The Empty Jar vs. the Glowing Screen: How E-Payments Affect Tipping - StartupWizz | StartupWizz

The Empty Jar vs. the Glowing Screen: How E-Payments Affect Tipping

Can e-payment point-of-sale systems like Square, which attaches to smartphones and tablets, pressure customers into tipping more than a cash jar?

This story first appeared in Slate.

Personally, I never tip the baristas when I go to a coffee shop. But plenty of people do. Enough that Starbucks has faced lawsuits over how it distributes the ample proceeds of its tip jars between managers and staff.

Now, Starbucks is taking those tip jars digital. The coffee chain is debuting a new feature on its mobile payment app that will make it possible for patrons to leave tips with just the touch of a screen. Starbucks says its fans requested the option, as more and more of them are using smartphones to pay for their lattes and Frappuccinos. That may well be true. My guess, however, is that the move is also meant to encourage customers like me to be a little more generous when it comes to gratuities.

You see, there are some early signs that electronic payment platforms may turn out to be very effective at persuading people to tip a bit more often. Take Square, the Silicon Valley darling that lets restaurants, retailers, and other assorted businesses transform tablets and smartphones into point-of-sale systems. When you swipe your credit card on Square, a screen typically pops up asking how much you would like to tip. Merchants can preload options such as 15, 20, or 25 percent. More picky customers can also manually enter a custom tip. But those who would prefer to leave nothing at all have to overcome their conscience and press the “no tip” option underneath, most likely as the cashier stares on.

In other words, Square has mastered the art of the “guilt tip,” as Fast Company put it, employing the sort of nudge that behavioral economics tells us can powerfully influence consumer behavior. KC Simon, a spokeswoman for Square, told me that the company designs its user interface with tipping in mind, because so many merchants rely on it to pay their employees. Currently, Square says that 45 to 50 percent of all transactions on its systems involve a tip, up from 38 percent last year; the average gratuity is 17 percent.

Simon told me that it’s difficult to tell exactly how much of that growth in tipping is due solely to their product; it’s possible that simply more vendors are adopting Square in industries where tipping is already the norm. But anecdotally, many of Square’s customers seem to think the system makes a difference. The Fast Company piece quotes Amanda Ventresca of Café Grumpy in Manhattan, who has been selling coffee for more than a decade:

Before, it was easier to avoid tipping-;with the old system, you could get away with it because you didn’t have to fill out [the paper receipt], though some people would put a dollar in the jar. But Square puts [tipping] in their face as an option, and although we’re not necessarily busier, tips have gone up.

The recent experience of New York’s City’s taxi industry is also instructive. A 2009 study by the city’s Taxi and Limousine Commission found that gratuities rose after cabbies adopted a credit card system that prompted riders to tip; their tips jumped from an average of about 10 percent when all fares were paid in cash to about 22 percent on card transactions.

Ask most people why they tip, and they’ll generally tell you it’s to reward good service. And generally, those people are fooling themselves, says Michael Lynn, a professor at Cornell University’s School of Hotel Administration who has published more than 50 papers on tipping. His research has shown that quality of service explains only around 4 percent of the variation between the tips diners leave at restaurants. Mostly, Lynn told me, people tip thanks to social pressure. To put it another way, they don’t want to look cheap.

That’s why Lynn thinks electronic payment systems like Square, or the Starbucks mobile app, might be effective at persuading people to tip when they might not have before: It’s easy to ignore a tip jar, especially if it’s already empty. It’s harder to ignore a glowing screen asking how much you would like to leave as a gratuity. These programs “increase the social pressure to tip, and that should probably cause more people to tip,” Lynn said.

But they might not change the behavior of customers who are already habitual tippers. One study in Cornell Hotel and Restaurant Administration Quarterly found that suggesting to customers how much they should tip made gratuities more consistent–fewer high tips, fewer low tips–but didn’t change the average amount diners left behind. Another in the Journal of Applied Psychology found it did indeed increase the size of tips overall. A third, which used an online simulation, found much of the effect depended on precisely how the suggestion was written.

Starbucks’ new tipping feature is less confrontational than Square’s–it pops up in the corner of the app once a purchase is made, and you have two hours to add your gratuity after making a purchase. (It’s also on your phone, instead of a tablet at the cash register.) I’m sure any extra dollars it brings in will be welcome. That said, I can’t help but feel there’s something subtly insidious about this development.

As Brian Palmer explained in Slate last year, tipping is an economic barbarism that, in a better world, would be abolished. Why so? Customers, of course, can decide how much they want to tack on to their check. But for waiters and waitresses, those gratuities aren’t a bonus; they’re the rent. Businesses are allowed to pay tipped workers as little as $2.13 an hour–though in some states the minimum is higher–a fact that many diners are utterly unaware of. And even among tipped workers who are paid above the minimum wage, surviving on gratuities still exposes their income to the arbitrary whims of their customers.

This isn’t a sane way to pay employees. Better to go the European route and attach a fixed service charge to each dinner check. But thanks to mobile tech, this nasty little custom looks as if it’s only going to spread.

Also on Slate: “The Reason Toms Is Getting Into the Coffee Business.”



The Empty Jar vs. the Glowing Screen: How E-Payments Affect Tipping
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