Visa’s Fraud Problem?

Let me check the signature on your card.

No, give me your personal identification number.

Which is better at preventing credit card fraud?

That is one of several issues raised by the nation’s biggest retailer against a large card association. Wal-Mart has filed a lawsuit in New York State Supreme Court in Manhattan against Visa USA, which Wal-Mart says endangers cardholders with its card fraud detection system.

“We believe Visa’s position creates unacceptable risk to our customers,” said Wal-Mart spokesman Randy Hargrove. Visa’s present card network security is prone to “fraud” and Visa discourages better systems, he added.

A Visa spokeswoman says its EMV fraud detection technology, which has been installed since the data breaches of 2014, is effective.

“Visa has been focused on encouraging and supporting the adoption of EMV (a technical standard for smart cards) chip technology as quickly and efficiently as possible, so that we can realize the powerful security benefits that the EMV chip provides,” says Stephaine Ericksen, vice president of risk products at Visa.

Still, Wal-Mart attorneys complain that retailers are required to use what it believes is a faulty system: Visa’s signature verification system for certain debit transactions.

This is a system, Wal-Mart officials charge, that Visa imposes so it can keep certain debit card transactions within its own network “rather than competitor networks of Wal-Mart’s choosing,” according to the Wal-Mart lawsuit.

Nevertheless, Wal-Mart attorneys say their chip and pin security system, which requires customers to enter a personal identification number (PIN), is better because it “accords with global best practice for fraud prevention.”

Visa, Wal-Mart says in its complaint, forces retailers to use a flawed signature verification system.

“Signatures can be forged or even copied and cashiers may forget to check the signature on a receipt or POS (Point of Sale) terminal to make sure it matches the signature on the back of the card,” the complaint continued. “Cashiers are not trained as handwriting experts, so even if they check the signature, there is no guarantee they will spot a forgery.”

However, Visa says it is offering cardholders both the pin and the signature options since that is what many cardholders want.

“We know some cardholders don’t feel comfortable entering their PIN in an open, public check-out area. Other cardholders prefer the speed and convenience of signature,” the Visa spokeswoman said.

Still, Wal-Mart claims its wants to force its system on retailers so debit card transactions stay within its network.
Wal-Mart wants the court to stop forcing it from using Visa’s chip and sign system.

A card industry official along with an association representing retailers side with Wal-Mart.

“Retailers know that chip and pin cards provide greater security,” according to a statement from the Retail Industry Leaders Association (RILA).

“But most in the banking industry continue to suggest otherwise, despite using PINs everywhere else in the world to safeguard transactions, and using PINs at the ATM to protect their money,” RILA officials said.

A card industry observer said Visa wants signature verification because it wants to keep “interchange fees that merchants pay,” says Bill Hardekopf, CEO of LowCards.com.

Hardekopf believes the PIN system is more expensive than the signature system, “but there is no doubt that it is much more secure.”

Still, Visa’s Ericksen says critics miss the point.

“EMV chip technology alone, regardless of whether a PIN or signature is used,” she says. “protects merchants from in-store payment fraud. EMV chip technology, not PIN, is what helps to mitigate mass retailer data breaches.

About The Author

Gregory Bresiger

Gregory Bresiger is an independent business journalist from Queens, New York. His Personal Finance articles have appeared in publications such as The New York Post & Financial Advisor Magazine. He is the author of the eBooks “Personal Finance For People Who Hate Personal Finance” and “MoneySense”.