Inside the Black Hole

Restaurants that accept credit cards, like gas stations and super markets, enjoy some benefits that are unavailable to most other merchants. For example, no signatures are required on transactions under $25, which speeds up the checkout process at quick service restaurants. Even more importantly, restaurants get special interchange rates, which are often lower than what other card-present merchants have.

There is a peculiar feature of restaurant transactions, however, that differentiates them from the rest of the field. It has to do with the tip that is added to the check amount. Restaurant owners and managers need to know how to authorize and process card transactions, so that credit card rules are complied with, customers are kept satisfied and chargebacks are prevented. In this post I will explain how to do that.

0% Tip Transaction Authorizations

You should always request authorizations for the check amount, excluding any tip amount! It is critical that you understand and comply with this rule. There are at least a couple of reasons why you should leave the tip out of the authorization request, as illustrated by the following hypothetical scenarios:

• The check amount is $50 and you request an authorization approval for $60 ($50 + 20%). You get your approval and the cardholder is charged $60, however he decides to leave $8 in tip, which brings the total to $58.
• The check amount is $50 and you obtain an authorization approval for $60. The customer’s card again is charged for $60, however he decides to leave a tip in cash, so the total is $50.

In both of these scenarios, the restaurant overcharges the customer, which will inevitably lead to a dispute. If you are lucky, your customer will call you first, so you can issue a refund and the whole thing will only end up costing you the time for handling the refund (which can add up). If you are not so lucky, the customer will call his issuer and initiate a customer dispute. Either way, your customer may feel cheated by you and decide to not come back to your restaurant again.

What you need to know is that restaurant authorizations are valid for the check amount plus 20 percent, so that there is no need for you to add an estimated tip amount to the authorization request. Only if your customer leaves a tip that is greater than 20 percent of the check amount you will need to request an additional authorization for the difference (the amount above the sum of the check and tip amounts).

How to Handle Restaurant Transactions

So with the above information in mind, let’s review some of the unique restaurant credit card acceptance best practices. All regular transaction processing procedures apply, so there is no need to go over them.

• Return the right card to its cardholder. During your busiest hours, you may end up collecting quite a few cards, so it’s important to match the card to the sales receipt, before returning them to your customer. I know it can get a bit hectic in rush hours, but you should make the few seconds needed to compare this information.
• Don’t charge a penalty fee for a reservation cancellation or “no show” without proper disclosure. You must clearly disclose your cancellation or no show policy at the time the reservation is made.
• Match the account number on the receipt to the one on the card. Needless to say, these two numbers must be identical. Otherwise, you may be dealing with a counterfeit card and will have to make a Code 10 call.

To reiterate, all regular credit card processing procedures must be followed, including requesting and obtaining an authorization approval and verifying the validity of the card and the cardholder.

The Takeaway

Restaurant credit card transactions are considered very low risk by Visa and MasterCard, which is why they get lower interchange rates. Of course, every now and then we hear about a skimming scam somewhere, but overall a restaurant is as safe an environment to make a card payment as there is.

It’s up to you to keep it that way and it doesn’t take much to do so. Just follow the above suggestions and you’ll be fine. As far as skimming is concerned, you need to be careful with whom you hire. You may also want to consider instituting a policy for completing card payments that would cover the whole process from taking the card from the customer to swiping it to returning it back. Ideally, you would want to have someone supervising the entire process, so that to make it difficult for a crooked employee to hide somewhere and swipe the card through a skimming device.

Get a personalized credit card rate for each of your transactions!

Get the lowest possible credit card processing rate for each individual transaction! Our interchange-plus pricing model gives you:

• Processing rates calculated separately for each transaction to ensure that not a single one of them is overcharged.
• No more mid-qualified and non-qualified fees.
• No fixed monthly fees.

If you have followed our suggestions, by the time you have received an authorization approval for a credit card transaction, you would have examined the card and confirmed that it has not been tampered with and it is valid. So far, so good, but you are not done yet and should not be lowering your guard.

