Over the past few months, four of the major card brands announced that they are eliminating the signature requirement for EMV transactions. This change will come into effect for Visa, MasterCard, Discover, and American Express in April 2018, at which point merchants will be able to choose whether or not to collect signatures for point-of-sale purchases.
The elimination of the signature requirement is a natural progression in the evolution of payment technology. By dropping signatures, the card brands aim to provide more flexibility and convenience to consumers and merchants. Consumers will experience a smoother, faster checkout experience for MasterCard, Discover, and AMEX transactions and merchants will bust long lines and reduce the operating costs associated with storing paper receipts.
While streamlining the checkout experience and cutting costs are obvious advantages to eliminating the signature requirement, it’s always hard to break old habits. We’ve been using signatures in payment card transactions for decades, so why the sudden change? Well, as you probably guessed, it all comes down to security.
In comparison to recent innovations in payment security, the signature is no longer an effective method of combatting card fraud.
Case in point: think about the last time you signed for a purchase. Did the cashier compare your hastily-scribbled John Hancock with the signature on the back of your card to verify your identity? Probably not. If signatures were properly verified for each card transaction, there would be a lot more denied transactions and fraud rates would be much lower.
Besides the fact that cashiers rarely verify signatures, they don’t always look the same and are relatively easy to forge. The card companies—not to mention consumers and merchants—have known this for a while. MasterCard’s “Quick Payment Service” program was implemented in 1991 to speed transactions by dropping the signature requirement for purchases under $50. Similarly, Visa’s “No Signature Required” program has made it possible for merchants to eschew the autograph for small purchases since 2003.
Today, Visa says that 75% of their card-present transactions in North America don’t require a signature and that figure rises to 80% for MasterCard transactions. Considering these statistics, the elimination of the signature requirement doesn’t seem all that surprising or sudden. The real question to ask is why have the card brands decided to throw the final blow to signatures now?
Chips, Pins, and Signatures—Oh My!
One of the main reasons EMV was introduced was to combat the security vulnerabilities of magnetic stripe cards and their corresponding signature-based cardholder verification method. A cardholder verification method (or CVM) is used to determine whether the person using a payment card is in fact the legitimate cardholder. In other words, a CVM adds an additional layer of protection to card transactions by authenticating the cardholder’s identity.
In our post-EMV shift world, the most common types of CVMs are PIN and signature. Card issuers set a prioritized list of CVMs on all cards and merchants must ensure that their payment terminals are setup to support these CVM requirements. Whenever a transaction is performed, the card automatically tells the terminal which type of CVM the cardholder must provide.
In the beginning of the EMV shift, the U.S. adopted a “chip-and-choice” approach, meaning that cards could be issued with their preferred CVM as either PIN or signature. This approach was intended to ease the transition to EMV for merchants and consumers.
Today, the overwhelming success of chip cards in diminishing card-present fraud has rendered the signature an unnecessary step in the payment process. For EMV transactions, the smart microprocessor chip embedded in the card is what secures the card data, not the signature.
How Will This Change Impact Merchants?
Despite these evolutions in payment security, the elimination of the signature requirement doesn’t necessarily mean that signatures will disappear entirely. Rather, it means that merchants will have the choice of whether or not to collect signatures.
In most cases, it will still be worthwhile for merchants to ask customers to sign for purchases. Even if signatures are not a robust cardholder verification method, they are still helpful to merchants for proving customer consent to purchase terms and refund policies.
Based on the information currently available from Visa, MasterCard, American Express, and Discover, it is not yet clear how the elimination of the signature requirement will specifically affect merchants’ day-to-day operations.
At this early stage, it is recommended that merchants not make changes to their technical or operational procedures prior to the new signature policy coming into effect in April. In the meantime, our payments team is consulting with the card brands and other industry experts to determine the best practices for merchants moving forward.
To stay on top of these CVM changes, register for our session Signature Evolution: What This Means For Merchants occurring at our upcoming Pay Day event on March 27 in Scottsdale, Arizona.
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