File photos by John Han.
Earlier this year a contest began between the presidents of DeSoto Cab and Green Cab, to see if tips prompted by rear seat passenger information monitors, (PIMs), really increases a driver's tip percentages, thus making drivers more money.
Part of the reasoning behind PIMs was that if they were to increase drivers' tip percentages, then 5% credit card charges imposed upon drivers would become a non-issue, since higher income from PIMs would 'more than make up for the credit card costs'.
The idea caught on.
Hansu Kim, DeSoto Cab's president, is and has been one of the industry's most ardent proponent of getting PIMs installed in San Francisco, and for allowing cab drivers to legally incur a 5% credit card cost.
On the other hand Mark Gruberg, president of Green Cab, openly opposes rear seat PIMs, and is vociferously against cab companies charging their drivers any amount in credit card fees.
(It could be worth mentioning that Green Cab may be the only cab company in San Francisco that willingly and voluntarily incurs its own credit card costs without passing them onto drivers. This company's practice seems to be solely based on a belief in ethics and worker value. Even though it is legal now for companies to pass on the fees to drivers, the company chooses not to.)
Nelson Nygaard, the consulting firm hired to do research on credit card fees and rear seat PIMs, provided preliminary data that suggests tip prompters do indeed increase tip percentages. It cites data provided by DeSoto Cab claiming that PIM tip prompters increase our tips by 3.2%.
On the surface, it would seem therefore that DeSoto is winning the contest.
But the report cautions that,”shortcomings of the analysis suggest more thorough research is necessary.” (Taxi Study: Credit Card Processing Fees, Back Seat Monitors, and Electronic Waybills, Nelson Nygaard Consulting Associates, December 6th, 2011).
The firm's suggestion for more needed research could be legitimate. Here's some easy reasons why...
- If I use myself as an example, I'll say that I had recently completed a fare to SFO with the meter ending at $48.60. The passenger paid by credit card and I used the front seat machine, as there was no rear seat processor. The passenger told me to charge $58.00. That is a tip of $9.40, or 19.3%.
Since the tip prompters are said to increase tips by 3.2%, then hypothetically, the same real life scenario mentioned above could've possibly yielded a tip of 22.5% had a tip prompter been used, since 22.5% is 3.2% higher than the original tip. If that were to be the case, then...
- Twenty-two-and-a-half percent of $48.60 is a tip of $10.94, making the new total fare $59.54. That's higher than the original $58.00. It's a boost of $1.54 aided by the tip prompter. At first glance it would seem as if I'm doing better now with a tip prompter in this case, despite a 5% credit card chargeback.
But here's the important detail not covered by the Nelson Nygaard study... the study that when referencing tip prompters, admits that shortcomings in the analysis means, “more thorough research is necessary”.
- In a before and after analysis, analysts must remember to deduct the amount of the credit card charge from whatever the total amount of the fare is. So once a 5% credit card fee is charged to the $59.54, (thought to be an increased amount because of tip prompters), the new total is $56.56. That's leaves $1.44 less than the original $58.00.
With respects to this contest, analysts must remember that Green Cab drivers are not being charged any credit card fees at all. Also, before the credit card fee waiver kicked in, Yellow and Luxor drivers were not being charged any fees either.
So for a "Before and After" assessment...
... suppose that a Green Cab driver had the same exact fare, with the same tip... or suppose that I had this fare with Yellow Cab before the credit card waiver kicked in, while we weren't being charged any fees. In either case, either of us would have pocketed the full $58.00 (or whatever the equivalent before the new meter rate).
Now under the credit card fee waiver, even with a 3.2% increased tip bringing the aforementioned fare to $59.54, the end result is a lower $56.56 fare because of the 5% charge. Thus, there's a higher tip percentage, but a deficit in earnings, in this case.
This second example is not an actual real life example, but is a realistic hypothetical example based on experience.
- When a fare is for $10.10, (new meter rate), a typical passenger will pay about $12.00 - $13.00, whether it's by cash or by credit card. There are always exceptions like when a tourist or a drunk person throws $20 and says “keep the change”, or when someone is totally cheap and hardly tips at all. But many drivers, I think, would agree that a realistic average on this is about $12.00 or $13.00.
