Digital Payment Apps Overcharging Customers with Preset Tips

Digital Payment Apps Overcharging Customers with Preset Tips

By:  Hadassa Kalatizadeh

Online tipping has been spiraling out of control as a tech problem.

As reported by the NY Times, more and more apps and digital payment products are allowing merchants to preset gratuity amounts.  Companies like Square and Toast, which make payments as easy as the touch of a button off a smart phone, are trapping consumers into what can feel like forced tipping.  In the rapidly growing phenomenon, known as “guilt tipping”, customers either feel pressured to pay the preset tip or don’t even notice the extra charge before paying.  The digital gratuity requests started by the pandemic when well-to-do consumers were asked to help out by tipping essential workers who provided a necessary service.  The situation has only grown though, rather than disappearing post-pandemic.

For merchants, it’s very easy and beneficial to preset the gratuity.  The tip requests, however, are not just for service workers.   It’s also popping up on the iPad after shopping in person at a grocery store, or paying for a repair where labor has already been charged.  The question is, why are the tech companies eager to comply with the tipping presets.  In some ways, the tech platforms are hurting their own image by leaving a bad taste in consumers’ mouths.  “If your users are not happy, it’s going to come back and bite you,” said Tony Hu, a director at the Massachusetts Institute of Technology who teaches courses on product design. “Ideally they should be tipping for an excellent experience.”

Businesses that don’t normally get tips are using the platforms to present a tipping screen, with generous tipping options including 15 percent, 20 percent and 30 percent.  There is also a “no tip” or “custom tip” option, but regardless, accepting a generous tip is the quickest way to proceed and consumers feel pressure to tip.  “It’s coercion,” says Ted Selker, a product design veteran who has worked at IBM and Xerox PARC and has led research on getting people to register to vote.

As per the Times, in some industries things have gotten out of hand, to the point that the government has stepped in to crackdown on extra changes tacked on, known as junk fees.   Last year, the Federal Trade Commission announced it would investigate, saying the problem is real with consumers experiencing “junk fee shock” at the end of an online purchase.

Some experts say the practice is not deceptive, as consumers still have the choice, and the “no tip” button is the same size as the others.  Regardless of the outcome of the investigation, for now, consumers should be aware, and make their own decision without allowing the technology to pressure them. “They’re objectifying the transaction when the whole point of tipping is to personalize it,” Selker said. “Your mind-set should be is this really what you want to do?”

A Square spokeswoman commented to say that the company’s payment technology does not allow merchants to preselect a tip amount, with the exception of when tips are automatically added on for large groups in a restaurant, as an industry standard. Certainly, though many of newer apps that copy Square allow merchants to preset tips.