In the latest battle over chip-enabled plastic, Wal-Mart Stores Inc. sued Visa Inc. for the right to choose how customers verify debit-card purchases at the checkout counter.
The retail giant wants customers to verify their purchases with a personal identification number when they use a chip-enabled debit card. In the lawsuit, filed in New York state court this month, Wal-Mart said Visa has prohibited it from requiring PINs only, forcing the retailer to allow customers to use a signature in those transactions. The lawsuit is the latest salvo between the two companies, which have sued each other multiple times over assorted payments issues. It also could stoke the continuing debate about how to balance security and convenience with the new generation of chip-enabled cards.
Shoppers and merchants alike are in a period of transition at the checkout line as they adjust to the new, more secure chip cards that banks are sending to their customers.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.
Wal-Mart was one of the first big retailers in the U.S. to start accepting chip cards last year. While consumers typically use a PIN when using their debit card at an ATM, some shoppers opt to sign for purchases made with a debit card when they are in a store. Visa has long required merchants to give customers the choice of signing or entering a PIN, and the company has said some shoppers want that flexibility.
Control and money
Visa also maintains control of the transaction with the signature method, since merchants have the ability to route PIN transactions through a non-Visa network. Visa’s rules are different than those of MasterCard Inc., which lets merchants decide how they want customers to verify payments, according to people familiar with the matter.
The dispute also involves money: Wal-Mart pays Visa about five cents more per signature transaction than it does for those that use a PIN, said a person familiar with the rates. Wal-Mart says it prefers PINs because they are more secure than signatures. Debit cards are the most frequently used form of payment at Wal-Mart, accounting for more than 70% of the dollar value of card payments, the retailer said in the lawsuit.
.Wal-Mart last year started requiring PINs for chip-based debit cards, declining transactions if a customer refused to enter the identification code. Wal-Mart then changed the practice to allow for signatures after Visa required it to do so, citing the terms of its contract with the retailer.
Visa “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,” Wal-Mart said.
Wal-Mart now prompts shoppers for PINs when they use their debit cards, but they can override that prompt and sign instead. Now about 10% of debit-card users sign instead of entering a PIN to verify their purchase, says a person familiar with Wal-Mart’s customer data.
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