Credit Card Processing, Restaurants and Bars

Chip Credit Cards Mean Changes for Tipping

by Ellen Cunningham

The EMV liability shift is bringing many changes to credit card acceptance, but there’s one major difference that restaurant owners should be aware of: accepting gratuities.

Some point of sale systems and credit card machines are now able to adjust for tips after the card is run, but others cannot.


How will the process of tipping change with EMV chip cards?

EMV cards may change the way restaurants handle tips paid by credit and debit cards. Some types of EMV chip card machine will not allow adding a tip after the card has been run, called “dipping” for EMV cards. Additionally, some processing companies may not permit tip adjustments after the card has been run. If you use one of those machines or companies, a change in the entire process of tipping must take place.

Currently, the process for tipping with a credit or debit card in a sit-down restaurant usually goes like this:

  1. A server brings the customer their bill.
  2. The customer hands over a credit or debit card.
  3. The server takes the card to the terminal to swipe it to pay for the meal.
  4. The server brings the receipt to be signed by the customer, who can optionally add a tip.
  5. The customer adds their tip and signs the bill.
  6. Later, the restaurant will adjust the transaction amount to reflect the total with the tip.

This final step will not be possible with some EMV chip cards, meaning that the server would not receive money from a tip written on the receipt after an EMV card had been dipped.

EMV Gratuity Variations by Card Type

To make matters more complicated, tipping procedure with EMV chip cards may vary by card type and brand. Payments website MerchantLink, a joint venture between processing industry leaders Chase Paymentech and First Data, reports on their blog that only chip-and-PIN style EMV cards will be affected, and that tips can be processed as usual with chip-and-signature style EMV cards. However, there is no source cited for this claim, and official documentation from the card brands doesn’t readily confirm it. Below are official statements from the credit card companies through their published EMV guides or their replies to CardFellow’s requests for clarification.

Visa
With Visa EMV chip cards, tips are processed the same as they always have been. Visa is clear that EMV chip Visa cards will not require a change in the tipping process in a quick-reference guide available on their website. Visa suggests:

“After authorization, add any gratuity or tip of up to 20 percent of the base transaction amount to the authorized amount submitted in the clearing record, just as you do today.”

 

MasterCard
EMV information specifically regarding tipping is not available on MasterCard’s US website. Information from MasterCard UK’s website says the following regarding EMV chip transactions:

Gratuities – It is recommended that any gratuity be added to the transaction amount before the EMV transaction starts. This will ensure that the final billing amount is both presented to the card during the transaction and displayed to the cardholder at the time of PIN entry (if required).

The documentation does not specify if tips must be added prior to dipping or if it is just suggested, and does not specify if it’s relevant to US transactions. We reached out to MasterCard to ask if tips must be added prior to dipping an EMV chip MasterCard, and received the following reply:

“Yes, you need to tip before the card is dipped just as you need to tip before the card is swiped.”

Businesses who currently accept MasterCard may find this information contradictory, as some businesses successfully adjust for tips after a card is swiped. From MasterCard’s response, it’s unclear whether that will still be possible with EMV chip cards.

Update 12/7/2015: MasterCard has announced elimination of ‘tip tolerance‘ except in limited situations. Tip tolerance refers to a practice in which credit card companies factor in 15-20% “wiggle room” when credit cards are submitted for preauthorization. The assumption is that businesses may add a tip after the card has been run, so a customer’s card will be approved if there are enough funds to cover the bill plus 15-20% (depending on the card type.)

There is an exception with a few variables. MasterCard states that if the transaction is card-present, not a chip and PIN card, and not a contactless payment (such as Apple Pay) a tip tolerance of 20% will still apply. This means that card-not-present, chip and PIN cards, and contactless payment types will not include a tip tolerance amount when authorized. MasterCard also states that businesses can request a preauthorization for an estimated amount, and submit a second authorization for a total amount if necessary. Note that skipping the second step and not requesting an additional authorization may result in chargebacks initiated by MasterCard.


Discover

Discover also does not provide information on their site specific to tips on an EMV chip card. We reached out to Discover, asking, “If a customer pays with a Discover card that has a chip, do they have to add the tip before their card is dipped, or can it be done after like with regular cards?” Discover replied:

“When using a chip card, the customer can simply add the tip amount while the card is still in the terminal.”

Adding the tip amount while the card is in the terminal will require the customer to either be present at the terminal (such as at the counter in quick-serve/take out restaurants or using a tableside terminal in a sit-down restaurant) or add the tip to the receipt before the card is dipped.

American Express
On page 29 of American Express’s guide to implementing American Express EMV acceptance on a terminal from their website, the company states that they do not define a specific method for adding gratuities, but their best practice recommendation is to allow the customer to add a tip prior to entering their PIN.

