Definitely Doug 7/24/20: The COVID Tipping Point

The COVID Tipping Point

Many front-line hospitality workers rely on tips for a significant part of their paychecks. If not for tips, many hotel associates who serve as waitstaff, bartenders, housekeepers, bell staff, concierges and pool attendants would soon be looking for other jobs. This is a regional issue: in most of Asia and Europe, staff get higher base pay, and tips are either not expected at all, or are truly discretionary. But in the U.S., Canada, Britain and other countries, tips are an important reality, and one that’s not likely to change anytime soon.

Cash tipping, however, has collided with COVID-19. Consumers now want to use contactless payment for everything they can. Many no longer even carry cash, and cash tips have been dwindling. This means a double whammy to the incomes of cash-tipped staff: travel is down, and the people who are still traveling are less willing or able to tip in cash.

In restaurants, the waitperson’s tip can generally be added to the credit card or guest-room charge. But for other service staff who are tipped in cash, hotels may soon find that their willingness to continue working is dependent on tips they are no longer receiving. This could ultimately impact the base wages hotels will need to pay to attract and retain staff.

Can technology help avoid this? The answer is probably ‘yes’, but there are barriers, and that will be my topic for this week. How can the hotel industry address this issue? The good news is this is a problem that doesn’t need to cost money to solve. The challenge is that some of the major hotel brands will need to work together to solve it.

I looked at more than a dozen products designed to facilitate cashless tipping. There were some good options for cashless tipping to service providers that you do business with regularly (think hair stylists or manicurists as an example). There are also several practical solutions, both mainstream and specialized, for cashless tipping when it occurs in relation to a sale that can be paid by credit card, such as restaurant meals and taxis. Several platforms exist for simplifying the accounting of tips in restaurants, getting them to the staff faster, and tax compliance.

What I didn’t find was anything very satisfactory for cashless payment of what I will call ‘casual’ tips: those paid to valet parking staff, housekeepers, bell staff, concierges, pool attendants, and others. To be sure, there are solutions that can work; they just aren’t very practical or widely adopted.

Technology is not the issue. Some of the systems on the market that claim to solve the problem appear to work well enough; it’s just that almost nobody uses them. As a business, these products face a challenge known as the two-sided market problem: tippers will only use a platform if enough of the people they want to tip support it, and tipped staff will only use it if enough tippers do. Solutions need to find a way to grow both bases to succeed. Friction in the use of technology (such as a requirement to download an app) makes it harder to break through this barrier.

If you haven’t run into the two-sided market problem before, the classic example is the telephone. When Alexander Graham Bell patented the telephone in 1876, he might have had a bit of an issue convincing anyone to buy one. After all, there was no one else to call! Indeed, despite the obvious benefit of being able to talk to people who are farther away than you could shout, it took 25 years for telephones to reach 10% adoption and 65 years to get to 40%!

Not surprisingly, my research of tipping solutions was littered with dead websites, companies who had pivoted to other markets, and LinkedIn company profiles with no employees. Many of them struggled with the two-sided market problem (as well as all the other startup challenges) and eventually gave up. The companies I will mention here today appear to be survivors, at least for now.

Some platforms rely on an app that the tipper and tippee both need to have. The payment process is simple enough once you have the app downloaded and set up, and many of them use location services to help the tipper find the person they want to tip, who is usually nearby. The tipper selects who they want to tip and how much, and processes the transfer using standard payment options. Platforms using this approach include TipYo, TipPot, MyTip and Bravo (two from the US, two from the UK).

Of these, TipYo is specifically targeted at hotels and allows the tipper to select a participating hotel, choose the type of service to tip (e.g. housekeeping), enter their room number or the person’s name, choose a payment method, and confirm the tip. It works, but it’s a bit cumbersome for the tipper, is only available at a few hotels, and doesn’t have an easy way to tip someone if you didn’t remember to get their name (except for your housekeeper, where the room number can enable the hotel to figure it out).

The question is, how many people will download an app, set it up, and enter their credit card details, just for one or two cash tips during a single stay at a hotel that uses it? Regular guests might, but not too many others – unless the same app works at lots of other hotels (and none of them do). On the other hand, TipYo does provide some nice back-end features to integrate tips into the hotel’s payroll – it just doesn’t solve the cashless tipping issue very well.

More frictionless than an app, but still not without issues, are solutions based on QR codes and Near Field Communication (NFC). These generally work by having the tipper activate their camera and scan a QR code (which can be at the point of service, on a card in a guest room, at the bell or valet stand, on an associate’s lanyard, or elsewhere). Once the camera recognizes the QR code, the phone pops up a message enabling the user, with one tap, to open a page where the tipper can select the tip amount and a payment method (typically one of the phone’s native payment options, such as Apple Pay or Android Pay). The advantage of this approach is that it’s simple and uses phone features most users have already set up and are familiar with: activate the camera, point, make one tap to get to the payment screen, select the amount, and one tap to pay. The QR code itself designates who will get the tip, so the tipper doesn’t need to identify the recipient. Products in this general category included etip and TipJar. MyTip, mentioned above, also supports QR code scans, but requires an app.

Slip represents another approach, which could in theory work for valet parkers and bell staff, although it too has limitations. The service staff get wristbands with an embedded NFC chip. When the tipper’s phone is put within NFC range of a wristband (a few inches), a push notification opens a peer-to-peer payment page in PayPal, Venmo, or Square (all on Apple or Android), or Apple Pay; the tipper simply selects the amount and confirms. One problem is that each wristband supports only one of these payment apps and on only one platform (Apple or Android), so it will apply only to a subset of tippers. Slip also offers a “launch pad” that supports all seven options (each with its own NFC chip), but it’s suitable only for physical mounting in one location, not for carrying around. It’s hard to see how Slip would be practical in most hotel situations, where tips are often given away at unpredictable locations. And unlike the other solutions, there is an up-front cost for the wristbands and launch pads.

Of the solutions covered here, the combination of QR code and NFC with native payment apps (Apple Pay, Android Pay) seems to have the least friction for the user and the best applicability to casual tipping. But to get guests using them, we still have to solve the two-sided market problem.

Getting widespread consumer acceptance quickly won’t happen unless a few of the larger hotel groups agree to support and publicize a single platform; this is what would be needed to raise awareness and familiarity among travelers. It’s certainly in the interests of hotel brands and hotel owners to do this, because every dollar an employee earns in tips is a dollar paid by the guest rather than the hotel. But the logo of whatever tipping platform(s) they choose needs to be as ubiquitous as the major credit card logos are today, and will serve as a reminder to tip the staff. One of the ways two-sided market problems get addressed is when large players on one side take concerted action to build up their side. The big hotel brands have the power to do that, but they will have to work together.

I can’t end this article without reminding you of one other, fairly obvious option – the hotel app. It doesn’t cover everyone (many guests won’t have it), but it can cover a good portion. It should be a simple matter to allow a guest to tip a housekeeper or any other associate whose name they know and add the tip to their hotel bill. Maybe someone has already done this, but I’m not aware of it. This is low-hanging fruit that brand apps should be going after today.

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