Why do businesses require a signature for credit card purchases?
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Key takeaways
- Signatures traditionally served as a security measure on credit card transactions, verifying ownership by matching signatures at the point of sale.
- With the introduction of chip-and-PIN technology, networks often won’t require a card signature.
- Yet some retailers still require credit card transactions due to older systems, broken chip card readers or the need to accept tips.
- The role of signatures in credit card transactions is likely to decrease as technology becomes more sophisticated.
The use of signatures to verify credit transactions dates back to ancient times, with the practice even mentioned in the Talmud. Carried over into the credit card era, signatures serve to confirm a person’s identity and consent for payments and borrowing. It’s changing, though: Most credit card transactions today don’t require the buyer to sign for a purchase, with a few key holdouts.
Credit card signatures as a security measure
When it comes to credit card transactions, signatures are a security measure that helps to authenticate the identity of the cardholder making a purchase. This process was intended to prevent fraud by deterring unauthorized use of cards.
If signatures are required, cardholders sign a receipt after a purchase, and the merchant or retailer compares the signature on the receipt to an official signature on the back of the credit card. If the signatures match, the store considers the person using the card to be the legitimate cardholder, and the transaction proceeds to completion.
Signatures also play a role in resolving disputes around credit card transactions, submitted as evidence during, say, chargeback disputes. If a customer claims they didn’t authorize a particular purchase, the merchant can produce a signed receipt as proof that the customer was present and approved the transaction.
Yet in both situations, the method of comparing and confirming signatures isn’t as secure in practice, as merchants don’t always confirm signatures with enough scrutiny. And depending on the cardholder, the two signatures could end up looking different enough to warrant further identification.
How technology has changed the need for signatures
Technology has fundamentally changed the need for signatures in credit card transactions. With the arrival of chip-and-PIN technology and electronic card readers that can confirm a card’s status instantly, there isn’t as much need for cardholder signatures to authorize a purchase.
Chip cards are a unique type of payment card that incorporates both a magnetic stripe and an embedded microchip. The microchip enhances security by generating unique transaction information for each purchase, making it more challenging to clone or hack card details when compared to traditional magnetic stripe cards. This technology has significantly reduced counterfeit fraud and rendered signatures virtually obsolete as a security measure.
As of 2018, major credit card networks like Visa, Mastercard, American Express and Discover no longer require signatures for card transactions.
Why do some stores and retailers still require signatures?
While signatures are becoming less common, you might find merchants that still require them for additional security.
These situations came come down to the business itself or its processing systems, including:
- Businesses that rely on high-value transactions or are high risk, such jewelry stores or stores selling firearms.
- Small businesses using older point-of-sale systems or systems that aren’t EMV compliant.
- Restaurants, cafes and other businesses that accept tips, but don’t have upgraded technology to pay at a table or counter.
Of course, a signature requirement could be the result of a more mundane, though frustrating issue: a broken card reader machine. In this case, the system may default to a swipe-and-signature transaction to keep business moving, which requires a signature.
The future of signatures in credit card transactions
Some businesses may be slow to move away from transactions that depend on signatures due to the perceived security and familiarity they offer in proving a cardholder is the one using the card, which can help in chargeback disputes. Yet, as technology evolves, it’s likely signatures won’t be required for all businesses and transactions.
While EMV chip technology is at the forefront of the transition, other security measures like CVV — short for card verification value — that’s used for card-not-present transactions and digital wallet tokenization are further decreasing the role of signatures in authenticating transactions. The trend suggests that signatures will become increasingly rare as merchants adopt this technology and as other forms of digital authentication become more prevalent.
These digital “signatures” may even replace physical signatures as evidence in chargeback and other credit card disputes.
The bottom line
While nearly all credit card transactions once required a physical signature from a cardholder, the widespread adoption of chip cards is paving the way for signatures to become a thing of the past. Credit card networks no longer require retailers to ask customers to sign to validate a purchase or transaction. And the unique security codes produced by chip-and-PIN cards and digital wallets verify transactions more securely than older methods.
Some retailers — such as restaurants and other businesses that rely on tips — may be the holdouts for now. But even for these businesses, signatures are likely to become obsolete as digital technology catches up to their unique needs.
