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,
on a touchscreen, or in the case of many taxi systems, don't sign
The 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
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
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 says.
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
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 expensive coffee!"
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
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
, 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 or more.
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
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.
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 abstract."
2. Always pick a custom amount
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 amount choices."
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 tipping profile
"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 options.
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," he says.
Tipping your waiter or waitress? Ditch the credit
card, pay with cash