The days of signing a receipt after swiping your credit card have come to an end.
Mastercard Inc. (NYSE: MA), Discover Financial Services (NYSE: DFS), American Express (NYSE: AXP), and Visa Inc. (NYSE: V) all announced that they would stop requiring credit card signatures by April of 2018. Some issuers are dropping the requirement for all purchases made in the U.S. or North America, while American Express is dropping the signature requirement worldwide.
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Can a signature really protect you?
While showing off your John Hancock after a purchase may give you a sense of security, the truth is, handwritten signature verification is antiquated and provides no real security value.
Signing a receipt used to guarantee a purchase. It showed banks that you agreed to make the purchase at the stated price, which protected both parties by:
- Ensuring to the person processing the purchase that you are the cardholder
- Proving afterward that you were present and agreed to the purchase once it showed up on your statement
Of course, this was far from foolproof. Now that cursive is rarely taught, signatures are increasingly simplistic and inconsistent, making them even easier to forge. With a little skill, someone could easily fake your signature.
Even if your signature is more elaborate than Queen Elizabeth I's, how often have you signed for a purchase and seen the store clerk scrutinize your signature? Often, they don't even check. In fact, although I use all eight of my credit cards, only three of them are even signed. No one has ever said anything to me about this.
New, improved methods for fighting fraud
With the advent of chip technology, machine learning, and improved data management, banks have fraud detection methods that are far more sophisticated, and faster, than a simple signature.
Have you ever received a fraud detection notice from your bank? Has your bank ever shut down your credit card because you forgot to tell them you were traveling out of state or abroad? If so, that's your card issuer's fraud detection system at work.
Banks have massive amounts of data stored on all cardholders. This information includes everything from where and how often you use your credit card to the kinds of purchases you typically make and what time of day you make them. This data forms a spending pattern that allows card issuers to detect and flag anomalies as potential fraud.
If this weren't enough, signatures have now been made completely obsolete by the advent of chip cards. The implementation of that EMV chip in your credit card, along with terminals that use chip readers instead of swipers, has caused a massive decrease in credit card fraud.
Requiring a PIN rather than a signature is also far more effective at preventing fraud. In fact, most of the world outside of the U.S. uses chip-and-pin cards rather than our outdated chip-and-signature cards for that very reason. When chip cards finally came to the U.S. a few years ago, the National Retail Federation demanded that they require a PIN rather than a signature, stating that keeping the signature method alive was "like locking the front door and leaving the back door open."
How to protect yourself from credit card fraud
You shouldn't just rely on improved technology to keep you protected, though. There are a number of ways you can prevent and fight credit card fraud.
- Act quickly if your credit card is lost or stolen. Call your bank immediately and freeze your accounts, even if you think you may have simply misplaced it.
- Check your credit card statements vigilantly. You can set up purchase alerts so that your bank notifies you of certain behaviors like a purchase made over a certain dollar amount.
- Use a mobile wallet. Because phones now require biometric data to be unlocked, and mobile wallets encrypt your information, they're safer than carrying a physical credit and traditional online shopping.
- Monitor your credit report regularly. Many credit cards now offer free credit monitoring. If you notice your score drop, pull a report and find out why, as it could be the result of fraudulent activity.
Taking your credit card security into your own hands is far more effective than any signature.
