If your restaurant or retail store hasn’t gotten on the chip card bandwagon, you might want to consider starting the implementation process. Generally speaking, magnetic strip cards do not offer the security they once did, making it increasingly important for businesses of all kinds to adjust their credit card readers. We have touched on chip or EMV (Europay, MasterCard and Visa) cards in our previous blog, “EMV Compliance: Is Your Business Prepared for the October 1st Deadline?” but for the hospitality industry, the chip card shift will affect tipping, so there are some unique considerations restauranteurs should make when switching their systems.

The Liability Shift- October 1st 2015

As mentioned in our past blog, on October 1st, 2015 the liability for counterfeit in-store payment card transactions shifted to the party, whether that is the issuer or merchant, that does not support chip card systems. If a brick-and-mortar store, hotel or restaurant has not upgraded their systems to accept in-store chip payment, the establishment rather than the card issuer will be held responsible for replacing any losses due to magnetic card fraud.

How do chip cards affect tips?

There has been speculation that chip cards will change the way restaurants enter credit card tips in their systems, but most have said this is not true.

However, you will need to have the most up-to-date EMV card terminal installed in your restaurant, since many terminals at this stage do not have a feature for tip adjustment. In other words, the traditional practice of servers waiting until the end of a shift to adjust credit card charges to tipped amounts doesn’t work with certain chip terminals.

Advantages of Chip Cards

The primary advantage of the chip card is that it provides better security than a magnetic strip card. To expand on this:

• The microchip contained in an EMV card is essentially a mini-computer, meaning that every transaction generates a unique encrypted code, which offers much more security than magnetic strip cards.
• Chip cards use dual authorization through inserting the card in the chip machine and requiring either a signature or pin entry.
• Contrary to chip cards, magnetic strips store static information making it easy for a hacker to copy the data onto a cloned card and use it for illegal purchases or to withdraw money.
• The risk of fraud has increased in establishments without EMV terminals. Chargeback fraud can be greatly reduced with implementation of chip card systems.

Disadvantages of Chip Cards

Essentially the main problem with chip cards is that they are more costly to manufacture than magnetic strip cards, and the systems are expensive to implement, too. You can read our blog on "EMV Compliance: is Your Business Prepared for the October 1st Deadline?" for additional details.

What does the future look like for chip cards?

Since October 1st has long passed, all restaurants and retail establishments are now personally liable for any fraud occurring with outdated magnetic strip systems. This doesn’t mean all businesses have switched systems over, but keeping outdated systems does pose potential for a more costly resolution than the EMV system implementation. There is still a slow adoption rate nationwide but it is expected to pick up as the chip cards become standard.

Questions? Contact any member of our Hospitality Services Group.