The next step is to have the customer sign the transaction receipt and to compare that signature with the one on the back of the card. You need to make sure that the two match and that your customer is an authorized user of the card, before you complete the transaction. Here is how to do that.

Obtaining and Matching the Signature

When your customer is signing the receipt, he or she should be within your view, and you should carefully compare the signature to the one on the card for any obvious mismatches in spelling or handwriting. “Carefully” does not mean lengthy and it typically takes a trained person a couple of seconds, so you shouldn’t be concerned about having your employees spend too much time comparing signatures and annoying customers in the process. If you train them adequately, there will be no downside.

The first initial and the spelling of the surname must be identical. The signatures should not be considered to be matching if, say, the signature panel were signed “Kevin D. Jones” and the sales receipt – “Michael Jones” or “R. Jones.” The signature would be acceptable if signed “Kevin D. Jones,” “K. D. Jones” or “Kevin Jones.” The presence or absence of a title such as Mr., Mrs., or Dr. is irrelevant, as far as the validation process is concerned. Be advised that the name on the front of the card and the signature do not need to be the same.

In addition to the signature, you should also compare the name and last four digits of the account number on the card to those on the sales receipt.

If the signatures do not match, you should make a Code 10 call to your processor and follow the instructions of the issuer’s representative, with whom you will eventually speak. Keep in mind that your business will be held liable for fraudulent transactions that are processed with a non-matching signature, even if you followed all other procedures.

What If the Card Is Unsigned?

Unsigned cards are considered invalid and must not be accepted. If a customer presents an unsigned card for payment, you should do the following:

• Ask the customer for a driver’s license or another form of government-issued ID. Check the ID to make sure the customer is an authorized user of the card.
• Ask the customer to sign the card. If the he or she refuses, you should not accept it, but ask for a different form of payment instead.
• Compare the signature to the one on the ID.

If you accept an unsigned card for payment, you will be held liable if the transaction results in a customer dispute or if it turns out to be fraudulent.

What If the Signature Panel Reads “Ask for ID”?

Sometimes you will see the words “See ID” or “Ask for ID” or something similar written in the signature panel of the card. Cardholders who do that believe that, by hiding their signature, they prevent criminals from forging it. Of course most criminals typically rely on the merchant not looking at the back of the card to compare signatures or they may have produced a counterfeit ID with a signature in their own handwriting.

In any event, “See ID,” “Ask for ID” or anything else other than the cardholder’s signature written in the signature panel, renders the card invalid. If that is the case, you should ask your customer to sign the card and follow the above procedures.

The Takeaway

You should never accept cards where the signature is not matching the one on the sales receipt or is missing altogether. If you do that, you leave yourself vulnerable to any financial losses resulting from the potential fraud you may inadvertently be facilitating.

Train everyone manning the registers how to validate signatures and how to make a Code 10 call if there is a mismatch. They should then follow the instructions on how to proceed with the transaction.

Learn how to lower your card acceptance cost

Learn how to accept credit and debit cards at the lowest processing costs. The Payment Card Acceptance kit contains a video and an e-book:

• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).
• E-Book – Payment Card Acceptance Guide (19 pages).

We have written in previous posts on the credit card acceptance procedures you should follow in a face-to-face setting and I hope that you are following our advice. If you are, I have no doubt that fraud is not an issue that is keeping you awake at night.

Yet, there is more that can be done to further minimize credit card fraud risk and it does not cost you anything. All you have to do is learn how to identify suspicious customer behavior at the checkout and be a little extra attentive to accepting credit cards from such consumers. In this post I will show you how to do that.

Suspicious Customer Behavior at the Checkout

The following five types of customer behavior at the point of sale often (but not always!) betray a consumer who is attempting to commit fraud:

• Buying large quantities of merchandise with little or no concern for size, style, color, or price.
• Not asking about or ignoring free delivery options on large items (for example, furniture or televisions) or expensive purchases.
• Attempting to distract or rush the employee at the checkout.
• Completing purchases, leaving the store, and then immediately returning to make more purchases.
• Shopping either right after the store opens or just before it closes.

