Retailer Fights Back Against Card Provider Over Fraud Protection

Date: May 11, 2016

Walmart Sues Visa For Requiring Debit Card Transaction Verification With Signatures, Not Chip And Pin Technology


Businesses and the financial institutions that provide their customers with debit and credit cards have been increasingly at odds over methods for preventing card fraud. With the Oct. 1, 2015 transfer of liability for card fraud from financial institutions to businesses, the adoption of EMV, or chip card, reading technology has become even more of a priority for businesses large and small. Now, one large retailer is fighting back against Visa, arguing that the card provider has been using methods that are less secure than EMV technology for verifying customer purchases. Bloomberg News reports Walmart is suing Visa for asking the retailer to verify some debit card transactions with signatures instead of chip-and-PIN technology. Walmart claims in its complaint “that the chip-and-PIN protocol is more secure and would allow it to route transactions across less-expensive networks.” The Wall Street Journal adds that Walmart says Visa has prohibited the retailer from requiring PINs only, claiming the retailer will have to pay more for signature transactions. Walmart said in the lawsuit that debit transactions account for more than 70 percent of the dollar value of card payments, and it alleges that Visa is mandating that it allow signature verification for debit card transactions at its US locations, because Visa will make a higher profit off of such transactions. According to Reuters, Walmart also claims it pays Visa more for signature-based transactions than those using PINs. Walmart spokesman Randy Hargrove said in a statement, “Walmart believes Visa’s position creates unacceptable risk to customers and its actions and rules are inconsistent with federal law.” Digital Transactions says the suit alleges that Visa is violating the Durbin Amendment to the 2010 Dodd-Frank Act, requiring that debit cards give merchants a choice of networks for transaction routing. Visa’s requirement for signature verification means the retailer must route Visa debit card transactions across Visa’s network “rather than the competitor networks of Wal-Mart’s choosing,” the lawsuit says. Walmart’s “publicly available civil complaint does not specifically state how Visa allegedly tried to force Wal-Mart debit transactions onto the Visa network.”

What This Means For Small Businesses

Small businesses bear the brunt of costs from fraud liability when financial institutions impose regulations on the businesses their customers are shopping at while using their debit or credit cards. Walmart, a large corporation, can afford to sue Visa to attempt to get a transaction fee scale that is more beneficial for its business. However, it remains to be seen whether such action will help smaller businesses as well.

Additional Reading

CNN, the AP, Money, USA Today, and CNBC also cover the story.

Note: this article is intended to keep small business owners up on the latest news. It does not necessarily represent the policy stances of NFIB.

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