We asked American Express directly, “If a customer at a restaurant pays with an EMV AmEx, can they add a tip after the card is dipped or does it have to be before?” American Express replied:

“It is dependent on how the merchant has their payment system set up. [Customers can] ask the merchant if [they] can apply before or after they have processed initial payment.”

American Express did not expand on what factors affect whether tips can be processed after a card is dipped.

If some cards will still work, why should I change our tip process?

The biggest reason to alter your tip acceptance procedure is simply to ensure that you’re able to process the transaction with the tip no matter what card is used. If you can’t process it, you may not realize it until the customer has left. You’ll be unable to correct the problem and your server will lose money. Some businesses have already reported missing out on tips paid by an EMV chip card because they didn’t know the procedure might be different. While accepting tips the “old way” might still work with some EMV chip cards or processing companies, it can’t be guaranteed to work with all EMV chip cards and may result in confusion and anger over lost tips. If you’re unsure if you can adjust for tips with EMV cards, be sure to check with your credit card processing company for clarification.

Related Article: Slow Chip Transactions? Quick Chip Can Help


How should I accept tips with EMV chip cards?

Since the procedure can vary by card type and there is contradictory information about tips paid by EMV chip cards, we suggest implementing procedures that will work for all card types, as this will minimize staff and customer confusion. At sit-down restaurants, there are two ways to accept tips from customers paying with EMV chip cards without changing the process for different cards. Unfortunately, both options require altering the current process of tipping that customers and servers know and are used to. There may be some initial confusion while customers and staff adjust to a new method of tipping with a chip card, so be prepared to explain the reasons for the change.

The two ways to accept tips with an EMV card are to use tableside payment equipment, or to require the tip to be added before dipping an EMV card.

Using Tableside Payment Equipment

Tableside payment equipment refers to wireless credit and debit card processing machines or tablets that can be physically carried to a customer’s table. The machine or tablet allows the server to dip an EMV chip card in the customer’s presence and hand them the terminal to input the tip amount while the chip card is still in the machine.

Additionally, tableside payment equipment offers customers a security benefit, as it’s considered safer because the card never leaves their sight.

Adding Tips Before Dipping a Card

The other option for accepting gratuities with an EMV chip card at a sit-down restaurant is to request that the customer add the tip prior to processing the transaction. In order to do this, the server could print a copy of the bill and customers could write their tip amount and transaction total on the slip. The server would then take the EMV chip card to the payment terminal as usual and process the transaction. The server would return the card and the receipt to the customer, and the customer would sign the receipt that already includes the tip in the total.

For quick service and take-out restaurants, EMV-capable terminals offer the option for a customer to add a tip while their card is in the terminal. The business can either hand the terminal to the customer or utilize customer-facing equipment. Many take-out customers are already accustomed to entering their PIN or signing for a transaction at a customer-facing terminal, and will likely not experience a disorienting shift in procedure for tipping with an EMV chip card.

The bottom line is that EMV chip cards are becoming more common in the United States. Businesses can ensure a smooth transition by educating themselves and their staff on all aspects of EMV chip card acceptance.

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Ellen Cunningham

BY Ellen Cunningham

Ellen has a degree in English, which she puts to work every day researching and writing articles, processor reviews, and social media posts. She enjoys the challenge of explaining complex topics - making her a perfect fit for credit card processing - and strongly believes in CardFellow's mission of empowering business owners through education. When she's not busy following the latest industry news, Ellen can be found cycling the beautiful trails of southern New England, narrowly losing at pub quizzes, or practicing her trapeze skills in aerial circus class.

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19 COMMENTS

  1. from DEBBIE, on November 7, 2015

    THIS HAS CAUSED A LOT OF PROBLEMS FOR MY SERVERS AND I. IT IS EMBARRASSING FOR A SERVER TO HAVE TO ASK A CUSTOMER IF THEY WANT TO LEAVE A TIP. THIS HAS MADE MY CUSTOMERS FEEL UNCOMFORTABLE AND THAT THEY ARE BEING PUT ON THE SPOT. THE RESULTS SO FAR HAVE BEEN VERY UPSETTING TO EVERYONE. MY SERVERS UNFORTUNATELY HAVE LOST SOME OF THERE TIPS DUE TO THIS NEW SYSTEM.

    • from Sam, on November 29, 2015

      Why don’t you just eliminate tipping and raise your prices . Some restaurants are doing this.

      • from Ice Queen, on March 29, 2016

        To raise prices and eliminate tips has not worked in favor of the server. If everyone gets an equal tip we have socialism and no one will work for the guest. Adding 20% at the front just means the server knows it’s a done deal. I think that is a dumb deal. Thanks Congress for your continued stupidity about economics and business. TERM LIMITS!!!