Now, it is very important to recognize that each of the above types of behavior can have a perfectly reasonable explanation that has nothing to do with fraud. For example, a consumer may be habitually shopping at a particular store right after it opens in the morning, because that is when she happens to begin her commute to work. Or a football fan may decide to forgo a free delivery option for a new TV, because that would cause it to arrive too late for the Super Bowl. There are plenty of other good reasons for such behavior that I can come up with and I’m sure you can think of many more.

The point is that what these five types of behavior do indicate is a higher probability that fraud may be under way, so you should be on a higher alert and make sure you go through the entire checklist for accepting credit cards. If you still cannot decide whether the transaction is legitimate or not, you will have to make a Code 10 call.

Suspicious Behavior at Gas Stations

Gas stations are unique among card-present types of businesses in that they typically feature a mix of attended and unattended point-of-sale (POS) terminals. Signs of suspicious customer behavior are also different, both at the register and at the pump.

The same caveat applies to suspicious behavior at a gas station as it does elsewhere. The above signs should be seen as indicating a higher probability of fraud, not as a smoking gun and customers should never be treated any differently than those not behaving in such a way.

The Takeaway

Accepting payments in a card-present setting allows you to scrutinize your customer’s behavior and look for out-of-pattern signs. Take advantage of this opportunity! If you run a larger operation, train your employees on how to do that. It is often easier to identify suspicious behavior than it is to recognize a counterfeit card.

As you gain experience, you should add to my list and update it to exclude or modify these items that are not applicable to your particular circumstances. I hope that, as you do that, you will share your experience with us, so others can benefit from it too.

Learn how to lower your card acceptance cost

Learn how to accept credit and debit cards at the lowest processing costs. The Payment Card Acceptance kit contains a video and an e-book:

• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).
• E-Book – Payment Card Acceptance Guide (19 pages).

Every valid bank card features a number of security elements that are designed to enable merchants to verify the card’s authenticity. Everyone who accepts card payments in a face-to-face environment should educate themselves on where these features are located and how they should look.

If your organization is a larger one, the management should develop a procedure for verifying cards and train the sales staff on implementing it in every transaction. The process should only take a few seconds and there is no reason not to take advantage of these security features while waiting for an authorization response.

Card Security Features

The following card security elements should be checked in a face-to-face transaction:

• Signature panel. The signature panel is located on the back of the card and contain an element that repeats the name of the card brand (MasterCard, Visa, Discover, etc.). The panel may look differently and can vary in length. The words “Authorized Signature” and “Not Valid Unless Signed” must be printed above, below, or to the side of the signature panel. If someone tries to erase the signature panel, the word “VOID” will appear.
• Magnetic stripe. This is where the account information is stored. Encoded in the magnetic stripe is a unique three-digit code used to detect counterfeit cards. This code is different from the card security code.
• Card security code. The card security code (CVV2, CVC 2 or CID, depending on the brand) is a three-digit number that is located either in a white box to the right of the signature panel, or in a white box within the signature panel. Portions of the account number may also be present on the signature panel of all valid Visa, Discover and MasterCard cards. The security code is a four-digit number located on the front of American Express cards. The security codes are used in non-face-to-face transactions to verify that the cardholder is in possession of the card, but you should check and verify that the number is present on the card.
• Hologram. The card brands use unique three-dimensional holograms that can be placed on the back or front of the cards. Visa uses a dove hologram, MasterCard – a world map, Discover – a globe. Some AmEx cards have a hologram of the American Express image that is embedded into the magnetic stripe. On others there is phosphorescence in the Centurion portrait and words “AMEX” should be visible under UV light.
• Brand mark. The Visa and MasterCard brand logos must appear in the bottom right, top left, or top right corner. The Discover and American Express logos are typically centered at the top of the cards.
• Account number. The account numbers of all Visa, MasterCard and Discover cards are comprised of 16 digits and for American Express the number is made up of 15 digits. All digits must appear even, straight, and the same size. The first digit of each card number identifies its type. Listed below are the first digits that the major U.S. card brands use in their account numbers.
  
