Tip Adjustment on a Credit Card Machine

If you have paid at a restaurant using your credit card, have you wondered how the tip amount which you write on the credit card payment confirmation slip gets processed?

Once the waiter gets you the bill for your meal (say Rs.840 including all taxes), you hand over your credit card to him. He then takes the card and the bill to the cashier, who swipes your credit card for the amount (Rs.840) using the Credit Card Swiping machine (generally known as the EDC Machine or Electronic Data Capture Machine). The credit card payment receipt slip looks something like this, with the swiped amount shown and with a bank space for you to write the tip amount.

Once you write the tip amount (say Rs..60), write the total (Rs.900 in this case), you leave the slip in the bill folder, take your credit card and your receipt and leave. The waiter then goes back to the cashier, hands over the slip to the cashier. The cashier than presses the "TIP ADJ" or "Tip Adjustment" button on the EDC machine. The machine asks him for the Credit Card Bill Number. Once the number is entered, the machine shows the earlier amount swiped (i.e. Rs.840) and gives an option to the enter the new amount. Once the cashier enters the new amount (Rs.900), the EDC sends this data to the bank and the customer is charged Rs.900. The earlier charge of Rs.840 gets replaced with the new amount.

While chances of fraud using the "Tip Adjustment" option are technically possible, it generally does not happen for the following 2 reasons:
1) Even if the cashier were to charge the customer, the money goes into the restaurant's bank account. So it is not Cash that becomes available right-away (If the restaurant has the practice of taking the tip amount from petty cash, then it becomes a case of cash being available readily and the chances of fraud increases to some extent).
2) If a watchful customer notices a different amount on his credit card statement and complains to the bank about an additional charge, the banks typically place the amount in a suspense account and initiate an investigation. The banks are very strict about this and the investigation process is quite painful for the merchants and requires submission of the signed credit card receipt copy alongwith other transaction details.

For a restaurant, it is prudent to check the credit card transactions once in a week/fortnight (randomly) to ensure that no fraudulent practices occur.