Hadley Malcolm

USA TODAY

Walmart is suing Visa for allowing customers to verify chip-enabled debit card transactions with a signature instead of a PIN.

The lawsuit filed Tuesday in New York Supreme Court says that Visa requires Walmart to accept signature-based transactions for chip debit cards, which Walmart says are a less secure method of payment than PIN-based payments and more expensive to conduct over Visa's network.

"PIN is the only truly secure form of cardholder verification in the marketplace today, and it offers superior security to our customers," says Walmart spokesman Randy Hargrove. "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."

Visa declined to comment.

Retailers were required to adopt payment terminals last year that accept chip-based debit and credit card transactions or else face liability for any subsequent fraud. The cards are embedded with a computer chip where account information is stored instead of in a magnetic strip.

Chip and PIN cards and what you need to know

The chip cards are considered much more difficult to hack because they create one-time codes to process every transaction. Transactions can be verified with either a signature or a PIN, though the retail industry has long argued that requiring a PIN is more secure.

Walmart automatically prompts customers to enter a PIN when they use a chip debit card, but customers can override it and enter a signature instead. Debit card transactions account for more than 70% of the dollars spent on credit and debit cards at Walmart.

The lawsuit says that because Visa allows a signature for debit card payments, it requires Walmart to route those payments through Visa's network rather than a competitor that might be less costly.

Visa: Some merchants see dip in fraud thanks to chip cards