How Does Tipping With a Card Work?

With card payments on the rise, cashless tipping has become a standard practice across many service-oriented enterprises. From restaurants and cafes to beauty salons and hotels, the convenience and flexibility of card tips are appreciated by both customers and businesses alike.

But how does tipping with a card work?

In this blog post, we will explore credit card tips, including where they can be used, how they work, the process behind charging tips, as well as the advantages and challenges they present. 

So, keep reading to get all your answers.

Where can you tip with a credit card?

Receiving tips from customers is common practice in businesses like restaurants, cafes and taxis. However, many other service-oriented entities also accept tips, including beauty salons, spas, hotels, delivery companies, tour guides, house cleaners and handymen.

Generally, a credit card tip can be accepted anywhere tipping is appropriate and practised, provided the merchant has a dedicated payment processing machine.

Nowadays, as more businesses adopt POS terminals for convenience, customer satisfaction or regulatory reasons, technological advancements ensure that most of these devices support tipping. This means you can give a gratuity with your card at a growing number of establishments. 

If unsure that the function is available, you can always ask the staff members.

How does tipping with a credit card work?

It’s a common belief that when you tip with a credit card, the merchant will be charged separate transaction fees—one for the total bill and another for the gratuity. However, this isn’t quite how card payment machines work.

There are two common methods businesses use to accept tips via credit and debit cards. Here’s your answer on how does tipping with a card work exactly.

Adding a tip on the receipt

Here is what usually happens when you choose this method:

1. When you receive the bill, you inform the staff member that you want to pay by card. Depending on whether the merchant has a portable card machine, they will either bring the device to you or ask you to pay at the counter.
2. Once the bill is paid, you will be presented with two copies of the receipt. You can then calculate how much you would like to tip and write it down on the merchant copy. It’s advisable to also write the tip amount on the customer copy for your own records.
3. After that, the staff will process this final charge later on. Alternatively, you can choose to leave a cash tip, even if you initially paid by card.

Using the card tipping functionality

When you choose card tipping, here is what to expect:

1. Some card machines prompt for a tip immediately after you pay for the service or even before the bill payment is finalised. 
2. The device will ask you to choose a certain percentage you would like to leave as a tip (for example: 10%, 15%, or 20%) or enter a custom amount. 
3. Once you choose, the machine will calculate the tip amount for you, and the final total, including the tip, will be deducted from your account.

How does your credit card get charged for a tip?

We’ve discussed how customer tips with a credit card work, but what is the transactional process behind it and how do you get charged?

Card machines process tips along with the initial payment, so they don’t treat them as two separate transactions. This means the business won’t incur two credit card processing fees.

Instead, the tip is added to the total amount of the transaction. The new amount, including the gratuity, is processed as a single charge. The card machine authorises the full amount and finalises the transaction. This ensures that the tip is properly accounted for and recorded in a single step.

The same goes for the customer. Although businesses typically cover transaction fees, customers may occasionally incur payment fees depending on their bank’s tariffs. If this occurs, they will be charged only once for the total amount, which includes both the credit card payment for the service and the tip.

How do the tip recipients receive credit card tips?

The way service providers receive tips can vary depending on company policies.

Some companies consider gratuities as the sole property of the employee they are given to and the business will cover the transaction cost. This means that the person will receive the full amount without any fees deducted or having to share it with anyone else.

In other cases, tips from different employees are pooled together. This means that servers share the collected tips among themselves at the end of the day, week or month. These pooled tips are not shared with the business owner or management team.

Typically, card tips, once they have passed authorisation from the financial institution and gone through, are received by employees on their next payday, along with their wages.

Advantages of card tips

Implementing card tips can be highly beneficial for businesses and customers alike. Here are some of the key advantages.

Convenience and flexibility

Allowing customers to tip cashlessly ensures convenience, especially when cash is not readily available. This not only provides clients with more flexibility but also increases the likelihood that the server will receive a tip. 

Moreover, credit card payments make customers more inclined to leave higher tip amounts, as they are not limited by the available money in their wallets.

Ease of tracking 

Both customers and businesses find it easier to track and account for card tips. Credit card statements clearly display the total bill amount, enhancing transparency crucial for resolving disputes and facilitating data analysis.

This not only simplifies expenditure tracking for customers but also minimises the risk of errors that can occur with manual reporting of cash. Accurate reporting is crucial for tax compliance and ensuring fair distribution among staff members within tip pools.

