The purpose of this article is to discuss the peculiarities of credit card processing in the industries, where tips are widely used (restaurant industry is a vivid example). Originally, tips were given in cash, or added to the receipt as tip adjustments. Nowadays, EMV liability shift brings forward the need for new functionality, which has already been quite relevant for the industry for some time. So why not use the situation as an opportunity to expand the functionality even further?
Traditionally, restaurant industry was considered a card-present one, just like retail industry. However (especially in the US) it has some peculiar features, related to tips. In many countries service cost is included into the price of the purchased product, but in the USA it is added separately, so when a transaction is processed, the need for tip adjustment arises.
From traditional way to easier tip adjustment
A traditional solution, commonly used in the pre-EMV world, was as follows. After the customer got the bill, he presented the credit card (with magnetic stripe), the transaction was authorized, and the receipt was brought to the customer. On the receipt the customer could specify the tip amount, which was then input into the system. Tip adjustment was done “on top of” the authorization, i.e. the authorization amount was increased, and settlement was performed on a higher amount, which included the tip.
In case of an EMV card, as long as “chip-and-signature” approach is used, the process can, essentially, remain the same. However, if “chip-and-PIN” approach is used, you need to devise an alternative way of its implementation. The reason is as follows. The customer will have to physically interact with the payment terminal (either at the table or at the counter) to input PIN. Before EMV, a debit card could be processed like a credit one, but after the EMV liability shift, some solution for “chip-and-PIN” case is absolutely necessary. Moreover, as the customer will have to interact with the terminal, the new solution can also allow the customer to select the tip amount right on the terminal screen. In this case the customer will no longer have to sign the receipt and specify the tip amount on it.
The new features
Tip amount selection prior to authorization
If you are a merchant, working in an industry, which involves tips (such as restaurants, hair salons, shuttle and taxi services), and selecting a terminal solution, you need to take into consideration such issues as tip adjustment and PIN input.
If you are a developer, devising a card-present POS system for an industry, involving tips, you need to decide in advance, how the customer is going to select the tip amount while making a payment.
We should stress, that in card-present situation the customer will have to touch the terminal and deal with a specific payment application. Consequently, it is logical to implement tip selection mechanism within this application. This will simplify the process in the eyes of the customer (the need for tip adjustment as a separate operation will disappear).
For instance, a payment terminal itself can suggest options for tip amounts (5/10/15/20 %) to the customer. Once the customer selects the tip amount, it will be instantly added to the main amount and authorized. In this case there is no need to perform or even implement the tip adjustment functionality. Sometimes tip adjustment does not succeed, so if tip amount can be input into the device prior to authorization, this risk (even the possibility) is eliminated.
As we can see, developers of software for industries, involving tips, definitely, should envision the possibility of tip amount selection on the terminal screen. We would recommend offering the customer to select one of the pre-calculated tip amounts (such as, again, 10, 15, 20, or 25 %) or key in the amount of tip manually (‘other’ option).
Support for selection of multiple tip recipients
Another issue you should consider if you develop special logic for handling tips is that a tip can have several recipients. For example, in beauty salons tips can have several different recipients. Consequently, while developing POS software for beauty salons, you can keep this in mind.
If you are a merchant in search of a new solution, you can try to find a solution, not only allowing your customers to specify tip amounts on a payment terminal, but also split these amounts among different recipients.
If you are a software vendor, developing POS software for an industry, involving tips, you should add the respective flexible tip-handling functionality (tip adjustment, automated tip amount selection, and tips with multiple recipients) to attract more merchants to your software products.