Real-Time Tip Payouts Give Service Industry No-Cost Worker Shortage Fix

As sectors like hospitality and dining struggle with labor shortages, tipping offers a retention solution.

In a conversation with PYMNTS, Brian Hassan, co-CEO of instant cashless tip payouts platform Kickfin, said a lot of press is dedicated to navigating the digital tipping culture that has sprung up and become systematized, especially in the aftermath of the pandemic.

“You really can’t get a cup of coffee anymore, anywhere without being asked to tip a few bucks,” Hassan said. “…From our perspective, this is giving the ability for the customer to show gratitude to the hospitality employee.”

Hassan pointed to recent stories from media sources, including a CNN story headlined, “Out of control: No one knows how much to tip,” which noted that generous tipping was encouraged to help restaurants during the worst of COVID-19.

“Total tips for full-service restaurants were up 25% during the latest quarter compared to a year ago, while tips at quick-service restaurants were up 17%, according to data from Square,” the report stated.

Hassan said estimates of what it costs eateries and coffee shops to acquire and retain staff are running as high as $5,500 per worker.

“So, if there’s any way that they can reduce what is a multi-hundred percent turnover year over year on labor by saying instead of paying you $15 an hour, perhaps you could take home $20,” then that’s just smart business, he said.

Getting access to those tips instantly is where platforms such as Mastercard Send are helping these sectors solve the retention problem. Hassan said payments have been “democratized” by digital platforms for small- to medium-sized businesses (SMBs) like pizzerias, which he said are “almost in parity” with the likes of Uber and Lyft via the adoption of instant digital tip access and payouts.

As more delivery and quick-service restaurants (QSRs) deploy instant payments as a recruitment and retention tool, he said, “it’s not just marketing sizzle.” Many workers in this segment need their earnings immediately and prefer not to use earned wage access.

Tipping Points

Hassan said he finds the proliferation of digital tipping outside of full-service restaurants (FSRs) especially noteworthy.

“If you think about it, tipping $1 on a $3 cup of coffee is 33%, which is significantly higher than the standard 20-plus percent you may be tipping on a full-service bill.”

In other words, net dollar amounts per transaction are smaller, but as a percentage, “it’s significantly higher.”

And while he conceded that there’s a ceiling on what restaurants can charge for food, which caps the base pay they can offer, those that enable digital tipping are “able to pay it to you right away every single day. We’re able to provide you in the end with what you’re looking for, which is a higher take-home wage.”

He said cloud-based point-of-sale (POS) systems are driving the evolution of tipping. As a solution, Mastercard Send enables merchants to disburse earnings to employees instantly versus waiting for a payroll cycle to complete.

“When we look at the total addressable market of digital tipping, call it a few years ago, it has grown in multiples,” he said. “What used to be only in full service is now in full service, quick service, airports, stadiums, personal services, and the list goes on. It touches our lives every day and almost every transaction we might encounter outside of retail.”

In 2021 and 2022, more companies across the restaurant and hospitality spectrum added digital tipping capabilities through their POS and enterprise resource planning (ERP) platforms.

The big draw for these hard-to-find workers, who in many cases are getting pooled tips paid biweekly, is that now they can be paid out instantly. Hassan said he sees this as having much the same transformative effect that early wage access had when it appeared several years ago.

Overcoming Integration Snags

As a practical matter, companies have shied away from costly integrations of digital tipping and tip-pooling applications due to complexity and cost, but new solutions are addressing these pain points.

“There are companies that are averse to a lot of technical work done on their end,” Hassan said.

He pointed to an FSR with roughly 300 locations that is keen to use real-time tip payouts but is hesitant because they want it as a standalone feature without any integration issues.

Kickfin can be deployed as a deep integration with enterprise POS and ERP systems. This can be done with POS, payroll human capital management (HCM) or via Kickfin’s application programming interface (API), Hassan said, “but a lot of our clients, and this is surprising … use this in an unintegrated fashion.”

That’s because deeper integration gets complicated, requiring everyone from legal to IT cybersecurity teams. By using Kickfin in an unintegrated manner, clients can start paying the same day.

Others are rolling tips into payroll, which enables workers to collect unemployment benefits that are not accessible with a lot of unreported income, like gratuity.

Hassan said he sees the market moving toward merchant acquiring of the transaction, enabling hotel guests to tip housekeepers, bell attendants or guest services “either by a QR code, by scanning a code, or we integrate with a hotel’s property management systems.”

“That’s where I think the market’s going to be going the next few years is how can we acquire more tip transactions and pay them out in real time,” he said.