Applying This Average To The Green Cab VS DeSoto Drivers Contest:
Using the example above, if a Green Cab driver finishes a fare for $10.10, and the passenger says to charge their card for $12.00, then the passenger has payed for the fare with a $1.90 tip included. That's a tip percentage of 19%.
Since Green Cab drivers are not charged credit card fees, the driver earns the full $12.00 on the fare.
By contrast, if a DeSoto Cab driver completes the same $10.10 fare, and the passenger selects “20%” on the rear seat PIM, that would yield a tip of $2.02.
That brings the fare to $12.12.
The difference being that DeSoto Cab drivers are charged a 5% credit card fee. Five percent of $12.12 is sixty-one cents. So after the 5% chargeback, the DeSoto driver now earns $11.51 on the same fare, despite a would be increase of 1% in tips.
Therefore, there may sometimes be a difference in meanings between “tip percentages” versus “tip incomes”. The two concepts could be distinguished from one another.
Under this scenario, the DeSoto driver comes out the winner with respects to“tip percentages”. But the Green Cab driver ends up ahead with respects to “tip income”.
(I'm choosing 20% for this example because there seems to be an anecdote that passengers will choose 20% most of the time on tip prompters. However, a New York Times article, says that in New York taxis, tip prompters yield an average of 18%, although that article was published in 2009.)
My Personal Experience:
I had four other credit card fares on the same day that I had the SFO fare for $48.60. On that day, the cab had no rear seat machine so the cards were processed in the front seat without tip prompters.
Here they are...
- $48.60 fare + $9.40 tip = $58.00 (Tip is 19%)
- $22.20 fare + $6.00 tip = $28.20 (Tip is 27%)
- $37.60 fare + $4.40 tip = $42.00 (Tip is 12%)
- $15.05 fare + $5.00 tip = $20.05 (Tip is 33%)
- $10.10 fare + $2.90 tip = $13.00 (Tip is 29%)
As anyone could see, some passengers obviously tip more, and some less.
The average tips for fares paid by credit cards that day was 24%. I realize that is based on only one day's worth of credit cards. But consider this...
The data that DeSoto provided to Nelson Nygaard and to MTA's Taxi Division showing a 3.2% increase from tip prompters, may have been based on data from only three of DeSoto's cabs, even thought the company has over 100 taxicabs!
In case I'm misinterpreting the text, I'll just quote where I'm getting this information from.
“There are some shortcomings to these analyses. The Yellow Cab analysis, while fairly comprehensive, reflects different months (and we were not sent the raw data). Conversely, the DeSoto mini-analysis, sent to us with the raw data, used the same month in different years (good) for the before and after analysis but reflected only three cabs. Nevertheless, these preliminary results are encouraging and do point for the need to undertake a more comprehensive and statistically relevant analysis to confirm that the back seat monitors do result in higher tip amounts.”
The quote above is from the report published on the SFMTA website titled, “Taxi Study: Credit Card Processing Fees, Back Seat Monitors, and Electronic Waybills. Final Report”. (Bold and underlined text mine).
I hope anyone reading this understands I'm not trying to say that tip prompters absolutely do not increase drivers' incomes. What I am saying is they don't always necessarily live up to the claims to make up for the 5% credit card fees.
The Nelson Nygaard report itself says that the current "preliminary data" may be inconclusive.
Further Notes On Rear Seat Monitors:
A New York Times article published December 6, 2011 reports that in a survey of 113,000 New Yorkers, "nearly half of taxi riders are not fans of the in-cab TV sets, and 17% of those actually hate them."
Still, the article says there's a "good amount" of people who like them.
The December survey is the second one this year that indicates a significant portion of the public showing negativity, or at least expressing a lack of enthusiasm for the back seat equipment.
At least back here in our San Francisco, our MTA says it's looking into ways to make sure those monitors stay QUIET, and to dim down the brightness of the monitors, that some say are intrusive at night.