Chip Credit Cards Mean Changes for Tipping
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 Gratuity Variations by Card Type
- If some cards will still work why should I change our tip process?
- How should I accept tips with EMV chip cards?
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:
- A server brings the customer their bill.
- The customer hands over a credit or debit card.
- The server takes the card to the terminal to swipe it to pay for the meal.
- The server brings the receipt to be signed by the customer, who can optionally add a tip.
- The customer adds their tip and signs the bill.
- 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.
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.”
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 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.
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 CardThe 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.