Walmart Sues Visa Over Chip-Enabled Debit Cards

Walmart is suing Visa for requiring customers using chip-enabled debit card to verify their purchases with a signature instead of a PIN.

The suit, filed in New York State Supreme Court on Tuesday, says that the Walmart charges that Visa’s policy to allow people to enter signatures at the checkout counter leads to more fraud, and argues that the new rules are a strategy by Visa to collect higher fees on debit purchases, since in-store payments using signatures are required to be routed through the credit card company’s payment network. Walmart wants the right to require their customers to verify their purchases through personal identification numbers when using chip-enabled cards.

Walmart is claiming Visa prohibited them from using the PIN numbers only with chip-enabled cards, forcing them to take signatures. It argues this method is more costly, since Walmart pays 5 cents more per signature transaction than it does for transactions verified with PINs. The retail giant also argues its data shows that 91 percent of fraud committed using debit cards is done through signature transactions.

“PIN verification is much more secure than signature verification,” said the lawsuit, according to CNN Money. “It also enables Walmart to route transactions across PIN debit networks rather than signature debit networks, which saves Walmart (and its customers) money.”

This is a serious issue for the multinational retail corporation, as Walmart claims debit card purchases account for 71 percent of all card purchases in their stores. The two companies have sued each other multiple times over issues regarding payment methods in the past. The case also underscores the ongoing conflict between retailers and financial institutions for the perfect balance between security and convenience.

The new generation of chip-enabled debit cards themselves were introduced as a way to crack down on fraud and a “slower, but safer” alternative to magnetic strip cards. Chip-enabled cards send out a unique code every time a purchase is made. Shoppers have been in a transition period for a while as banks send more and more of the chipped cards to their customers. Likewise, retailers have been installing new terminals at the checkout counter designed to read chip-enabled cards. Walmart was among the first retailers in the U.S. to install the new readers, according to the Wall Street Journal.

“The cards, which are inserted at a payment terminal instead of swiped, are causing confusion among customers who must still swipe them at stores that haven’t adopted the new technology. Some merchants and customers also have complained that transactions take longer to process using the chip cards.”

While the United States lags behind Europe in adopting the chip cards, Walmart argues that many of the countries already using them use PINs to make purchases, while the U.S. still allows signature purchases. Visa also stands to profit handsomely from the signature rule, since it maintains tight control over transactions verified with signature, which have to be routed through the Visa network. In contrast, retailers have the ability to route PIN verification through a non-Visa network.

“PIN is the only truly secure form of cardholder verification in the marketplace today, and it offers superior security to our customers,” Wal-Mart said in a Tuesday statement quoted by NBC News, adding that its “customers understand PIN verification because it’s required to access their funds at ATM machines. And VISA has acknowledged in many other countries that Chip and PIN offer greater security. VISA nevertheless has demanded that we allow fraud-prone signature verification for debit transactions in our U.S. stores because VISA stands to make more money processing those transactions.”

Notably, Walmart started requiring PINs for chip-enabled cards last year, and declined transactions if the customer could not enter a PIN or refused. Visa then required Walmart to change their policy to allow for signatures, citing the terms of their contract. Visa’s policy is notably more strict than companies like Mastercard Inc., who allow merchant to choose their own customer’s payment verification methods. Walmart sees Visa’s new policy as a profit-grab and resents being coerced into using fraud-prone signature verification for transactions.

Walmart is seeking a jury trial, according to the text of the complaint. A Visa spokeswoman declined to comment on the lawsuit.

[Photo Illustration by Justin Sullivan/Getty Images]