Automated tip amounts: how to regain control
Taxi and restaurant suggested tips easy on the brain, hard on the budget
By Minda Zetlin
Clever mobile software could be causing you to spend more on
tips than you normally would.
Restaurants, taxis and other service providers
are using more mobile devices to collect payments from customers -- with automated tip amounts suggested for you. The experience goes like this: You swipe your credit card and then, rather than sign a
paper receipt, you finger-sign
on a touchscreen, or in the case of many taxi systems, don't sign at all.
absence of paper takes one step out of the process: the step where you would physically
write down how much tip you'd like to add.
That's created an opportunity for merchants and mobile
payment processors to subtly manipulate consumers into suggesting a tip of the
merchant's choosing. When presented with the payment
for approval, along with the option to add a tip by tapping on one of three
choices. Typically, your choices are 15 percent, 20 percent or 25 percent of
the total due. You also have the choice to add a custom amount, or no tip at
all. But, experts say, presented with these options, most people will
instinctively pick the middle number.
A sense of 'inherent fairness'
That's because of what psychologists call the "compromise
effect," according to Art Markman, professor of psychology and marketing
at the University of Texas at Austin. "If you're buying a blender and you don't
know too much about them, you don't want a cheap one that will fall apart and
you don't need the Rolls Royce of blenders. So you choose one priced in the
middle," he explains. Experiments have confirmed the tendency, he
Coffeehouses use the compromise effect to their advantage,
adds William Poundstone, author of "Priceless: The Myth of Fair Value (and
How to Take Advantage of It)." For instance, he says, Starbucks offers tall,
grande and venti coffees, and most people select grande, even though it might
be a bit more than they actually want. "That's 16 ounces -- two full cups -- of
The compromise effect may be especially powerful when it
comes to tip suggestions because many people are confused about tipping, and
find it socially awkward. "There's a human being in front of us, and we have a
sense of inherent fairness," says Kit Yarrow, author of "Decoding the New
Consumer Mind," due out in March 2014. "Through these tools, they tell us in
effect what the standard should be, and we pay attention to that. We don't want
the person to feel that they haven't been treated properly."
Then there's the fact that calculating a tip percentage
without electronic help can be difficult, especially if you're deep in
conversation at a restaurant or about to jump out of cab and hurry to an
appointment. "People don't know how much to tip, and they need to calculate it
in their heads, on the fly," Yarrow says. "So if you present them with a cue,
they will seize on it."
Providers of mobile point-of-sale systems point out that not
only are consumers free to enter whatever amount they choose -- or no tip at
all -- merchants are also free to set the suggested amounts at whatever lavish level
they wish. Still, most such systems come with a default of three choices, of
which the middle one is 20 percent.
Why 20 percent? "Those percentages fall in line with
industry averages," says Taylor Morgan, product manager for Mobile Pay, the
mobile point-of-sale solution at consumer transaction tech company NCR. Mobile
Pay by default offers customers a choice of 18 percent, 20 percent and 22
percent tips. But, according to Zagat's restaurant industry survey,
the average restaurant tip in the United States is 19 percent -- below that magic middle number. Many restaurants are seeking to establish 20 percent as a standard,
by, for instance, collecting a tip of that size automatically from parties of six
Of our three buttons, roughly 50 percent of passengers choose
the 20 percent tip. A little less than 5 percent choose the 15 percent tip, and
about 10 percent choose the 25 percent tip.
Verifone vice president of marketing
When it comes to taxis, an industry average tip is
considerably harder to pin down, but if there is one, it most likely isn't 20
percent. "My standard practice was to round up to the next bill I had in my
pocket and tell them to keep the change, so the percentage was dependent on how
close it fell to that round number," Markman says -- a not uncommon practice. In New York City, which has more taxis than any other city in the United
States, tip averages have held at 18 percent for the past several years,
according to the Taxi
and Limousine Commission.
