Wal-Mart has sued credit card company Visa, alleging the company is forcing the retailer to use a less-secure “signature” method for verifying debit cards in order to route transactions through Visa’s own networks to boost profits.
Wal-Mart is arguing that Visa requires the retailer to verify debit transactions with customer signatures, as opposed to the more secure chip-and-PIN method. The chip-and-PIN method is widely recognized to be more secure, and is the predominant method for verifying debit and credit card payments throughout the rest of the world.
By requiring the retailer to utilize signature authorization, Visa stands to make more money processing the transactions. This is because retailers can route PIN transactions across less expensive networks, whereas signature authorizations must go across Visa’s proprietary network. This lack of competition, Wal-Mart argues, allows Visa to charge higher routing fees.
Visa, MasterCard, and other card networks set an October 2015 deadline for merchants and card issuers in the United States to shift to the chip-based EMV standard. The transition was designed to replace magnetic stripe cards with more secure chip-based cards. Specifically, the technology generates new “codes” for each card transaction; with magnetic stripe cards, the codes are permanent and can be copied and stored by hackers for later use.
Nonetheless, many retailers argue that the transition has not reduced fraud in any meaningful way, but simply shifted the liability for fraud to merchants. Allowing merchants to require PIN authorization, for both debit and credit card payments, would be far more effective at combating fraud while also lowering retailers’ (and thus consumers’) costs because merchants would be able to choose among different routing networks. This choice would breed competition and thus lower prices.
NATSO members will be on Capitol Hill this week urging members of Congress to undertake a comprehensive examination of the payments system in the United States, and pushing for chip-and-PIN authorization requirements.
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