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(Photo: Pacific Standard)

The Tipping Point: Is This the Beginning of the End for Gratuities?

• May 19, 2014 • 6:00 AM

(Photo: Pacific Standard)

New technology is nudging Americans to be more generous at the till. For now.

“Hi Rachel,” greets my barista on most mornings. He smiles. Scrawls my name and personalized order in black marker on a white paper cup. Swipes my card. And then—before turning to the La Marzocco espresso machine to make my latte—he swivels the iPad around to face me.

The screen, which stands in for a cash register at this shop, displays five simple options: 15 percent; 20 percent; 25 percent; custom tip; and then, in a cautionary bright yellow, no tip. My barista stands there as I complete the transaction. Today, because he looked me straight in the eye as I aimed my finger at the tablet, I panicked and pressed 20 percent.

The American way of tipping, in case you haven’t noticed, is getting a software update. As mobile payment systems like Square, PayPal Here, Shopkeep, and Flint jockey with each other to determine the future of how we pay for stuff—in a cashless world where practically anyone, even your babysitter, can accept credit card payments—the future of the tip is likewise up for grabs.

Judging from the performance of Square and Shopkeep, two apps with fairly similar approaches to tipping, the future looks, well, pretty gratuitous. Compared to the old-fashioned tip jar, their sleek tablet interfaces are a major step up for baristas, bakers, and sandwich makers. The whole tipping exchange seem less like a meek request for a handout and more like an evenly matched game of computer chess: When the iPad swivels around, it’s as if to say “Your move.” Sometimes, I like to watch how people respond. Today, out of five customers at my local cafe, which uses Shopkeep, three selected 15 percent; one opted to custom tip and manually typed in $1; and the fifth flailed his finger around for a few seconds, unsure what to do, and then, somewhat sheepishly, went with no tip.

If the primary motive to tip is to win the approval of the server, then automating the process will eat away at that motivation over time.

Among the millions of businesses that already use Square (the current frontrunner in the payments race), 45 to 50 percent of all tippable card transactions included a tip in 2013, up from 38 percent the year before, the company says. Individual businesses, too, report a pretty dramatic surge in gratuities. In Seattle, Molly Moon Neitzel, the owner of Molly Moon’s Homemade Ice Cream, says tips to her staff have increased by nearly 50 percent since the company adopted Square. In Manhattan, Matt Lindemulder, the owner of Porchetta, a trendy sandwich spot in the East Village, says tips have increased by 20 to 30 percent since he switched to Square last April.

“Before, customers had the option to tip, but it was easy to ignore; they could plead ignorant, order a sandwich, and just walk away,” Lindemulder says. “Now, the suggestion is right there in front of them.” And the power of suggestion is pretty powerful.

Square’s harnessing of it is no fluke. A spokesperson told me that the company’s interface is deliberately designed to “encourage tipping.” And there’s a lot of science to confirm that it works: Behavioral economists have explored why interfaces like Square’s do indeed get us to tip more. But it would be premature to declare that the cashless future will be one in which gratuities keep increasing. In fact, it seems just as likely that the tip is headed for a decline.

AMERICANS HAVE ALWAYS HAD an uneasy relationship with tipping. “The vast majority,” wrote the anti-tipping polemicist William Scott in 1916, “do so under duress.” Ever since the custom migrated over from Europe in the 19th century, it has offended democratic sensibilities, undermined workers’ access to a straightforward wage, and generally put people in a bad mood. Just in the last year, rants against tipping—some calling for abolition—have run in Esquire, Slate, and The New York Times.

But the high point of the crusade to abolish gratuities came way back in the early 20th century, when the Anti-Tipping Society of America attracted 100,000 members, and six states passed short-lived anti-tipping laws. Since then, tipping has only gained traction, both as a cultural norm and an economic crutch. The average tip has crept up from 10 percent in the early 20th century to around 19 percent today. And it’s gotten easier, not harder, for employers to pass their labor costs on to the public, as laws in many states have given businesses a pass to pay tipped workers just a fraction of the federal minimum wage (some as low as $2.13 an hour).

