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Accepting and processing tips with the posIPOS Point of Sale

Today, when paying for meals at restaurants, or for other various services, customers often add tips for servers when they sign their credit card receipt. However, tips over a certain percentage of the bill can trigger flags for fraud, resulting in card issuer-initiated chargebacks, or can cause your transaction to be downgraded to a more expensive interchange category.

When credit and debit cards are swiped in a restaurant, the amount authorized includes a 20% "tip tolerance". This means that when you swipe a customer’s card, it will be approved if the customer has funds available for the total cost of their bill plus 20%. This is done to ensure that there are enough funds available for the possibility of a customer leaving a 20% tip.

In some cases, customers tip more than 20%. If they do, the transaction may set off a warning ("flag") to the issuer to check for fraud. The issuer could decide to initiate a chargeback, requiring information from your business about the transaction to determine the validity. Plus, a tip more than 20% can trigger the possibility of an interchange downgrade, which means that a transaction is routed through a more expensive interchange category, resulting in a higher cost for you.

The EMV Liability Shift

More, 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. Currently, the process for accepting tips that are paid with a credit or debit card in a sit-down restaurant usually follows these steps:
  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.
  4. The server brings the receipt to the customer.
  5. The customer adds their tip and signs the bill.
  6. Later, the restaurant will adjust the transaction amount to include 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. Some types of EMV chip cards will not allow adding a tip after the card has been dipped.
  • For Visa EMV chip cards, tips are processed the same as they always have been, by adding the usual 20% tip tolerance to the amount authorized.
  • MasterCard has announced elimination of 'tip tolerance' except in limited situations.
  • Discover does not provide information on their site specific to tips on an EMV chip card. However, when we called Discover and asked about the available options, they replied that “The customer should simply add the tip amount while the card is still in the terminal”.
  • American Express’s states on their EMV Guide 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.

The posIPOS solution for accepting tips

Since the procedure can vary by card type, and there is contradictory information about tips paid by EMV chip cards, this means that a change in the entire process of tipping must take place. Our posIPOS Point of Sale system has implemented a new procedure that will work for all card types, and it will also minimize staff and customer confusion. This new procedure requires altering the current process of tipping that customers and servers are used to, but offers significant advantages over the traditional method:
  • It works in the same way for all credit and debit card types.
  • Greatly reduces the the possibility of an interchange downgrade or issuer initiated chargeback.
  • Allows for tips exceeding 20% of the total amount.
  • Improves the system security, since it does not need to store the customer's credit card data for adjusting the transactions to include the gratuity at a later time.
  • Reduces the possibility of human errors while entering the gratuity when adjusting the transactions.
  • Reduces the amount of time needed to go over all transactions and enter the tip.
    Our process for accepting gratuities at a sit-down restaurant, or any similar establishment, is to request that the customer adds the tip prior to processing the transaction. In order to do this, the server will have to follow these steps:
    1. Print a copy of the bill and give it to the customer.
    2. The customers will write their tip amount and transaction total on the bill.
    3. The server would then take the card to the payment terminal as usual and process the transaction.
    4. The server will return the card and the receipt to the customer.
    5. The customer will sign the receipt that already includes the tip in the total.
    Our solution is also future-proof for the EMV liability shift, when the liability for most counterfeit card fraud that occurs at the merchant's store location is shifted to the merchant, unless the merchant has upgraded their card acceptance and processing systems to use chip-enabled devices.