apple Pay made headlines when it came out because it reduces the need for Visa as a middleman (in addition to making transactions far more secure). Walmart has flesh in the game as well: It’s one of the driving forces behind CurrentC, an alternative to Apple Pay that takes money straight from customers’ bank accounts, no need for Visa.
If you’re Visa, it’s time to be scared. Merchants are tired of paying two percent of every transaction just to take someone’s money, and banks are tired of the fraud and chargebacks from the horribly antiquated swipe-and-sign system.
Unfortunately, it’s the customers who are getting screwed in the middle. Visa is hanging onto its terrible signature system in a desperate attempt to force merchants to use its services, but causing billions in fraud every year as a result.
Walmart is far from innocent either. Sure, the CurrentC system it’s developed cuts out Visa, but it’s a nightmare to use. To buy something, you’ll have to open an app and force some poor store clerk to scan a QR code. In 2016. Forget flying cars, this is how Walmart thinks the future should work:
Meanwhile, customers are getting screwed from left to right with way too many options. We’re in the middle of an incredibly painful transition to chips right now (seriously, have you stood behind a 70-year-old trying to work out a chip?), and it’s just the beginning. Chips, PINs, contactless, Apple Pay, Google Wallet, Samsung Pay, CurrentC, PayPal facial recognition, BitCoin — you need a dictionary and three devices to run errands these days.
On the face of it, this Walmart vs Visa lawsuit is a no-brainer: PINs are better than signatures and Visa is being a selfish, protectionist jerk in this instance. But looking at the bigger picture, the issue isn’t nearly as clear-cut. There’s a battle raging for control of the multi-billion-dollar payments system, and you, me, and a billion other consumers are stuck in the middle.