Why do businesses require a signature for credit card purchases?

The use of signatures to verify credit transactions dates back to ancient times, with the practice even mentioned in the Talmud, the main source of Jewish law. A signature creates a form of contractual obligation between two parties, according to Torah.org.

Carried over into the credit card era, signatures serve to confirm a person’s identity and consent for payments and borrowing. 

It’s changing, thanks to the widespread use of chip cards and contactless payment methods, such as Apple Pay, Google Pay and PayPal, to name a few. Most credit card transactions no longer require the buyer to sign for a purchase, with a few key holdouts. So why do some businesses still require a signature with credit card purchases?

David Li is the owner of California-based Mountain View US and Foreign Coins. “We deal with high-value rare coins at [the] shop, so security is non-negotiable. Even though chip-and-PIN technology has improved security, we believe in maintaining an extra layer of protection by requiring signatures on credit card transactions,” he said. “Our transactions often involve significant sums, and the signature is a tangible piece of identity verification that complements digital safeguards.”

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.

Some cardholders write “ask for ID” in the signature panel, hoping that will give them an extra level of fraud protection. However, if your credit card issuer requires a signature, that writing could technically make the card invalid, according to Experian.

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.

Andy Bissonette is the director of marketing at Lansing, Mich.-based Liquid Web, which provides secure hosting solutions for businesses. For some businesses, it’s about extra security for certain types of transactions.

“While we’ve seen most businesses shift away from signature requirements thanks to the enhanced security that chip technology provides, some continue to maintain this practice,” he said. “These businesses often see signature verification as an additional layer of security, especially when it comes to high-value transactions or when catering to certain customer preferences.”

For Li’s business, it’s more about trust and the customer experience.

“For our business, trust is everything,” Li said. “Clients invest in rare, valuable pieces and want to know their transactions are as secure as possible. By having a signature requirement, we reinforce that commitment to security, especially for collectors who often purchase items with historical or financial significance.

“The signature requirement is one way to continue building that trust, ensuring a personal touch in an increasingly digital world.

Of course, a signature requirement could also 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.

From a broader perspective, the shift to chip-enabled cards has had a significant impact, said Bissonette. Credit cards with chips have reduced card-present counterfeit payment fraud by 76 percent  from 2015 to 2018, according to Visa.  

“Yet, the persistence of signature requirements in some segments reflects the balance between embracing new technology and maintaining customer trust through more traditional practices,” said Bissonette.

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.