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10%? 20%? Apps Are Changing How We Tip

10%? 20%? Apps Are Changing How We Tip

By Nick Bilton, The New York Times | Updated: 26 March 2015 17:09 IST

Apps like PayPal, Square, Breadcrumb, Apple Pay and Facebook's new payment feature are supposed to be making paying for things easier. Want to figure out a complicated dinner tab among five friends? Just tap a few buttons on your smartphone.

But the advent of these exciting new payment technologies is actually creating its own challenge: tipping. If you've purchased a ristretto in recent months, chances are you've experienced that awkward moment when your finger hovers above an iPad, anxiously trying to figure how much to tip.

It makes for a less-than-"seamless" experience, to borrow a favorite Silicon Valley buzzword. Part of the problem is that these devices are forcing customers to make a new and difficult choice.

"The big issue here is that this is putting a new social pressure on customers," said Michael Lynn, a professor of consumer behavior at the Cornell University School of Hotel Administration, who studies tipping. "It's up to me to leave the change in the tip jar, or not. Yet when you turn the screen around and I have to explicitly click 'No Tip' in front of you, that's a lot harder."

As my colleague Hillary Stout wrote in January, these new electronic tipping platforms are spreading quickly, not just in cafes, but also in restaurants, beauty salons, taxis and anywhere a tip jar used to be (and places it didn't). She called it "tip creep," which also refers to how the tips themselves have gone up.

"Technology has essentially reprogrammed tipping convention," said Nir Eyal, a tech writer and entrepreneur, who wrote a column in TechCrunch last month called, "How Technology Is Tricking You Into Tipping More." He noted that the base tip for taxi cabs used to be 8 percent, yet with new apps, it has climbed to 15 percent and even 25 percent. "We're now seeing that convention change in restaurants, too, where 20 percent is the base tip price," he said.

A study from behavioral economists at the University of Chicago and Columbia University showed that preset tip prices in taxis generates higher tips. (Though when tips were set too high, some people opted to not tip at all.)

"People are generally lazy and pick the easiest option," Eyal said.

This is all causing more strife between customers and business owners. Some argue that tips should be abolished altogether, and that customers should not bear the responsibility for making up for low minimum wages.

Under federal law, restaurant owners are required to pay waiters only $2.13 an hour, provided that tips bring their hourly pay to $7.25, the federal minimum wage.

But before you switch back to old-fashioned cash, there could be a solution on the horizon from the very tech sector that created the problem in the first place.

Lockhart Steele, a founder of the restaurant blog Eater and editorial director of Vox Media, suggests that tipping may soon be a thing of the past. "It seems that the great minds of the restaurant industry have decided that the era of tipping is coming to a close," Steele said, noting that battles over tipping are a popular topic among Eater's readers. "It's all being helped along by technology."

He noted that Uber's all-inclusive fare approach (so that passengers never have to think about money at the end of a ride but instead use a rating system to give feedback) is now starting to happen with restaurants, albeit mostly at higher-end establishments. Places like Dirt Candy, a vegetarian restaurant in the East Village, has banned tipping and instead adds a 20 percent service charge on all checks.

Others are turning to apps like Reserve and Cover that seek to disrupt the way diners pay for meals. Instead of having to ask for the check after dessert, the bill and a preset tip are automatically calculated. The beauty of this experience is that, like Uber, you simply walk out at the end of the meal, and your card is charged through the app.

I recently used Reserve at Bestia, a restaurant in Los Angeles, and the act of simply walking out after the meal was, to borrow another word from Silicon Valley, magical. There was no squabbling over the check, or calculating a tip while you're buzzed from two glasses of wine.

You eat. Say thank you and leave. It's that simple.

Greg Hong, a founder of Reserve, said that after his company interviewed dozens of restaurants and customers, it realized just how uncomfortable the payment and tipping experience is for everyone, the waiter and customer included.

Hong predicts that automated payments like this are the future of dining out. "In five years, everyone will be doing it," he said, somewhat optimistically. "When we talk to restaurants, they say this is such a better consumer experience."

But will these payment apps affect good service? Perhaps, said Lynn of Cornell. "Research clearly shows that tips go up with better service, but not a whole lot - maybe 4 percent at most," he said. "But it turns out that about half of servers believe that tips are related to the service, which of course they are not."

"It's perception versus reality," he added.

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