From August 1, PIN + Chip will become the only form of payment authorisation accepted at restaurants, bars and pubs. Signatures will no longer be valid.
This is mostly welcome news for customers. With PIN as the only form of authorising payment as of August 1, customers won’t need to worry about signature forgery if a credit card is lost or misplaced.
But like any change, there is a seesaw effect. Whilst the new policy will dramatically improve the security behind credit card handling, it will also cause a seismic shift on the hospitality side. Venue owners will no longer be able to close abandoned bar tabs at the end of the night without the patron present.
Most people have opened a tab — you hand over your credit card, the bar staff give you a plastic card with a number on it and off you go to enjoy your night.
The average venue has 3 tabs left unpaid per night. The customers who are more likely to leave without closing a tab also tend to be those who’ve spent more money (you can guess why!).
Prior to August 1, venues were able to charge credit cards and collect payment at the end of the night in the event the patron had forgotten to. As a result, the risk of revenue loss to date has been manageable.
So what happens on August 1 when the venue does not have access to the customer’s PIN to finalise the transaction. Let’s break it down:
Say there are 3 tabs left open per night – let’s count Wednesday to Saturday, or four nights. This becomes 12 tabs left unpaid per week, using an average tab value of $200, bringing the weekly value to $2,400 and the yearly value to $124,000.
Venues will now be reliant on these patrons to return to the venue in order to get payment, if they don’t find a fix.
Now assume that 40% of consumers don’t come back to close off their tab. Given there is no alternative remedy for venues to recover payment, that equates to nearly $50K annually in lost revenue. Such a loss, would cripple any small business. It’s a staff member’s wage.
This additionally does not take into account the extra cost in wages as staff and management attempt to account for this $600 in open tabs per night either through account charges or wastage and further monitoring in the first case, attempting to reach the customer or waiting for them to come back. There will be a raft of accounting records required, even before considering the cash flow implications to a venue, particularly small ones.
I know of many venues whereby any tabs that are not paid, the money is taken from staff tips. But why is it the responsibility of staff to ensure this aspect of venues operational issues? Their job is to attend to customers’ orders, pour drinks and manage the till.
So what can venues do about it? They can stop running tabs full stop. I spoke candidly to a friend who owns and operates 15 venues in the state, as to whether this was an option. His reply was staggering: “If we stop doing tabs in our pubs, we might as well close them down”.
I wanted to delve further into this and discovered some insights into why tabs are so important to their business.
A key driver for this particular group is that with tabs, the customer experience amongst corporate clientele is significantly smoother and easier to manage; and wait time at the bar is shorter. Also customers receive one tax invoice at the end of the night, which is preferable to having to manage multiple receipts for each round of drinks plus any food ordered throughout the evening from an expensing standpoint.
It wasn’t until we delved into operational efficiency that the real hidden cost of cash came to light. Customers paying with cash cost a venue significantly more than paying with card. Here’s why:
Staff serve the drinks, ring up the items on the till, go back to the customer and tell them its $20 for example.
The staff member takes the cash, goes back to the till, enters the $20, works out what change is due, heads back to the customer to give them the change.
At the end of the night, staff spend upwards of an hour counting cash, balancing tills and storing and banking their takings whether through an armoured guard service or physically walking into a bank.
With credit card payments, there is no need to count cash at the end of a shift. The money is transferred electronically and it’s a much easier and secure process.
Adding items to a tab requires only one visit to the till for the staff member. Money is easily reconciled. The time saved per transaction when using a tab is 27 seconds per customer. The average venue processes 2000 transactions a day, with each one taking 27 seconds, this means 15 hours more staff time, or $330 in extra staff time to process cash or credit card. This efficiency is a key driver for venues wanting customers to move to tabs.
Having founded Clipp, I’ve worked with hundreds of venues around Australia and have been promoting awareness around the August 1 changes. You can hit me up on Twitter if you have any questions – @mrgregtaylor.
Let’s hope the bell has been rung early enough and the hospitality industry can quickly and efficiently react and adapt to the new PIN+Chip laws.
Greg Taylor is one of the co-founders of Clipp, an iOS and Android app that allows customers to start, manage and pay their bar or pub tab using their smartphone, instead of leaving a credit card behind the bar. Taylor works closely with over 160 venues across Australia including the White Horse, The Lobo Plantation, Martin Place Bar, and Gin Palace, and is an expert in the hospitality space.
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