Very few people who receive Visa prepaid gift cards know what a tip tolerance is, and it's an important feature that has direct effects on the cardholder experience.

If you receive a $50 Visa prepaid card (the same applies to all MasterCard, Amex, and Discover prepaid cards), most people assume you can go to a restaurant and pay for a $100 meal by splitting $50 dollars onto the prepaid card, and paying the remaining $50 with cash or credit/debit.

If you tried this, you would receive a decline on the prepaid card, even though there is $50 dollars on the card due to the tip tolerance.

The reason is fairly simple: although the server punched $50 into the terminal and swiped your card, the card was actually authorized for $50 + up to an extra 20%.

Why? The card issuing bank has to account for the fact that you may (or may not) tip the server. If they only authorized for $50, and then you proceeded to tip the server for an additional $10 using the card, that means $60 would have to come off the card.

But you don't have $60 on the card. Prepaid cards have a fixed amount of money on them. That extra $10 tip is unaccounted for and when the transaction clears, the bank would be on the hook for an extra $10.

A tip tolerance is a safety mechanism to ensure there are sufficient funds on the card, and it ensures merchants get paid, and the server gets their $10 tip.

This is actually how all credit and debit cards work. You just don't notice the 20% tolerance since a credit product has a much higher available credit limit, and therefore restaurant purchases almost always get approved.

Keep in mind that a tip tolerance is only used at restaurants and bars, salons, hotels, gas stations, and other places that require tips.

If you swiped for $50 at most retailers or grocery stores, you would have no problem.

So what's the workaround? When you're paying at a restaurant, you'll have to do some extra quick math. Next time tell the server to put about $40 dollars on the prepaid card towards the meal, and pay the remaining $60 with another card or cash.

Then use the remaining $10 on the prepaid card for a different purchase.

Note that Visa, MasterCard, Discover, Amex, and banks that issue prepaid cards all provide information about the tip tolerance on the card or in the card package to inform cardholders of this feature.

Send, Spend & Receive With One Exceptional Payments Platform

Find out how Berkeley Payment can add value to your business with white-label prepaid or debit card programs and real-time money movement solution.

Arrange a quick call with our team to see how we can best help your company

Schedule my complimentary assessment
<< Previous Post
No previous post
Next Post>>
No next post