Cashless payments are great, but not if they nudge us toward paying more than we meant to.
Deciding whether and how much to tip for small-ticket items like coffee can be a pain all by itself, but new tools that facilitate digital tipping are making the etiquette of our everyday transactions even trickier.
Earlier this month, Starbucks added tipping to its mobile payment system. Customers who pay for their drinks through the company's iOS app are now able to tip their baristas right on the same transaction screen (the feature will come to Androids later this year). As seen below, you can choose to leave a tip of $0.50, $1, or $2, for up to two hours after you've paid.
The new feature, which Starbucks says was a top request among its mobile payment customers, could start driving up tips, even from people who've never thought about tipping at the coffee chain. Just look at Square, a mobile point-of-sale system already adopted in plenty of coffee shops, bakeries, and ice cream parlors.
Like the new Starbucks app update, Square also directly prompts customers to choose between pre-calculated tip amounts or “no tip” during the transaction. According to Square, nearly half of transactions that use the tipping feature now yield tips, up from 38 percent during the same period last year.
A recent Fast Company article explored the impact of Square's tip feature: One coffee shop owner reported tips shooting up by $20 or more per eight-hour shift after switching to Square, while another multi-location business reported an estimated tip increase of 40 to 45 percent company-wide.
Plenty of behavioral research suggests we as consumers are well-positioned to fall into a digital tip trap.
First, there's the concept of the "nudge," which highlights the power of indirect suggestions on decision-making. For example, studies on retirement savings have found that people saved more money when they had to opt-out of a default plan than when they had to opt-in to one. In the same way, nudging people to actively decline to leave a digital tip could bring in more tips than letting people hunt down the tip jar or tip line on a receipt themselves.
Digital tip suggestions, whether in percentage amounts or flat rates, also eliminate the need to wrestle with calculations on the spot. It's no secret that the easier a task is, the more likely you'll do it. Simplifying tipping to a few convenient options, however, might also lure you into leaving a bigger tip.
Our tendency to go with the middle option, for example, could overpower rational judgments of how much money we want to give. Moreover, just as how we feel better paying more with a credit card than with cash, the "pain of paying," as behavioral economists refer to it, for digital tips may very well be lower than for cash tips.
A cashier at a San Francisco sandwich shop recently told SF Gate, "I don't think people realize how much they're tipping by hitting those buttons. It just kind of happens, and they're like, 'Oh, OK, I didn't realize how much that was going to be. But I'm not going to go back and change it." This is at an order-at-the-counter deli, which is not the kind of venue typically associated with big tips. The business switched to Square about eight months ago and reported seeing tips shoot up "a hefty amount."