Gone are the days of signing your name at checkout! As of April, MasterCard, Visa, Discover, and American Express no longer require merchants who are EMV compliant to collect and store signatures for POS transactions where a card is present. This decision moves away from a decades old ritual of using a signature as a form of authentication, and may be a sign of more changes to the credit card processing industry as technology develops.
What is EMV?
Named for the initials of its original developers (Europay, MasterCard, and Visa), EMV technology adds a stronger layer of security during credit and debit card transactions compared to traditional magnetic stripe cards. EMV-enabled cards feature a cryptogram, which validates the authenticity of the card. The cryptogram ensures that only the party that is supposed to receive the information (for example, the bank) has the key to decode the card.
The chip and the card reader ‘talk’ back and forth to authenticate the transaction. Magnetic stripe cards, on the other hand, simply ‘tell’ the card number and expiration date to the card reader. This is why data from magnetic cards can easily be stolen. Chip cards generate a unique code with every transaction, so even if someone were to obtain the authentication code, it would not work on future transactions.
With its use among merchants and banks in over 80 countries, EMV cards are seen as the global standard for both credit and debit card payments.
Do All Businesses Need to Stop Collecting Signatures?
While it is no longer a requirement for some merchants, it’s important to point out that others may need to still collect signatures. First, this new rule only applies to EMV transactions only. Merchants who currently do not accept EMV cards and other non-EMV transactions (like many restaurants) are still required to collect signatures.
In addition, merchants still have the option to request for a signature if they choose to do so. Payment companies, like Square, have no immediate plans to update their system to skip the signature step, so merchants who use Square and other similar payment companies may need to continue to collect signatures.
History of the Credit Card Industry
The end of requiring signatures is a huge change to the credit card industry as it has been a requirement since the industry was first founded. Since 1958, when BankAmericard rolled out its first credit card network with merchants, signatures were required in some way. Back in the days of plastic cards and carbon-copy receipts, merchants were required to verify a customer’s signature to the one on the back of the card.
As time went on, merchants stopped verifying signatures as often in hopes to speed up the checkout lines. While some merchants would ask to check the cardholder’s name against an ID, many others felt it was worth assuming the liability of chargebacks, as not checking the signatures made the purchase process more time efficient.
Reasoning Behind Changing How We Authenticate Payments
One of the biggest reasons for this switch is that advanced technologies are better at detecting fraud than relying on signatures. Advancements like machine-learning algorithms, which allow card networks to better detect fraud, and EMV cards, which are difficult to counterfeit, seem to do a better job at protecting against fraud than the old signature standard. According to a blog post on Visa’s website, Dan Sanford, the Vice President of Consumer Products, writes, “We believe making the signature requirement optional for EMV chip-enabled merchants is the responsible next step to enhance security and convenience at the point of sale.”
Another cause of this major change is the natural shift towards digitalization. Merchants and credit card companies had to find new ways to protect their customers against fraud that can be done online, like tokenization and biometrics, which further makes signatures obsolete. According to Total System Services’ (TSYS) 2017 US Consumer Payment Study, of consumers who use a banking or payment app, 69% were comfortable authenticating by passcode, with 63% comfortable using a fingerprint.
In addition to security purposes, major credit card companies believe that no longer making signatures a requirement will help more merchants switch over to accepting chip cards. According to research by Visa, as of December, there were roughly 460 million EMV cards and 2.5 million physical merchant locations that accepted chip cards. This new benefit to accepting chip-enabled cards is another reminder to get on board with the changing times. Especially because the initial switch to EMV compliant technology can be costly, this new incentive may help sway merchants who were reluctant to change.
Another reason for this major switch is competition. One of signature debit’s main competitors are EFT networks, which more times than not offers lower merchant fees. In recent years, EFT networks like NYCE and Pulse and Star have instituted ‘PINless debit,’ which no longer required customers to enter their four-digit PIN code. This PINless debit system offers a cheaper and faster transaction alternative (all with lower fraud rates) to merchants.
Many Large Retailers are on Board with this Change
Many retailers, including Walmart and Target, welcome this change. Austen Jensen, Vice President for Government Affairs at the Retail Industry Leaders Association, says that retailers have long argued that signatures are a costly way of securing transactions. This is because retailers have to store all of the signatures collected and present them back to the issuer, and needs to be done as safely as possible. Eliminating this step can potentially help consumers save money, as retailers can save on securely storing the signatures, which may result in lowering their prices.
In addition, many large retailers who experience long lines at checkout will be likely to stop asking for signatures, as many believe this will help speed up the checkout process.
As an industry leader, Payment Collect® was the first to offer EMV integration into QuickBooks Point of Sale, equipping merchants with the reporting tools they need to improve their business. These powerful tools give merchants quick and accurate authorization tracking, as well as eliminating guesswork if IT or network problems are encountered during processing. For more information about our payment processing technology, please visit our FAQ page!