By Ken Musante
Napa Payments and Consulting
Barkeeps have a difficult job: loud work environment, inebriated clients, highly contagious patrons and weekend hours. Customers pay with cards, cash and tabs. Barkeeps are both frontline and critical care workers. As their customers and vendors, we payments folks need more solutions that leverage incremental authorizations for times when final authorization will be greater than the 20 percent variance allowed for tip-accepting merchants.
"Put it on my tab" is the original buy now, pay later solution. (It's also a 2008 song by New Kids on the Block.) Adding drink orders to a copy of a physical tab is difficult anywhere but a sole proprietor shop. Sticking the customer's card into a pint glass is more big-city but still ineloquent. Other solutions require the barkeep to run a small or zero-dollar authorization and either keep the card or return it to the cardholder.
None of these solutions protects merchants from the difference between original and final authorizations; all incur additional costs for the merchant through a verification fee, authorization fee, and void or a misuse of authorization fee. Further, if cards aren't maintained, merchants could face higher card-not-present interchange and/or downgrades for authorization mismatches (inclusive of authorization tolerances).
When barkeeps run a zero-dollar verification fee, they aren't securing funds for final authorization. They're verifying the cards are valid and have sufficient funds for specific purchases. Barkeeps running an estimated authorization amount must:
These options are relatively more expensive or tedious.
Visa and Mastercard have solutions for this. Incremental authorization allows for an initial amount to be estimated and authorized when the card is presented for the first drink and returned to the customer. Mastercard allows any merchant type to process incremental authorizations; Visa designates merchant types typically within the T&E segment like car rentals, lodging, restaurants, nightclubs and other businesses where items may be added after the initial engagement between merchant and cardholder. Grocery stores, too, are an acceptable merchant type, conceivably to allow for instances when customers tip for delivery of in-store purchases.
Incremental authorizations are meant for card-present transactions and allow for card-present interchange even though the card needn't be in the merchant’s possession for subsequent incremental adjustments. Incremental authorizations are used when the final amount is not known when the original authorization occurs. They don't replace the original authorization; they're additional to previously authorized amounts. The sum of all linked estimated and incremental authorizations represents the total amount authorized for a given transaction.
To allow for incremental authorizations, the POS must include the original transaction identifier obtained from the first authorization with each subsequent incremental authorization. Further, the POS or gateway must manage the following additional fields:
The list of merchants currently allowed to accept incremental authorizations for Visa is provided within Visa's Product and Service Rules at fhttps://vi.sa/3no4TEy. A basic merchant-facing guide also exists at https://bit.ly/31Vi3RY.
Few POS systems offer full incremental authorization capabilities. Stripe does a good job documenting its incremental authorization functionality. Unfortunately, many others, even restaurant-facing POSs, do not yet offer incremental authorizations. As an industry, we need to change that. We need to lighten the load of these critical care and frontline workers.
As founder of Humboldt Merchant Services, co-founder of Eureka Payments, former executive at WePay, and founder of Napa Payments and Consulting, Ken Musante has experience in all aspects of successful ISO building. Contact him at firstname.lastname@example.org, 707-7656 or www.linkedin.com/in/ken-musante-us/.
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