What Is a Signature Purchase and How Does It Work?

A signature purchase represents a traditional method for authorizing financial transactions, particularly when using a credit or debit card. This method relies on a cardholder’s handwritten mark to confirm their agreement to a payment. While common in the past, its role in daily commerce has shifted with new payment technologies.

Defining a Signature Purchase

A signature purchase refers to a transaction where the cardholder provides a physical or digital signature to authorize a payment. This method stands apart from other forms of verification, such as entering a Personal Identification Number (PIN). The individual signs either a paper receipt with a pen or an electronic signature pad at the point of sale. This act of signing serves as a verification method, affirming that the person making the purchase is the legitimate cardholder. The signature acts as a form of consent and an acknowledgment of the transaction details and amount.

How Signature Purchases Work

When making a signature purchase, the process begins with the consumer presenting their payment card to the merchant. The merchant processes the transaction using their point-of-sale terminal, which reads the card’s information by swiping the magnetic stripe or inserting the EMV chip. Once transaction details and amount are confirmed, the terminal prompts the cardholder to provide their signature.

This involves signing either a printed receipt with a pen or directly on a digital screen. The cardholder’s signature is then captured, either physically on paper or electronically. After the signature is obtained, the transaction is finalized. The cardholder typically receives a copy of the receipt, and the merchant retains another copy as a record of authorization. This step verifies the cardholder’s identity and approval of the purchase.

Signature Versus PIN Transactions

Signature-based transactions and PIN-based transactions represent two distinct methods of authorizing payments with a card. A signature transaction relies on a handwritten mark, historically compared against a signature on file, such as one on the back of the card, to confirm identity and consent.

In contrast, a PIN-based transaction requires the cardholder to enter a secret numerical code into a keypad. This method, commonly used with debit cards and increasingly with chip-enabled credit cards, relies on “something you know” for verification. PIN transactions are often perceived to offer a higher level of security at the point of sale because the PIN is unique to the cardholder.

The Evolving Landscape of Signature Purchases

The prevalence of signature purchases has declined due to advancements in payment technology. Major credit card networks, including Visa, Mastercard, American Express, and Discover, largely stopped requiring signatures for most transactions by 2018. This shift was driven by EMV chip cards and contactless payment methods, which offer enhanced security by encrypting transaction data. These newer technologies provide more robust authentication than traditional signatures.

Despite this trend, signatures are not entirely obsolete. Merchants retain the right to require signatures based on their security policies, especially for high-value transactions. Older point-of-sale systems may also continue to prompt for a signature. Additionally, some businesses, like restaurants, may still require a signature to allow for the addition of a tip.