Meanwhile, the list of people we are expected to tip always seems to be growing. Some years ago, The New York Times pinpointed the moment—in 1990—when Starbucks made it company-wide policy to “put a tasteful and discreet cup on the counter” for baristas’ tips. (There had been nothing before.) Now Stabucks has started accepting tips through its own mobile payment app, guiding customers to the default options of 50 cents, $1, or $2. Even for a cup of drip.

To really understand what’s going on when we tip—and how new technologies might change our behavior—it helps to start out by asking: What’s the motivation behind tipping? It’s not as straightforward an economic rationale as many people think. According to research by the Israeli economist Ofer Azar, only about 13 percent of Americans say they tip to influence future service. By contrast, 60 percent of Americans say they tip out of guilt. Sixty-eight percent say they do so out of gratitude. Eighty-five percent, because it’s the social norm. And four percent, pricelessly, to avoid being yelled at.

It all boils down to this: “The primary motivation for tipping is to win the approval of the server,” explains Michael Lynn, a professor of consumer behavior at Cornell University who has extensively studied the subject.

Standing face-to-face with your barista, as Square essentially requires you to do, presumably involves a stronger dose of this social pressure, Lynn says, than what a diner typically feels when taking a moment to sign a credit card slip in a busy restaurant. And certainly stronger than what a café customer feels as their eye brie!y rests on a tip jar.

So Square does two things. On the one hand, it heightens all the social motivations involved in tipping, giving tippers more of an interpersonal push than usual. But it also makes the decision to tip almost effortless, thanks to a technique that is a subject of fascination among behavioral economists.

It’s called default tipping: giving customers a defined set of options instead of leaving the whole transaction in their hands. If you want to deviate from the given options, it’s up to you to make the extra effort.

This turns out to be surprisingly effective. We are extremely suggestible in the face of prompts. Not only do default tip options nudge people to tip where they otherwise might not—as Square’s track record shows—but in other settings, higher default tip suggestions have been shown to lead directly to higher tips. A 2013 study by economists Kareem Haggag and Giovanni Paci compiled data from 13 million rides in New York City taxis with credit card touchscreens designed by two different companies. One company’s touchscreens suggested tipping 20, 25, or 30 percent for fares over $15, and tips of $2, $3, or $4 for fares under that amount; the other company suggested tips of 15, 20, or 25 percent for all fares.

Ever since tipping migrated from Europe in the late 19th century, it has offended democratic sensibilities, undermined service workers’ access to a straightforward wage, and generally put people in a bad mood.

Haggag and Paci found that the touchscreens with higher defaults produced tips that were, on average, 10 percent higher. Those same touchscreens also prompted a bit of a backlash: A slightly higher proportion of riders said stuff it, and left no tip at all. But this reaction was drowned out by the much larger increase in generosity.

Defaults work for several reasons, according to behavioral economists. Most importantly, they make decision-making easy, by lessening what psychologists call our “cognitive load.” It takes less effort to defer to a prompt than it does to make a judgment call from scratch or do even a little mental math, and our minds appreciate the fast lane—even if it takes us somewhere we might not otherwise go. “Because people don’t like to do even a little bit of extra work,” Cass Sunstein, the legal scholar and co-author of Nudge, writes in a 2013 article, “the suggestions will matter a lot, and the average tip will increase significantly.”

Defaults also exert a kind of psychological pressure, making customers think that if they tip below the suggested amount, it means they didn’t like the service. They help establish (or alter) a social norm, guiding customers toward an idea of a proper tip—even if the customer never really had one in the first place.

Consider, for instance, the sweet, befuddled Swedish tourist behind me in line the other day at yet another popular San Francisco café. Presented, for the first time, with the sleek Square screen after purchasing two cappuccinos and a bag of coffee beans, he pressed 25 percent. “I didn’t know what to do,” he told me. “So I just picked the middle one.” If touchscreens really were cash registers, this one would have just said ka-ching.

