Viewpoint: What Tipping Means For EMV
As we approach the one-year anniversary of the EMV liability shift in the U.S., it’s a good time to take a look at where we stand with migration. The latest statistics appear to support the idea that chip-based card payments are moving along at a fast pace. Some key statistics are outlined below:
- EMV-based merchants have reported a 35 percent decline in counterfeit fraud, according to Visa data.
- There are 1.3 million chip-active merchant locations as of May 30, 2016, or 28 percent of the entire merchant population.
- There are 326.8 million chip cards in the U.S. market, a number that is slightly greater than the actual number of residents in the country.
- 25 percent of in-store purchases on a Visa card have been made using a chip-enabled card at an EMV-enabled terminal.
But while the statistics look good and demonstrate strong progress, there are particular areas that are proving challenging for full transition to EMV. One of those areas is the tipping process for EMV and how restaurants are impacted.
Market segments that accept gratuities via card payments and are converting to EMV must determine the best approach that doesn’t disrupt their current acceptance practices. With restaurants today, the payment process provides a receipt for the cardholder to sign and optionally add a tip. Tips and gratuities are handled post authorization.
When EMV was introduced, many terminals were not equipped to handle a post-authorization process. Instead of the server taking the customer card, running the check amount and returning the bill for the tip, the customer was required to pay it all at the same time. Printing a receipt and processing a tip after the customer has left is a common practice.
This created a problem for the restaurant industry. Some restaurant servers missed out on receiving a tip. Others changed their business practices to include a tip in the bill, while others implemented a no tipping policy. None of these practices was optimal.
The payments industry has responded by adding tip adjust capability for EMV transactions. For chip and signature cards, the process was effectively the same as with magnetic strip cards, providing a process where two receipts can be printed and the payment can be adjusted for tips later. For chip and PIN cards, the process requires the tip to be added at the time of the transaction, which continues to create a problem for the process. If chip and PIN becomes the predominant customer verification method, the tip adjustment model will have to change. Today, however, the standard customer verification method is chip and signature.
The challenge for the industry is that many terminals do not have tip adjust capabilities. In addition, for those terminals that do have this capability, many have not yet been certified by processors. (Editor’s note: Two major terminal makers, reporting adoption delays from smaller merchants, have recently reported suffering sales because of such delays. You can read about it here.) Both of these can be a very time consuming process, creating a barrier for EMV adoption. As more terminals are equipped with EMV tip adjust capabilities that are certified by processors, that will be one barrier to move to EMV for tip related industries that will be gone.
Scott Blum, vice president of marketing, business development and software partners at Total Merchant Services, has served in various executive leadership roles for financial technology companies, including chief marketing officer for Capital Access Network and director of marketing and global payments for Intuit. He also was senior manager for Deloitte Consulting, where he focused on strategy and operations for financial services firms.
In Viewpoints, payments professionals share their perspectives on the industry. Paybefore presents many points of view to offer readers new insights and information. The opinions expressed in Viewpoints are not necessarily those of Paybefore.