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It was one of those weird nights that are hard to forget. Amy Dunki was working behind the bar at Bin 1301 on U Street NW. A customer came in and asked for a chicken sandwich with nothing on it. “He literally just wanted chicken on bread,” she says. “He tried to pay for it before the food even came. He spilled all of his money on table—there were fives, ones, and twenties.”
Instead of using one of the smaller notes to pay for the naked chicken sandwich, the customer handed over a $100 bill. “As soon as I picked it up, I could tell it wasn’t real. I was like, ‘That’s not real man.’ He then started picking up all of his other bills, asking me if they weren’t real too.” He eventually gathered his money and slipped out.
When cash was king it was easier to tell when someone was scamming a bar or restaurant. You could look for odd behavior, like a patron in a hurry who wanted to pay for a single Bud Light with a big bill and rake in the change. Or you could simply use a counterfeit detector pen to draw a thin black line on suspected funny money to see if it turned amber, indicating a fake. But times have changed. As cash becomes increasingly obsolete, patrons have found a new way to enjoy a night out without paying.
It’s called a chargeback. After racking up a big bar tab, patrons wake up regretful the next morning—or find themselves unable to cover expenses weeks later—and call their bank to dispute the charges, fraudulently claiming they were never at the bar and are therefore not responsible for paying.
In the past, the bar would get a chargeback notification from a credit card processor or bank and have a few days to mail in a signed receipt as proof of purchase, settling the issue. “I used to have the girls collect all of the signed receipts and put them in big manila envelopes with the date on them,” says Scott Auslander, the owner of Ventnor Sports Cafe in Adams Morgan. Now he doesn’t care if his bartenders haphazardly toss them in a box because the receipts now have little merit.
Everything changed when chipped credit cards, also known as EMV cards, hit the market. In October 2015, major U.S. credit card companies including Visa, MasterCard, American Express, and Discover shifted the card-related fraud payment responsibility to whichever party is least compliant with using the new chip technology. Some have criticized the “liability shift” because of uneven implementation and how much longer it takes to insert a chip than swipe.
“If you’re hearing more about chargebacks now it’s probably because now if a place doesn’t have a chip reader, you can’t fight it,” Auslander says. If a customer uses a chipped credit card to settle their bar tab and the bartender swipes the card instead of inserting it into a chip reader, the bar won’t have a dog in the fight if the customer issues a chargeback. The bar automatically loses the battle.
Sam Buis is the general manager at Kingfisher DC in Logan Circle. His most recent experience with a chargeback was in mid-December. A customer was tormenting one of the bartenders—a Jewish woman named Jackie—at the subterranean haunt.
“The guy was singing Little Orphan Annie carols and saying some anti-semitic stuff to her,” Buis recalls. “When it came time to close down he said, ‘I know I’ve been a dick to you, what’s a good tip?’” Jackie said 20 percent would suffice. The bill was $99. He tipped $150. “A couple of weeks later we get a chargeback for the $150 tip,” Buis says. “It seemed they had fully planned to contest the charge.”
Buis says he has twice filled out the necessary paperwork after receiving a chargeback. “I immediately got a notification that said, ‘Chip card not used at a chip-reading terminal.’ You lose even if you can provide signatures and documented information.”
The solution seems so obvious: Stop swiping and switch to a chip reader. But it’s more complicated than that. The first hang-up is that implementing chip reading can require buying and installing a new point of sale (POS) system. Then there’s the fact that chip readers don’t mesh well with how a bar business is run.
“If you pony up for the card reader, it solves a lot of these issues,” Auslander says. “But it’s a matter of putting in a new POS system and the thin margins [in bars] is why nobody wants to change.” He footed the bill for a new POS system back in 2004. It cost the bar about $20,000 because Ventnor Sports Cafe needed multiple terminals. “There aren’t a ton of places that have been open as long as we have that are all of the sudden switching to these iPad systems because they have chip readers, but eventually I’ll have to get one.”
Erik Holzherr purchased such a system for his bar Wisdom a year and a half ago. He was happy with his POS system, LAVU, but not with the credit card processor or the chip reader. “I got the only chip reader that was available for a portable device,” he says. “I used the PayPal reader when it first came out but it was a nightmare.” Customer support wasn’t adequate, among other issues. “It was driving the staff nuts,” Holzherr continues. “It was so delayed and time consuming … You can’t have that in a bar or restaurant environment. Tips went down.”
“There’s no way to keep both the speed of a swipe situation and maintain a level of protections for yourself,” Buis adds. “A lot of bars, busier ones, will go with card swiping to speed things up.” He says this is especially true when a bar is trying to close out multiple checks at the same time. He’s considering inserting a card into a chip reader once a tab goes above a certain amount such as $50 or $100.
Tony Tomelden says he gets about one chargeback a month and some of them can be sizable. He operates The Pug on H Street NE and Union Trust on 15th Street NW near the White House. When the liability shifted in 2015, Tomelden installed a chip reader at The Pug. His credit card machine crashed. “They were like, ‘You need to buy this new $700 chip-compliant machine,’” he says. “When I got it, it wasn’t programmed. You had to ask the customer for the tip first and you had to enter it.” It wasn’t a good fit, so The Pug no longer uses a chip reader.
At Tomelden’s other bar they have a chip reader but it also frustrates the staff. “You can’t open a tab with a chip card,” he says. “That’s one of the stumbling blocks.” Bartenders there have to remember to swipe the card to open a tab then cancel the “pre-swipe” and enter the chip when customers close out.
Bartenders and bar owners are overwhelmed trying to decide whether to protect themselves and slow down service or take a chance that customers aren’t going to scam them. When a customer complains, the money returned to their card comes from the bar, not the bank. “I don’t think people care whether they’re getting the money back from the bank or the restaurant,” Auslander says. “They just want their money back.”
Frustration is mounting. Buis wants credit card companies to share what protections and penalties they have in place to safeguard bars and restaurants from customers who abuse the system. “There has to be some way for businesses to be protected,” he says. He’s even toyed with the idea of only accepting cash, even though he says 90 to 95 percent of sales are paid by credit card.
When The Pug receives notifications about chargebacks, they come from a payment solutions company called TSYS. Andrew Benjamin, a contact center director in the company’s merchant solutions section, confirms that a business has little recourse if they don’t use a chip reader. “The October 2015 move was to increase security and reduce risk of fraud,” he says.
Benjamin couldn’t provide information about what measures are in place to protect a bar or restaurant from a cardholder that abuses the system. But, he points out, “It doesn’t take too many chargebacks to pay for that terminal.”