Some restaurant chains are using electronic readers for at-table payments and those readers suggest tip percentages.
George Peabody, the senior director at Glenbrook Partners, a payments research firm from California, was asked if cabdrivers like electronic payment systems because their tips are greater, and Peabody said “Exactly.”
In New York, almost all licensed taxis now have automated pay card readers in the back seat, in which the customer can slide a card to pay the fare and add a tip. The final amount is not transmitted to the card holder account until the tip amount is added.
Back when New York taxi riders were using cash to pay, they often decided to give their driver a 10 percent tip, because it is an easy amount to figure, and because a lot of cab rides are short in length.
But now, most taxi cabs offer payment by credit card, and in so doing, the card readers suggest tip amounts. In many cases, the tip amounts start at 30 percent, drop by 5 percent increments to 20 percent, then offer the option to type in your own tip amount.
But typing takes time, when one touch can produce a tip amount, and so riders are tipping more than they would otherwise.
“It’s a function of the cognitive resistance of calculating a tip,’’ Peabody said. “Electronic payments are at least one step away from the tangible nature of cash, in which you have to look in your wallet to see what you have before deciding the tip.”
A 2013 study by Columbia University showed that in New York City there was a 10 percent increase in tipping on fares of at least $15 when card readers were installed. “Default tip suggestions can have a large impact on tip amounts,” it found.
In many chain restaurants now, a similar exercise is taking place, where an electronic tablet sits at your table, and your bill can be paid there. Again, the screen offers a tip amount, and customers are required to take extra steps in order to put in their own amount. If the choice is between tapping a button once for a 20 percent tip or calculating a lower tip that requires multiple key strokes, customers are likely to choose the easier route.
But there is evidence, too, that credit card tipping takes the human element out of the transaction, which can cause people to tip less. “If you are paying in cash, you make eye contact with the driver,’’ said New York Taxi Workers Alliance executive director Bhairavi Desai to the New York Times. “You feel more compelled to give them a better tip.”
The New York Taxi and Limousine Commission reports that average credit card tips exceeded 20 percent when the card readers were first installed in cabs. But with a tax fare increase instituted in 2013, tips are falling. In 2012, the average tip had dropped to about 17 percent.
David S. Yassky, the New York taxi commissioner, told the New York Times the average tips are remaining the same, but that the percentage relative to the fare is dropping because riders are accustomed to typing in their own amount, and often type in the same number.
And Yassky said more credit card users are ignoring the suggested tip amounts on the card reader, even though they sometimes exceed the suggested amounts anyway.
“New Yorkers don’t like to be pushed around,’’ Yassky said.
Kent McDill is a staff writer for Millionaire Corner. McDill spent 30 years as a sports writer, working for United Press International and the Daily Herald of Arlington Heights, Ill. From 1988-1999, he covered the Chicago Bulls for the Daily Herald, traveling with them every day through the nine-month season. He also covered the Bulls for UPI from 1985-88, and currently covers the team for www.nba.com. He has written two books on the Bulls, including the new title “100 Things Bulls Fans Should Know And Do Before They Die’, published by Triumph Books. In August 2013, his new book “100 Things Bears Fans Should Know And Do Before They Die” gets published.
In 2008, he resigned from the Herald and became a freelance writer. The Herald hired him to write business features and speeches for the Daily Herald Business Conferences and Awards presentations.
McDill also writes a monthly parenting column for the Herald’s Suburban Parent magazine.
McDill is the father of four children, and an active fan of soccer, Jimmy Buffett and all things Disney.