Posted on by Barista Life

Why does Starbucks not need my signature?This is an operational decision based on risk.

This is an answer from a post on Quora.  This answer was written by, Garrick Saito.

Close your eyes and think for a moment what happens to that little piece of paper with your signature on it.

Now, try to imagine...

  • all of the credit card paying customers from the 9,462 company-owned Starbucks from all around the world
  • millions of tiny slips of papers with signatures on them being created every day, virtually all of them useless (certain exceptions apply)
  • the human effort (and their related costs) it would take to store, transport, organize and categorize them in such a way that would make it easy to find, in case one of those pieces of paper are actually needed

The easiest way to understand the reasoning behind this procedure is familiarize yourself with chargebacks.  A chargeback is when a merchant receives notification from a credit card company claiming their customer is saying, "I never bought that."

A hypothetical example

Say you get your credit card bill at the end of the month.  You examine all the charges or verify them against your receipts.  You discover one item that appears to be a mistake.  "Hey, I've never even been to [company XYZ]," you silently say to yourself. You contact the credit card company, disputing the charge.  The credit card company generates a chargeback notice and sends it to the merchant.  This basically means they have reversed the charge.  The money that has been paid to the merchant for your credit card transaction has now been taken back.  The merchant is now without the sales proceeds and the inventory you presumably took.  They are mad.

The burden now falls upon the merchant to "prove" the legitimacy of the charge.  They research the item, going through mountains of paper to locate the one document that can reverse the 'reversal' (meaning, get back the money they believe is theirs).  That document is the credit card receipt.  It has "your" signature on it, stating that you have authorized this charge.  It is their "get out of jail for free" card, if you will.  Then merchant then sends a photocopy of the receipt back to the credit card processor who, in turn, authenticates the charge.  If satisfactory proof (the signature appearing on the credit card receipt matches the signature they have on file) has been provided, they must now reverse the chargeback and, in turn, communicate to you (the credit card holder) the resolution.  If proof has not been found, they must also communicate to you.  Either way, it is an administrative headache for the credit card company to deal with the issue.

All of this administration between credit card company and merchant involves human resources, which translates to money -- lots and lots of it.  It is burden to the credit card processor, to the merchant and to you.  Nobody wants to deal with it, yet they must.  There is simply no other choice.  Ignoring you is not an option.

Now consider all of the above plus one other fact (i.e. the 'kicker')

The charge is for $2.00, perhaps the price of a cup of coffee.

$100 in labor has now been spent trying to resolve your $2 item (yeah, I know, "it's the principle.")  Obviously, this makes no business sense.

So businesses establish "thresholds" that examine the probability of risk (i.e. a bad credit card transaction) and then attempt to balance that with the potential costs of processing chargebacks.  This threshold is the dollar cutoff that best represents the point where they calculate it is no longer worth it to collect signatures on 100% of their credit card transactions.

Sure, they'll have losses but hopefully those losses represent less money than the payroll dollars they would have spent on research.  If that turns out not to be the case, they will raise the threshold.  It is an inexact science.

From an operational perspective, not requiring signatures at the checkout stand speeds up processing (no checking of IDs against credit cards, if that is their procedure), thereby improving customer satisfaction/lowering customer frustration.

"John, I need you to pull me 27,275 sales receipts to resolve these chargebacks we received this morning.  Make it snappy, okay?"

The bottom line

Companies choose a certain 'no-signature-required' threshold for their credit card transactions based upon historical losses, the average price point of their transactions and administrative costs needed for sales audit and chargeback functions.  They try to balance risk of losses against costs of administration.  When it no longer makes any financial sense to do so with lower price points, they opt not to collect a signature.