This applies Card Not Present transactions only
MasterCard removed the 20% tip tolerance for card-not-present tip environment merchants in October 2016, to help issuers more effectively manage authorization holds.
As of March 27, 2017 - MasterCard reinstated the use of the 20% tip tolerance to card-not-present transactions conducted by U.S. restaurant merchants (MCC 5812 and 5814). The use of the 20% tip tolerance enables a restaurant merchant to add a tip amount after the authorization for goods/services was approved. The tip amount must be within 20% of the authorization amount. The portion of the tip amount that exceeds the 20% tolerance may be charged back by the issuer for no authorization.
Card-not-present Restaurant Use Cases:
- Consumer ordered sushi over the phone, picks up the order from the restaurant, the cardholder wants to leave a tip, the receipt prints with a tip line, cardholder adds a tip, and the cardholder signs the receipt
- Consumer ordered pizza from the merchant’s website or via merchant app on a mobile device, food is delivered, the driver produces a receipt for the cardholder, cardholder adds a tip and signs the receipt
Chargeback Protection Effective Date: October 13, 2017
U.S. card-not-present restaurant transactions will not have chargeback protection for the 20% tip tolerance until October 13, 2017 and U.S. issuers will have the ability to chargeback amounts greater than the authorization approval amount for chargeback reason code 4808 (Authorization-related Chargeback).
In context, what this means is that as of 3/27/17, if more than a 20% tip is added to a card-not-present MasterCard payment it is more at-risk of the excess tip being charged back by the card issuer. It is not done automatically, just more at-risk.