  

  Card Type	First Digit of Account Number
  American Express	3
  Visa	4
  MasterCard	5
  Discover	6




• Bank Identification Number (BIN) (only for Visa and MasterCard cards). These are four-digit numbers that are printed below the account number. This BIN must be identical with the first four digits of the account number.
• Expiration date. The expiration date should be located below the account number on all cards.
• Cardholder name. The cardholder name is usually located in the bottom left corner of cards of all brands, however the field may be blank on some cards.

There are also some brand-specific card security features. For example, Visa uses an ultraviolet “V” in its brand mark. American Express and Discover use a “member since” date, in addition to the expiration date. Discover also uses a stylized “D,” placed in-between the “member since” and expiration dates.

If any of these card security features are absent or look altered, keep the card in your possession and make a Code 10 call to your processor’s authorization center for instructions on how to proceed with the transaction.

Get a personalized credit card rate for each of your transactions!

Get the lowest possible credit card processing rate for each individual transaction! Our interchange-plus pricing model gives you:

• Processing rates calculated separately for each transaction to ensure that not a single one of them is overcharged.
• No more mid-qualified and non-qualified fees.
• No fixed monthly fees.

Businesses that accept credit cards in a face-to-face environment benefit from the lower interchange rates at which Visa and MasterCard process card-present transactions. Or at least they should benefit from these rates, unless what their processors are charging them makes up for the lower interchange.

However, in order for a credit card transaction to be classified as “card-present,” one of the qualifications is that it must be swiped. So, even if both the card and the cardholder are physically present throughout the transaction, if the payment information is key-entered, rather than “read” by the point-of-sale (POS) terminal from the card’s magnetic stripe, the transaction is classified as a “card-not-present” one. You will want to keep card-not-present transactions to a minimum, because they are processed at higher rates.

Card-Present vs. Card-not-Present Interchange

To be more specific, I have listed in the table below the interchange rates for some of the most widely processed types of credit card transactions in both environments.

As you see, there is quite a bit of a difference between the interchange of card-present and card-not-present transactions. Now, if you accept payments online or over the phone, you don’t need to worry about that, as you will never qualify for the lower interchange anyway. However, this is not the case if you accept credit cards through a POS terminal.

Why You Should Avoid Key-Entered Transactions

Any time you manually key-enter transaction information into your system, you are charged card-not-present interchange. In fact, if your pricing is based on a tiered model, the rate difference will be even bigger than what you see in the table above, because key-entered transactions will be classified as “non-qualified” and processed at a substantial premium.

At times you will have no choice but to key-enter a payment. For example, if your terminal’s card reader is malfunctioning or the card’s magnetic stripe is damaged, you will probably have to manually enter the transaction information. Keep in mind, however, that if the card itself is unreadable, this reason may be that the card has been altered and is invalid or counterfeit. In other words, your customer may be committing fraud.

Processing Key-Entered Transactions

Whenever your POS terminal cannot read a card, follow these steps to complete the transaction:

1. Check the terminal. See if the terminal is working properly. If it is, check the card.
2. Check the account number. The last four digits of the account number on the front of the card must match the four digits in the signature panel on the back of the card, right before the security code.
3. Check the expiration date. A bank card is only valid when it is used before the expiration date listed on its front.
4. Manually enter the transaction information. If you have discovered no reason to suspect foul play, key-enter the information.
5. Make an imprint of the card. You need to keep a manual imprinter handy for such circumstances.
6. Obtain a signature. Your customer must sign the transaction receipt.
7. Compare the signatures. The signature on the sales receipt must match the one on the back of the card. Unsigned cards are invalid and should not be accepted.

If, however, the card looks as if it has been altered in some way or the signatures don’t match or something else leads you to suspect that a fraudulent transaction may be under way, you need to make a Code 10 call. You will be connected with the card issuer’s authorization center and given instructions on how to proceed with the transaction.

Learn how to lower your card acceptance cost

Learn how to accept credit and debit cards at the lowest processing costs. The Payment Card Acceptance kit contains a video and an e-book:

• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).
• E-Book – Payment Card Acceptance Guide (19 pages).