Why the world is ready for digital tipping - youtip
Why the world is ready for digital tipping

Why the world is ready for digital tipping

Digital tipping will be pervasive one year from now…

…how do I know? I’ve been studying it for a decade. Employers with tipped employees need to adopt digital tipping as soon as possible to keep workers from feeling the pain caused by the disappearance of cash. And the solution these employers adopt must be as frictionless for the tipper as possible. I’ll explain why the youtip solution is the right solution while describing the events leading to my role as a digital tipping entrepreneur.

Research and Observations

I was in charge of a suite of mobile apps used by millions of consumers with scanning capability 10 years ago. I sought ways to exploit this feature and tipping was one of those possibilities. I did not pursue tipping with this app because it wasn’t aligned with the company’s business objectives at the time.

Since then, I have studied the topic because it was a personal pain point – a frequent traveler for work, I too often found myself without cash or the right amount of cash to leave an appropriate tip. 

As any good product person would do, I started conversations with hotel workers and shuttle drivers about tipping. I continued those conversations for more than ten years. We discussed apps, ATMs, QR codes, vouchers, guest folios, reward points – you name it, I discussed it with tipped workers. 

One recurring theme during these discussions was that people would not download an app just for tipping. That made sense – having launched more than a dozen successful financial apps I was aware of the challenges related to user adoption with an existing customer base, let alone with an app in the wild designed specifically for an infrequent use case. 

But what about a web-based app with QR codes? I’d seen QR codes utilized for just about everything during my travels in Asia, but not so much in the US where QR codes had a reputation as a marketing gimmick with no payoff on the other end of the scan. Further, a user still had to download an app to read QR codes just 5 years ago. At that point, even an “appless” solution wouldn’t have been feasible.

During a four-city business trip in 2018, I found myself face to face with a hotel bellman who’d returned my freshly-shined shoes from a vendor down the block in record time. The turnaround was so quick I didn’t have time to find an ATM at the hotel to replenish my cash tipping fund. 

I explained my predicament and asked if he had any of the P2P apps I had on my phone. We landed on Venmo but I couldn’t get it to work because the latest version wasn’t working with my phone settings. 

To me, this was even more evidence that an app-based tipping system would not be the best solution. 

Three Trends

Some important trends emerged the next couple of years. First, smartphones started shipping with QR code scanning built into cameras. “Hmmm,” I thought, “Apple and the Android phone manufacturers just wiped out the app download hurdle for digital tipping. This could be interesting.”

Next, the abandonment of cash accelerated. Some restaurants stopped accepting cash and Visa offered to pay them to stop accepting cash. A 2019 Federal Reserve survey found that consumers used cash for only 25% of all transactions and more than half of consumers made an electronic peer-to-peer payment each month. Remember the CENTS Act?

Cash was obviously disappearing and being replaced by digital transactions in 2019. The pandemic of 2020 poured gasoline onto the cash burning fire, driving digital payment adoption through the roof as CNBC notes here:

“When the pandemic hit, people really started paying attention to how literally they were spending money and people found that they didn’t want to touch cash and exchange cash,” Kelley continued.

There has already been a significant decrease in cash usage over the past few years. Nearly a third of U.S. adults said they typically make no purchase using cash during a week, according to a study by Pew Research Center.

Millennials are the ones leading the charge toward a cashless future. A report from Experian in 2019 revealed that 1-in-10 millennials use their digital wallet for every purchase. Pew Research also found that about 34% of adults under the age of 50 make no purchases in a typical week using cash.

In march of 2020 it seemed like the planets had aligned for my foray into digital tipping with one exception. Despite the ability for modern phones to quickly recognize and scan QR codes, Americans still weren’t scanning them. Then I sat, mid-pandemic, at a restaurant on Chicago’s Riverwalk and noticed a third trend that changed everything – I saw people aged 17 to 77 scanning QR codes to pull up menus on their phones. The entire nation was discovering and using QR codes! 

Three Friends

A little later, my friend Sarah Taveprungsenukul reached out to brainstorm an interesting idea she had for a hospitality SaaS. We agreed to mention the digital tipping solution at the end of some of the discussions we’d planned to have with some experts in hospitality tech about the SaaS. These experts really liked the SaaS idea, but they loved the digital tipping idea. We pivoted to digital tipping and successfully recruited CTO, Nicholas Okuley, with whom I’d worked on a variety of successful fintech projects before. 

Solution

We went through all of my research and conducted more. We saw some of the same weaknesses with other tipping solutions highlighted in this blog post by Doug Rice, Definitely Doug 7/24/20: The COVID Tipping Point.

Rice knows what we know: hotel workers, hotel guests, and travelers want a digital tipping solution, and they want it now. This demand will force hoteliers and other employers of tipped workers to adopt a system. Will adoption of these systems be a short-term challenge? Yes, but this challenge must be met to provide guests with the services and payment options they desire and to recruit, retain, and reward tipped employees. 

Hoteliers and other employers of tipped workers should consider the following when selecting a digital tipping provider:

  • Apps are complicated on many levels and are an inconvenience for guests;
  • A tipping solution should capture all tips, whether a user has your branded app or not; and
  • The company providing the solution should have a vision for the future and a plan to evolve with hospitality and the hospitality workforce

youtip is in phase 1 of its three-phase plan to 1) refuel the tipping cycle with a digital solution; 2) to develop a system that is a joy for employers to implement and use; and finally 3) to become a financial services hub designed specifically for tipped workers, gig workers, and contractors.

We invite you to join us on our journey to building a better future for hospitality and tipped workers:

Contact Us Today

(Cover Photo: telecoms.com 15 June 2020)

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