That number would be lower without tip suggestions. Before
the city mandated that all cabs accept credit cards, tips averaged around 10
percent. They shot up once the mobile payment systems appeared and the increase
was widely attributed to tip suggestions.
Not surprisingly, most New Yorkers continue to opt for the
middle number. "Of our three buttons, roughly 50 percent of passengers choose
the 20 percent tip," reports Jason Gross, vice president of marketing for
VeriFone, which supplies mobile point-of-sale systems to many of New York
City's taxis. "A little less than 5 percent choose the 15 percent tip, and
about 10 percent choose the 25 percent tip."
Naturally, higher tips make merchants and their employees happier. But the mobile point-of-sale vendors, who calibrate their devices to encourage higher tipping, have a self-interest as well: As credit card payment
processors, they collect a small percentage of every sum charged. Bigger tips mean bigger revenues. "There
is competition among credit card readers for mobile devices," Markman says.
Anything that makes merchants feel they're getting better service or doing
better by their employees is likely to improve the vendors' standing with the merchants. Tip suggestions that lead to bigger tips are "a low-cost way for vendors
to be better to the merchants who are their customers," he explains.
Automatic tip alternatives
But automatically paying a 20 percent tip may or may not fit
with your financial goals, or with the level of service you receive with any
given cab ride or restaurant meal. So before you tap that center tip amount,
consider these alternatives:
1. Tip with cash
Though less convenient than tapping a suggested
percentage, cash tips offer a few
advantages. You can be reasonably sure the individual you tipped will either
get the tip itself, or a fair share of patrons' pooled tips. What's more, he or
she (or the tip pool) will get 100 percent of the tip, whereas if you use a
credit card, the payment processor takes a small percentage.
Just as importantly, tipping with cash will make the
transaction more real from your point of view. "Pulling out cash makes you
think about the amount of money you're laying down," Markman says. To a lesser
degree, so does calculating a tip yourself and then writing that number on a
paper receipt. But he believes simply clicking a tip percentage takes so little
attention that it doesn't fully register with many consumers. "You press the
button and walk out," Markman says. "If someone asks you what you tipped, you
may say, 'I don't know. I think I left 15 or 20 percent.' Of what? 'I don't
know.' We're getting closer and closer to the notion that money is completely
2. Always pick a
Like paying cash, picking a custom amount will prevent you
from thoughtlessly following a tip suggestion and force you to decide for
yourself what tip you want to give.
Indeed, one of the newest mobile point-of-sale systems,
Flint Mobile, allows merchants to accept credit cards using a smartphone camera
rather than a swiping device. The company has taken an innovative approach to
tipping as well, replacing specific tip suggestions with a sliding scale that
customers can use to pick any tip between 0 percent and 50 percent.
"We specifically did that thinking about the psychology of
it from the consumer point of view," says Greg Goldfarb, Flint Mobile's
founder. "As a customer, I get a little turned off when I see preconfigured tip
3. Do your homework
Consumers feel compelled to follow tip suggestions because
they don't know the right amount to tip, Yarrow says. You can overcome that
uncertainty with a little research. "I remember finding a guide on what
everybody should tip," she says. "I ripped that out and studied it and it made
me feel a lot better." These days, the general
tipping guidelines at the Emily Post Institute is a good place to start.
"Once you know what the appropriate range is, you can feel
confident that your tip is adequate and leave with a smile," Yarrow says.
"Knowledge is power."
4. Pick your own
"As a consumer, I should decide what kind of tipper I am
across the board," Markman says. You may still leave a larger tip for
particularly good service, or a smaller one for particularly bad service. But
if you know before you ever walk into a restaurant or hail a taxi that your
standard practice is to tip X percent, you'll know to either look for that
percentage or leave a custom amount when you're presented with those tipping
You may even choose to leave larger than average tips, and
that's fine. Gross, for instance, says he typically tips 25 percent -- because he
once lived partly on tips himself. "I'm generous because I used to be a waiter,"
See related: Tipping your waiter or waitress? Ditch the credit card, pay with cash
Published: January 21, 2014