  2. from Johhny, on November 10, 2015

    I’m running a not upscale but a few step above average restaurant. Thank god First Data haven’t come to this point yet. It is very uncomfortable to ask customers to tip before running (dipping) their card.

    high percentage of customers will not be happy about it, to be ask for a tip in front of his or her guests
    at the table

    • from Ellen Cunningham, on November 12, 2015

      Just to be clear, it’s not the processor’s choice (like First Data) it’s actually in how the card brands (Visa, MC, etc.) have their cards set up for authorization and settlement.

      It could definitely be uncomfortable for customers to be asked to tip at the table/in front of guests. Hopefully as the practice becomes common, customers will just know to do it, and the server won’t need to point it out or remind customers. If enough restaurants all adopt the same practice, it’ll just become commonplace to add the tip before handing over the card.

    • from Jeff, on January 12, 2016

      First Data DOES NOT have a choice……This is for every merchant in the US. You are sorely mistaken.

  3. from William Konietzny, on November 15, 2015

    While I understand the benefits in security for this, the problem is that it’s once again a “one size fits all” solution attempt. Before implementing this technology, there should have been surveys with representatives from retailers where gratuities are common, so that this could be addressed. One solution, might be for a pre-authorization “option” where the terminal produces a slip that includes a gratuity line, that the server could enter before turning the terminal over to the customer for completion. The problem appears to be a disconnect between those responsible for the policies and technology and those impacted by it.

  4. from Ken, on November 17, 2015

    I used a chip card at a Texas Roadhouse the other day, and they didn’t say anything about doing the tip first. Didn’t really matter as I tipped in cash and not on the charge. But there are times where the dinner is expensive enough (like when I’m paying for others) where I add it to the charge. That would be awkward, but I use an app to calculate the amount anyway so I suppose it could work.

    I would just as soon continue the current way of adding the tip after the initial swipe.

  5. from Ed Greenberg, on February 28, 2016

    I ran into this in Canada. The server brought a wireless terminal to my table. I was very impressed with this from a security perspective.

    I’m pretty sensitive to this because I just had my debit card compromised, and the only places I can attribute it to are restaurants.

  6. from bill tobala, on April 8, 2016

    dejavuu makes a emv terminal that works like the old terminals you can adjust the tips

    • from Ellen, on April 10, 2016

      Hi Bill,
      It’s not necessarily the terminals themselves; it depends primarily on the processor.

  7. from Jan, on June 21, 2016

    This is outrageous that the software was not updated to allow for tips. This needs to be fixed ASAP or restaurant’s will lose their servers. You have to wonder if it was done intentionally because it’s so stupid.

    • from Ellen, on June 21, 2016

      Hi Jan,
      The good news is that some companies are starting to offer the ability to adjust for tips. If you’re already processing, you can contact your current processor to see if they can offer it.

  8. from Ria, on August 25, 2016

    You can always hit the 9 button on the vx520’s or verifone models and it prints out a basic receipt for the customer before you even take their card that has a line for the tip. Once you go back to the table, they have filled in the tip and the total for the bill and you dip the card once for that total amount, bring back the reciept for them to sign and they leave with your entire check and tip paid…

    • from KK, on March 17, 2017

      Thank you for that information. I am an owner of Bar and Restaurant, I actually asked my cc services how to do this, said I couldn’t. Just tried it works! Thank you Rita

  9. from Rick, on October 21, 2016

    I wouldn’t mind being asked if I could include the tip IF the service was good. But, if I have to chase you down to get another ice tea or other service at the table, don’t even bother asking me for a tip up front. I wouldn’t hesitate to embarrass the server in front of everyone for lousy service.

  10. from Roger, on September 7, 2017

    I noticed a problem with Samsung Pay used on a non-NFC terminal. Because of the tokenization of the credit card number (a new virtual number is generated each time) it is not possible to go back and add the gratuity as written by the customer on the signed copy. It’s basically the problem of the early EMV terminals as mentioned in this article, but Samsung Pay transmits the card info to the magnetic strip reader not the chip reader. So while the EMV tipping issue is being addressed as in this article, the problem still exists with Samsung Pay. It’s rare that someone would use Samsung Pay in a sit down restaurant since they have to get up and go to the register to actually run the payment since it’s only activated for 15 seconds by their fingerprint but if the customer does not have the physical card with them, then Samsung Pay is going to be their method of payment.

  11. from no, on January 26, 2018

    I think its stupid, they should change their systems to match like other places and you add the tip on the way out and don’t preauth the card because this is an issue with prepaid gidt cards as well and may make it decline. Tip should always be added prior to leaving whether they need to have an exit checkout or the table checkouts PERIOD.