New technology creates tipping dilemma in Sonoma County

If you’ve visited a restaurant, salon, spa, coffee shop or other small retailer in recent months, you’ve probably noticed something new when it came time to pay the bill. Their new digital point-of-sale terminals let you slide your credit card through a smartphone or tablet computer and sign the tab with your finger.

You may also have noticed that most come with built-in tip calculators that subtly encourage consumers to leave a gratuity. Before finishing the transaction, a screen appears that prompts the customer to choose among preset tips (15%, 20%, 25%, for example), enter a customized amount or consciously opt out.

In addition to helping people calculate their tips, these digital Point of Sale terminals also are boosting the bottom line for people who count on gratuities. A widely-cited 2014 Iowa State University study found that tipping has increased by 38 percent since the new technology was introduced.

“The big issue here is that this is putting a new social pressure on customers,” Michael Lynn told the New York Times. “It’s up to me to leave the change in the tip jar, or not,” said Lynn, a professor of consumer behavior at the Cornell University School of Hotel Administration, who studies tipping. “Yet when you turn the screen around and I have to explicitly click ‘No Tip’ in front of you, that’s a lot harder.”

At Santa Rosa’s Dolce Vita Hair Salon, where five of 16 stylists use mobile POS terminals, “I would absolutely agree that tipping has increased,” said manager Kelly Cramer. “When the screen shows the tip boxes with different percentages and the custom option, most people hit the 20 percent button.”

Increased tips

Carley Jones, a hair stylist at Studio 614 in Santa Rosa, also has noticed a bump since she switched from traditional credit card processors to The Square, a digital card reader about one-inch square with a short extension that plugs into the headset jack of an IOS/Android smartphone or tablet.

“I’d say this system has definitely increased tips,” she said. “When it’s time for the client to sign off, I hand over the phone and they can add a tip if they want to do so. I’d say this system has definitely increased tips. The little buttons prompt them to make a tip choice, they press one, and that’s it. It’s just easier to tip.”

That’s not The Square’s only appeal, Jones said. “The big difference with the Square is that it’s portable. I do weddings - hair and makeup - so if I go on site somewhere, all I need is the Square and my phone or iPad and I can accept payment. And customers love using this new technology. It’s so easy. I’d say convenience is the biggest positive.”

The Square and a growing number of competitors, including Lightspeed, POS Lavu, TouchBistro, PayPal Here and Shopify, are quickly expanding the definition of who and how we pay. In theory, every smartphone or tablet owner could be a merchant, a group whose ranks increase each day. A late 2014 Pew Research Center study found that 58 percent of American adults possess a smartphone, while 42 percent own a tablet computer.

Depending on the system and software used, mobile POS devices can be wirelessly connected to a central system (a restaurant that equips its wait staff with tablets, for example), or they can simply be standalone tablets or smartphones connected to the owners’ bank accounts, a good solution for a self-employed individual. Examples include independent contractors in beauty salons, food truck owners, craft fair and farmers market vendors, walking-tour guides and volunteer fundraisers.

Sales skyrocket

In her role as president of Santa Rosa American Little League’s Booster Club, Cramer added mobile POS two years ago as a new payment method for game-day sales of logoware and other items.

“We began using The Square,” she said. “People loved it right away because they didn’t have to write a check or carry around a lot of cash to buy something. Up to then our sales on a regular day were about $1,000, but with The Square they’ve skyrocketed to an average $4,000.”

As it becomes easier for consumers to pay, noted Kam Leung Young, author of the Iowa State University study, “the tendency to overspend is likely to increase. Consequently, policy makers need to determine the acceptable options for consumers to complete their payments, whether they are online or not, instead of letting companies have full control as they do now.”

Many psychological issues affect the overspending choice. When presented with a choice of three predetermined tip amounts - let’s say 15, 20 and 25 percent - a cognitive bias known as anchoring cues people to pick the middle option. So even if you’ve tipped your server a set 15 percent all your life, you’re likely to press the 20 percent button on a mobile POS device.

Social pressure also comes into play when the waiter or service worker stands waiting as you complete the transaction, according to a 2015 study by Software Advice. Of those who responded to its study, 41 percent said that close proximity to the server would “probably” or “definitely” increase their likelihood to tip.

A 2014 blog post on the website of instore, a POS platform provider, is explicit about the benefits of mobile POS tipping on the merchant end: “In many cases, the tip options range from 15 to 25 percent, leading more customers to tip 20 or 25 percent rather than the minimum amount. Customers must actively choose a button to leave ‘no tip,’ which makes it much more likely that they will contribute a gratuity even in cafés and take-out restaurants, where they may not otherwise do so.”

Choose to opt out

Sandy Lundstrom, a customer at Starbucks in Petaluma who uses the company’s mobile payments app to purchase her daily 12-ounce cup of dark roast, said she usually opts out of tipping.

“Why should I tip someone for simply pouring a cup of coffee?” she asked. “If they spent some time fixing me something like a Caramel Macchiato, sure, I’d be happy to tip. But for a simple pour? No way.”

Lunching at the Big Bottom Market a few weeks ago, Sonoma County resident Beth Snow added a nice tip to her digital payment, then questioned herself later.

“The restaurant is pretty much self service,” she said. “I definitely over-tipped, especially since I bussed my own dishes. But in general, I think suggested tip amounts are a good idea.”

Guerneville’s Big Bottom uses Lavu as its POS system, a decision managers made in an effort to “save the Earth,” said Kerry Hyatt, the market’s general manager. “We try to be as eco-friendly as possible, and with Lavu we can email or text a receipt instead of printing it out. We’re saving tons of paper. So far, everybody seems fairly happy with it.

“One or two regulars didn’t like the change-they felt they were being pressured to tip. But otherwise the feedback has been great. We’re going along with times and technology, and our customers think it’s the right thing to do.”

Robert Fernandez, owner of BBQ Spot in Santa Rosa’s Brickyard Center, has had experience with two different types of mobile point-of-service. “We originally had a cash register at the old location,” he said. “It was a pain to deal with. So three years ago we got our first mPOS, Dinerware, which was more efficient and effective. But when we moved to this location last October we switched over to Leapset. It’s great, made it so much easier to run the business.”

As far as tipping, Fernandez says, “it has increased with the new system. We have a tip jar on the counter for people to leave cash if they like, but when they’re signing with a digital signature, it’s so much more convenient to hit a button and tip that way.”

If you haven’t had a chance to use this new form of payment, you won’t have long to wait. According to a November 2014 newsletter from payment processing and analysis firm VeriProcess, the rapid growth in the field has made it “easy, now more than ever, to envision a world where mPOS is the norm, not the exception.”