Skipping the Pushy Patter: How to Regulate Tips on Card Payments
Card Payments: Uninhibited Tipping Guide
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When you're at the bakery, salon, or convenience store, those who pay by card are increasingly faced with a menu of tipping options on the card terminal display. Often, there are four choices like 10, 15, 20 percent tip, and the option to skip tipping altogether.
First-timers might feel perplexed - firstly, because tipping in Germany is usually voluntary and not requested by the service provider, and secondly, because these options often pop up at self-service locations or quick counter purchases where tipping wasn't previously considered.
This tactic, called "nudging," nudges people to gravitate towards certain actions with subtle prompts in daily life, without enforcing rules or prohibitions. "We like to set the stage in a way that makes it simpler for people to make choices," says Prof. Julia Pitters, an economist at IU Internationale Hochschule. But who ultimately profits from this? Let's address the critical questions regarding this issue.
What happens to consumers when tipping options suddenly appear on the card terminal?
"The response depends on the individual," says behavioral economist Prof. Dominik Enste from the Institute of the German Economy. Some may find it convenient since they can tip without having to calculate, while others may feel pressured to tip and react negatively, meaning they might not tip and skip the location in the future.
From the provider's perspective, offering tipping options on the card terminal is a clever strategy, according to Julia Pitters. Since tipping is often overlooked when paying by card, this reminder can be beneficial. "It creates an impression that tipping is common," says Pitters. And since people are highly influenced by social norms and tend not to want to stand out, they often opt to tip.
Do people typically leave a larger or smaller tip when presented with tipping options?
The use of nudging, which inspires guests to tip, increases overall tipping amounts, says Dominik Enste. However, individual tips depend not just on usual tipping habits but also on the tipping options available on the payment terminal. "People usually go for the middle option," says Enste. This is because we frequently avoid extremes.
Many businesses are aware of this psychological effect and select tipping options strategically, says Julia Pitters. In Germany, tips usually range between 5 and 10 percent. If the lowest option starts at 10 percent, "a completely different benchmark is established." Since customers tend to choose the middle option, they are less likely to choose the lowest tier, leading to higher tips.
Why is it challenging for people to choose "no tip" when it's their preferred option?
This is a common phenomenon known as "choice architecture," where how options are presented can impact our decisions. When "no tip" isn't the default option or easily accessible, people might feel compelled to choose one of the tipping options, even if they didn't plan to tip.
"Because we don't want to be perceived as tightwads or even miserly, says Pitters. But when paying at a card terminal, the active decision against leaving a tip is immediately noticeable by at least the staff and perhaps onlookers."
Why is it difficult to choose the lowest possible tip option even if it's the usual 10 percent?
Prof. Stefan Trautmann from the Alfred-Weber-Institute for Economics at Heidelberg University explains that this is because consumers feel self-conscious when comparing their tip to the other options presented. After all, it's still the cheapest tip option.
How can consumers escape the stressful situation and make their tip decision more independently and freely?
"If we don't have much time to think, we fall prey to these tactics," says Pitters. "We can't help it." Taking a moment to consider whether and how much tip you want to offer before paying will help you avoid being taken aback by unexpected tipping options.
Engaging with others can also help shift your internal compass, says Pitters. You might find that others sometimes offer a larger tip than they'd prefer or would choose "no tip" if given the opportunity.
Sonja Guettat from the Consumer Center Rhineland-Palatinate also advises taking your time because there's a long line behind you at the checkout, for example. Instead of rushing, confidently ask if there's no desired tip option and have it manually entered.
Is it legal for vendors to actively offer tip options?
According to consumer advocate Sonja Guettat, it's not forbidden to propose tip options. "However, there is no legal claim to a tip." Therefore, it's crucial that customers at the card terminal always have the option to decline tips.
Overall, nudging in card payment systems exploits psychological effects to direct consumers towards desired behaviors without restricting their options. This can improve customer satisfaction and reduce expenses for businesses by influencing both tipping habits and broader payment choices.
[1] Enrichment: Payment Method Nudges – System can nudge users to select specific payment methods by highlighting discounts or promotions or using default options for more cost-effective choices.
[2] Enrichment: Default Tipping Amounts – Systems can use default tip amounts to encourage consumers to accept these amounts without deliberate alteration, potentially leading to higher average tips.
[3] Enrichment: Feedback Mechanisms – Implementing feedback mechanisms that show the impact of tipping on service staff can nudge consumers to tip more generously, as they're more aware of the effect of their actions.
In the discussed scenario of card payment systems, businesses strategically place tipping options to influence customers' decisions, thereby increasing overall tipping amounts. However, this tactic, known as "nudging," can create a stressful situation for consumers who might feel compelled to tip even when they didn't plan to do so.
Financial gain is a primary motive for businesses implementing such tipping options, as they can benefit from increased tips and potentially reduce expenses. On the other hand, embracing technology in payment systems can also offer additional incentives to consumers through enrichment features such as default tip amounts, feedback mechanisms, or even nudges to select specific payment methods.