IT’S STILL TO EARLY to tell, however, whether Square is the Facebook of mobile payments—or the Friendster. There are other models out there that could gain traction, and there’s nothing inherent in mobile technology that nudges people to tip more. The new mobile payments company Flint, for instance, doesn’t suggest default tips—but instead lets customers set their tip with a slider bar. “There are no psychology games being played,” says the company’s CEO, Greg Goldfarb.

And Square seems to have at least one big vulnerability. Despite how easy it is to punch a percentage on a touchscreen, you do carry a heavy cognitive load when you buy a latte with Square. It’s the mental baggage associated with the social interaction itself: that momentary need to manage how you come across to another human being. So what happens if a payment company decides it’s a smart business move to take that away, too—to make purchases even easier on customers by making them less personal?

As it happens, there is another service-oriented company that has had great success offering so-called “friction-less” transactions. Uber, the five-year-old business that has upset the taxi industry, is celebrated for several reasons, but one fact that’s been relatively overlooked is that Uber has achieved something rare in the history of American tipping: It has converted a big chunk of tipping territory—the business it has seized from taxi companies—into non-tipping territory. Drivers who work directly for Uber do not receive gratuities at all, and are instead paid a straight commission—automatically, with no need for the customer to pull out a credit card, glance at a meter, or even give a second’s thought to a tip. This is a big part of the company’s appeal. (Ordinary taxi drivers who use Uber to accept payments do still receive tips—but even then, the 20 percent gratuity is automatically deducted from your credit card as you hop out of the car.)

So maybe the old American anti-tipping spirit, harnessed to modern-day mobile payment technology and a business model that capitalizes on our discomfort with feeling pressured to pay people, will finally gain serious ground. And maybe more companies that pay employees a straightforward wage or commission will gain a competitive advantage.

But here’s a final possibility. Maybe the practice of tipping will stick around, but our tipping behavior will become totally automated—governed by a default setting that we enter into our personal digital-payment profile settings once, and only once. A new app geared toward diners, called Cover, aims to do pretty much just this. Cover allows you to pre-set your own default tip anywhere between 18 and 30 percent for all restaurant transactions. You can change the tip amount during a given meal if you’re moved to do so, but otherwise the default stands, and you can leave the table without ever being presented with a physical bill.

Given what we know about tipping, this could bode ill for the millions of Americans who depend on gratuities: If the primary motive to tip really is to win the approval of the server, then automating the process—and removing the social component—will probably eat away at our motivation to tip over time.

Cover’s co-founder, Andrew Cove, reports that since his app launched in 70 New York restaurants in 2013, the average tip has been 22 percent. That’s higher, he says, than what most restaurants see from typical credit card payments.

But even if you start with a high default, there’s no guarantee you’ll stick with it. There may come a day when you do some digital spring cleaning and say, You know, I can’t really afford to pay everyone a 22 percent tip anymore—I’m going to notch that down and become an 18 percenter. And should that moment come while you’re sitting at home, it will be a totally abstract calculation—uninfluenced by the heat of a social interaction with someone who has looked you in the eye or drawn a smiley face on your check.

Matt Lindemulder, the owner of the Porchetta sandwich shop, says he tries to give people space while they decide how to tip using Square. “I usually give them a moment of silence,” he says. “I don’t want them to feel like I’m trying to influence them or anything.” But here’s the thing: His mere presence does. And the same technology that heightens that influence right now could, with a simple update of the software, take it away.


This post originally appeared in the May/June 2014 issue of Pacific Standard as “The Tipping Point.” For more, subscribe to our print magazine.

Rachel Levin
Rachel Levin is a San Francisco-based writer and editor. Her work has appeared in The New York Times, Outside, Food & Wine, Sunset, and on Ozy.com.

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