The Myth About Tips With Chip Cards

Do you suffer from EAFS, EMV article fatigue syndrome? If so, I apologize for adding this blog post to your reading list. However, I bet you will find this useful as I hope to dispel a common myth about EMV and chip cards. The payment processing industry has developed the misunderstanding that tips are not allowed with chip card transactions. It's simply not true.

Let's take a step back and walk through a common scenario. You just finished a fabulous dinner at your favorite Italian restaurant with a serving of Tiramisu. The server brings your tab to the table in one of those lovely faux leather check presenters. You dutifully pull out your credit card and stick it in the check presenter.

The server takes the bill and your card away from the table and comes back with the receipt for you to sign. You enter a generous tip on the blank line, enter the total amount after the tip, and then sign the receipt. Now you can be on your merry way.

Later that evening, the server adjusts the transaction in the credit card terminal or point of sale system to add the tip amount. This is commonly called a ”tip adjustment” and has been common practice for years.

This year, many credit card terminals have been upgraded to support EMV transactions. The problem is that most of these terminals don't allow tip adjustments with EMV cards. They allow a tip to be entered during the original transaction but not after the fact. The end result is that EMV-capable terminals are not viable solutions for restaurants today.

This situation created the belief that the EMV specifications do not allow tip adjustments. This is not correct. Here is an excerpt directly from Visa* on the topic:

Because chip technology and processing supports post-authorization tips and gratuities, there are no practical reasons for merchants to change this existing practice after migrating to chip.

How did this happen? Why did the industry release new credit card terminals that don't support tip adjustments? I don't know the official answer, but I have a theory.

Remember that EMV originated in Europe. The ”E” in EMV stands for Europay International. The custom of tipping is not common in many parts of Europe, so the concept of tip adjustments was not accounted for when EMV first rolled out in Europe. In some places, it's customary to tip in cash even if you pay the bill with a credit card. Again, tip adjustments are not required in such a scenario.

Therefore the original EMV programs for credit card terminals didn't account for tip adjustments the way we are accustomed to in the United States. In addition, chip card transactions require the card to remain in the credit card terminal during the transaction. I suspect this led some people to assume that the card must remain in the terminal while a tip is entered as well.

Regardless of whether my theory is correct, the fact remains that the initial credit card terminal applications in the U.S. don't handle tips properly. After getting clear feedback from restaurant owners that this is not acceptable, the industry is scrambling to fix the problem. You should see new solutions hit the market early next year.

So, the next time you hear a payment expert tell you that ”tips aren't allowed with EMV,” you can confidently correct them.

*Managing Card-based Tip and Gratuity Payments for Chip (7/30/15)