Customer preference

As cashless payments become increasingly popular, offering the option to leave tips via credit or debit card caters to customer preferences. 

This leads to higher satisfaction, brand loyalty and improved customer retention for businesses.

Challenges of card tipping 

While card tips offer convenience, there are some considerations businesses should weigh before adopting them. Here are some challenges to keep in mind. 

Delayed receipt of card tips

Unlike cash tips, which employees collect at the end of their shift, card tips undergo processing. Depending on the processing times of the card machine provider, payments can take 1-2 days to appear in the merchant’s bank account. 

As a result, employees typically receive their card tips along with their regular payroll. This delay can be further prolonged in establishments that practise tip pooling like many restaurants and coffee shops.

Potential impact of fees

A card tipping machine incurs transaction fees, which can reduce the final amount received. In some cases, businesses may pass these fees onto workers, further diminishing their net gratuity. 

In contrast, cash tips ensure service workers receive the entirety of the tip you gave them without deductions.

How long will it take until credit card tips go through?

The processing time for credit card tips can vary widely. Generally, card payments are processed within one business day. Some payment providers, such as myPOS, offer immediate funds payout. However, in certain cases, it can take several days for the money to appear in the account.

The payment provider of the business plays a significant role in the speed of processing. Some specialise in faster payouts, while others may have longer processing times. This is because different financial institutions have varying protocols and policies, which can affect how quickly money is transferred.

Funds settlement can also take longer when it comes to international transfers. These transactions often involve additional verification and currency conversion steps.

Security concerns when tipping with a card

A common misconception is that card payments are less secure than those made with cash. However, the truth is quite the opposite due to the strict regulations that payment processors must comply with. 

While potential concerns exist, adherence to industry standards and regulations significantly mitigates these risks.

Data breach risks

Credit card transactions involve transmitting sensitive information, which can be vulnerable to data breaches. Fraudsters may target businesses to steal credit card details, potentially leading to unauthorised charges and identity theft.

To counter this, merchants must comply with the Payment Card Industry Data Security Standard (PCI DSS). This set of security standards aims to protect financial information during and after a transaction. Compliance involves regular security assessments, maintaining secure networks and using up-to-date software.

Chargebacks and disputes

Card transactions are subject to chargebacks, where a customer disputes a transaction and requests a refund from the credit card company. This can be the result of unauthorised charges or dissatisfaction with the provided service.

To handle disputes more smoothly and effectively, entities should maintain accurate records of the accepted payments and provide detailed receipts.

Technology and security measures

Payment providers employ robust technology and cybersecurity measures, such as encryption and tokenisation, to ensure that tips and payments are processed securely. These measures help protect sensitive information and provide both businesses and customers with peace of mind.

Additionally, multi-factor authentication and regular security audits are often employed to further enhance the security of transactions and prevent unauthorised access. 

Future trends in card tipping technology

The future of card tipping is poised for continued growth and innovation. While challenges undoubtedly exist, the rise of contactless payments is making it increasingly popular for customers to use their credit cards over cash. 

Digital wallets further enhance convenience, allowing clients to tip simply by paying with their mobile phones or smartwatches.

Additionally, advancements in accounting software solutions and reporting tools will make it easier for businesses to analyse tipping patterns and gain insights into customer payment behaviours. 

Frequently asked questions

Can I pay the bill with cash and tip with a card?

Yes, most businesses are equipped to handle separate transactions for the bill and the tip. When you inform the server of your preference, they can provide you with a payment device for the tip portion after you have already paid the bill in cash.

How do businesses determine the distribution of card tips among restaurant staff?

There are various methods to ensure tips are allocated to the correct employee. Typically, card machines have a multi-operator mode that can track transactions and associate them with the waiter who processed the payment.

Each employee logs into the point-of-sale (POS) system with a unique ID number, allowing the device to record their sales and tips. At the end of a shift or day, the credit card tipping machine generates reports detailing the tips earned by each employee, ensuring accurate distribution.

Can international customers leave tips with their credit cards?

Yes, international customers can leave tips with their credit cards. However, the transaction fees may differ from those for domestic payments, and the processing times may be longer due to additional verification and currency conversion steps.

What should I do if the tip amount on my credit card statement is incorrect?

If you notice an incorrect tip amount on your credit card statement, contact the business immediately to resolve the issue. They can review their records and make any necessary adjustments to the charge.