How tipping is changing and fintechs are helping

Technology brings new expectations for staff, businesses and consumers

The level of tipping in a country is impacted by national culture.

Photo by Sam Dan Truong on Unsplash

In Japan, there is no expectation of tipping - it can even be offensive to tip someone, as good service is the norm and the expectation. The USA has a very generous tipping culture, but partially, it’s because many states have a lower minimum wage for “tipped” employees. So, to some extent, customers know that their tips subsidise the employee’s salary, and wages would need to increase without the tips.

Whilst the quality of the service is a major factor in leaving a tip and the amount to tip. One of the other major factors, at least in the USA, is the fact that workers who operate a tipped basis will likely not earn a high hourly wage without the tips. Source - The Pew Research Center.

In London, almost every restaurant adds a 12.5% Service Charge. The Service Charge is a tip, and it's added to every bill - you can ask for this to be removed, but that rarely happens. In the UK, outside London, the Service Charge is usually optional, with 10% being the average amount that most customers will add. Yet, there have been cases of the Service Charge not being distributed to staff and held by the restaurant. Some customers prefer to leave a tip directly on the table rather than pay it as part of their total bill. But this gets harder and harder to do in a cashless society.

In the UK 10-12.5% would be an average tip amount for a restaurant, in the USA this would be seen as a low tip amount - according to the Pew Research Centre.

In most contexts, tipping has traditionally been a reward for good service levels. Especially at restaurants and other places where the level of interaction between customers and staff is high. But, new business models and industries often leave consumers in a grey area. Compared to five years ago, 72% of Americans think that tipping is now expected in more places. According to The Washington Post, Americans are confused and frustrated by the new tipping culture:

"If it seems to you that almost everywhere these days, from coffee shops to takeout spots, there’s an added service fee, you’re not alone. People are feeling “tipflation” — the proliferating number of workers to whom consumers are expected to pay gratuities — with 72 percent saying that tipping is expected in more places today than it was five years ago."

One example worth referencing is food delivery services. DoorDash is the most popular food delivery service in the USA, with approx 65% market share. Before placing an order, suggested tip amounts get listed in the app. The tip amount seems to be less of a reward for the delivery being on time or delivered in one piece, but rather an optional extra delivery fee. Surely a tip in the true sense, as a reward for exemplary service, should be suggested after the fact?

These days, DoorDash allows users to tip after delivery and also pre-delivery. So those who prefer to wait until their delivery has been completed before deciding whether to tip can now do so. On the flip side, if you do not tip pre-delivery, your order may be delivered after those who tip pre-checkout, as the below message shows.

The message you get if you don’t add a pre-checkout tip. Source - The Verge.

As well as delivery services, self-service kiosks and self-checkouts may also ask for tips. In some cases, consumers may be asked to add a tip without even coming into contact with any staff. As the Wall Street Journal reported earlier this year:

Corey Gary, 28, who works at a cybersecurity startup, initially thought it was fun to walk right into a beer fridge at San Diego’s Petco Park and help himself to whatever he wanted during a Padres baseball game. Then the checkout pinged him for a tip. “I was confused, because it wasn’t entirely clear who I was tipping,” says Mr. Gary. He still left 20%.

So whilst many places are reducing their staff numbers in favour of self-service checkouts and kiosks. Customers may get asked to tip despite there being less, or even no personal interaction.

Prompts to add a tip when utilising a self check-out device are being seen more and more in the past year. Source - WSJ

There will be an element of testing going on here. Retailers can add tip functionality on checkout devices with a simple software update. However, they should be careful that customers feel they are actually tipping and not just giving extra directly to the company’s bottom line. It would make sense to mention the staff members the tip is going to if this is unclear.

The Fintechs Changing Tipping

During the COVID-19 pandemic, those who worked in service industries were unsung heroes. In London, during cold winter days, taking a walk and getting a takeaway coffee from a cafe was much appreciated. It was something which could break up the long days in lockdown. Especially when it wasn’t possible to sit in a restaurant or cafe - only take-out was permitted.

In cases where the tip is part of a single transaction, the tip provider can split out the tip amount and pays this seperately to the staff member. Adapted from TiPJAR.

Several times, I thought a payment solution that allowed an easy way to tip staff would be a great ideas for a start-up, as a way to thank service staff for their hard work and effort. Then I came across TiPJAR, who had already built this solution. TiPJAR handles the whole tipping process for businesses, such as registering staff on the platform, distributing tips to staff, and ensuring the tipping process follows the relevant local legislation.

TiPJAR offers its solution in various forms, such as via QR codes, with an integration into a businesses existing app, or even a physical terminal. As well as business solutions, there are also options to use their service as a personal user. For instance, a busker (street musician) may use TiPJAR to receive payments directly with a QR code.

A TipJar QR code seen in the wild at Ruffians’ Barbershop in the Liberty department store in London

Another notable company in this area is JustTip. JustTip was founded in 2021 by two Irish entrepreneurs, James Fahy and Ciara Walsh. The offering is currently either through contactless POS machines or QR codes. More than 150 partners are working with JustTip to deploy the solution in Ireland, the UK and the USA. Driving engagement with staff members is a key part of the solution:

Service workers get their tips deposited DIRECTLY into their personal bank accounts, creating total and complete transparency. We even send the employees a notification when they make a tip, to keep moral high and motivate better performance.

This direct engagement between the tipping platform and its staff is vital. With traditional tipping models, many staff complain about not receiving the tip amounts they expect. Organisations with a transparent tipping platform will likely be perceived as better employers. Building this direct engagement is good not only for staff members but also for the employer’s brand.

JustTip highlighting their solution in action.

Béné is an organisation focused on enabling tips in the hotel sector. Focusing on this sector has allowed the company to understand what works best for specific use cases. They have discovered that putting staff names and photos next to their donation QR code increases the chance of a tip transaction. It seems that the personal connection is key.

As we use less and less cash, the prospect of leaving a $5 tip to a hotel porter for bringing the cases up to the room - as would be typical in many hotels - gets harder. Hotels can ensure that tips can still flow to their staff by providing any staff member with a QR code via Béné. Areas that often do not command tips, such as front desk or housekeeping, can now also receive tips for good service.

So far, we have only begun to scratch the surface of how tipping is evolving with the help of fintechs and other technology partners. Other companies are entering this space, especially in the USA, for instance, TipYo, TipBrightly, and Grata. We can expect to see tipping solutions integrating into various POS and ordering solutions. For example, TiPJAR has integrated its solution into the ordering app Sunday, with more integrations on the way.

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Note that views expressed on this Substack are my own and do not represent any other organisation. Also nothing I say should be taken as investment advice.