Financial giant Visa will finally join its competitors and make signatures optional. Businesses have been waiting for this move for a long time already, given that it will allow them to do significant savings on transaction fees.
Signature debit transactions are costly for businesses
When a customer uses his or her debit card to pay for a service or product without punching in his or her PIN – personal identification number – into a Point-Of-Sales system, a signature debit transaction occurs. And as the name of this type of transaction implies, it is sometimes necessary – depending on the vendor or type of purchase – that the customer signs the receipt that follows his or her purchase. So, in other words, any transaction that does not need to be completed by a PIN but that may require a signature can be referred to as a signature debit transaction.
The problem with signature debit transactions is that they tend to be costly to vendors and service providers in general. Transaction fees are normally required of businesses by a customer’s issuing bank. In the case of a signature-based transaction, the information is routed to the customer’s bank through Visa or MasterCard’s computer network instead of the PIN debit network. Therefore, the business is obliged to pay for Visa and MasterCard interchange fees instead of PIN debit network fees. In this particular scenario, the interchange fee is calculated based on factors such as the size of the bank that issued the customer’s card, the amount of the transaction, and whether the transaction is card-present or card-not-present.
Businesses prefer PIN debit transactions
As its name implies, a PIN debit transaction is one that required a customer to enter his or her pin into a Point-Of-Sales system as he or she attempts to pay for a product or service. A customer will not have to sign any receipts for this type of transaction. The process of routing information to the customer’s issuing bank is different in this particular case. Instead of routing the transaction through Visa or MasterCard’s computer network, a business will simply have to recourse to Debit networks such as NYCE, STAR, and ACCEL. Of course, a transaction fee will still be required from the business, but the final fee only consists of a percentage, a flat transaction fee, a switch fee, and an annual fee. Furthermore, some debit networks cap the maximum fee paid by a business on a daily basis. When compared to signature debit transactions, PIN debit transactions often end up being cheaper.
Retailers have advocated for Visa to drop signature-based transactions
Throughout the past years, multiple businesses have tried to get Visa to ditch signature debit transactions. Sometimes, the latter can involve transaction fees that amount up to more than double the amount of a PIN debit transaction fee. A notable instance of retailer’s efforts to fight excessive transaction fees was when Walmart threatened to ban all Visa cards from the totality of its Canadian outlets. Just two years back, the retailing giant even sued Visa as the latter would require Walmart to rout information through the Visa computer network instead of a PIN transaction network, and that, even after the transition to EMV cards. The case was eventually settled last November.
Visa is finally making signature debit transactions optional
Visa is planning to lift the requirement for signatures for all North-American retailers, as long as the card processed is a chip-based one. When the aforementioned event takes effect, myriads of product retailers and service providers will finally be able to enjoy lower transaction fees. At the moment, about 25 percent of all Visa transactions are signature based.
“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,” said Dan Sanford, Vice President of consumer products at Visa.
The move is chiefly made possible by the introduction of EMV standards. Since the standards have been put in place about 3 years ago, significant improvements have emerged. In fact, fraud has dropped by an astounding 66 percent in the last two years only. The chip-based technology generates a new code for each new transaction instead of storing all information in one place – as magnetic stripes card do – therefore adding a layer of security.
Article published in EMV and Smart Payment Cards :