Hair stylists in a salon
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When clients in Today’s Haircuts want to tip Cindy Nguyen Kim for their haircuts, they don’t use their credit cards — they can’t. Some express their appreciation with paper money, but others aren’t prepared for that option.

“Not a lot of people carry cash nowadays,” says Nguyen Kim, a stylist at the San Carlos, California salon.

So instead of pulling out their wallets, customers grab their smartphones and tap on Venmo, a popular payments app owned by PayPal, to send her money.

As Nguyen Kim sees it, Venmo helps her avoid missing out on an important source of income and removes the risk of someone not coming back to tip her after visiting an ATM offsite. She also lets people tip her on PayPal, but she prefers the Venmo app — she has a Venmo debit card that’s linked to her account, and she can use the card to buy everyday items like groceries and gas. These days, she even has a note posted near her station that says she accepts Venmo for tips. “I like Venmo since it’s very convenient,” she says.

Nguyen Kim is among the hair stylists, nail artists, dog walkers, tutors, valet attendants and musicians across the country who are collecting tips on payment apps to respond to changing times. While physical cash is still widely in use, there are plenty of people who are less reliant on the centuries’ old payment method. In a Pew Research Center survey, about half of Americans (46 percent) said they “don’t really worry much about whether they have cash with them, since there are lots of other ways to pay for things.”

That includes the way they tip.

Convenience for consumers, publicity for merchants

Richard Crone, a payments expert and founder of Crone Consulting, says cashless consumers are not any less inclined to show their appreciation and recognize a job well done — they are just doing so differently on an app they already use to split rent and pay back a friend for a meal.

“They are turning to the payment mechanisms that they are using among themselves in order to do that, which is Venmo,” Crone says.

According to Crone Consulting’s analysis, users sending gratuities is among the top use cases of the app. Beyond the ability to send the payment, Venmo — famed for its public social feed — also helps the service provider get an added bonus: public recognition.

“The service provider wants to be recognized for great service,” Crone says. “They try to get their best customers to follow them on Twitter and like them on Facebook. If they can do this as part of a Venmo feed, then they get that as a byproduct.”

All kinds of companies, including Uber and Uber Eats, even accept Venmo as a checkout option.

Beyond cashless: The other reasons people tip via apps

In tipping via an app, Venmo has company. Tipping is a primary use case for Bravo, a young startup aiming to solve the plight of those relying on gratuities in cashless scenarios. It is also a use case on Zelle, a Venmo competitor owned by Early Warning Services. While it’s hard to put a precise number on it, the use case appears to be on an upswing.

“It’s a use case that’s been around from the beginning, but it feels like it’s growing more and more, particularly with those people you trust,” says Melissa Lowry, vice president of marketing and branding at Zelle.

People are using Zelle to tip the people they engage with regularly, such as their hair stylist or nail artist. They’re also using the technology to tip their dog sitter or babysitter, especially around the holidays, she says.

Among the factors driving the trend is a behind-the-scenes change: Instead of taking days for a payment to arrive in someone’s bank account, you can send money to someone within minutes through Zelle. “It feels more like getting cash,” Lowry says. “You are getting that money right away, and you can go and use it.”

Plus, as more and more people across all ages use digital peer-to-peer apps, comfort is increasing to use them to do all sorts of things, tipping included.

Using an app to send a tip also solves another scenario: when you only have a $20 in your wallet and nobody is able to break the bill.

“It’s super convenient because you don’t typically have the right amount of cash in your wallet,” Lowry says.

To be sure, it’s still early days. Don’t expect your average service provider to collect tips this way, especially not all of the time. While Nguyen Kim lets anybody tip on Venmo, some service providers only accept tips on payment apps from time to time — for example, when their regular point-of-sale machine is down or when one-off customers request it. Others, like photographers and dog groomers, let consumers put their entire tab on Venmo, tips included if desired.

Mind the risks

It’s not always without risk, however. You are supposed to only use these kinds of apps for people you know and trust, not strangers. Because these transactions are generally irrevocable, you could fall victim to a scam and have little recourse for getting your money back. It’s for this very reason that the advocacy division of Consumer Reports advises consumers to only use these kinds of services with folks you know and trust.

It is also a position Zelle reinforces. “What we recommend is make sure that you’re only sending money to people you know and trust because the money goes in minutes and you want to make sure you’re comfortable that this is not a scam,” Lowry says.

While you’re probably safe to send $2 to a street musician via a payment app, you generally want some kind of rapport with the recipient. To mitigate risk, Lowry also recommends double-checking you’ve entered the right number or email before pushing send on Zelle.

Tips for using peer-to-peer payment apps safely

While apps are making it easier than ever to send someone money, there are
risks. Use the apps with precautions in place.
  • Use the apps for people you know and trust, not strangers.
  • Double-check the email or phone number before sending someone a payment.
  • If the app lets you scan a QR code to find someone, use it.
  • Make sure the payment is going where you want to send it.
  • Consider strengthening your privacy and security settings on the apps, such as setting a PIN to unlock your account.

The importance of cashless tips

The growing need to accept tips in new ways is mounting. The number of ATMs is in decline in the U.S., and cashless scenarios put people working in the service industry without point-of-sale terminals at financial risk.

“What is at stake is what goes home,” says Maria Luna, co-founder and CEO of Bravo. “It’s personal. It’s people’s incomes.”

That is why she is building Bravo, the name of a payments startup and a word used to describe a job well done, to solve the financial wellness problem. As Luna sees it, general payments apps are great for paying people back, but they leave a gap for when someone wants to send money to a stranger.

“What we wanted to do was create a tool for perfect strangers to connect in a safe environment where you don’t share your data with the other person,” Luna says. “You just share your money, and Bravo will never monetize on your data or sell it.”

On the app, you don’t need to share phone numbers and email addresses to send money to someone. Instead, you can find the person you want to tip by their proximity (the app can use your phone’s GPS) or by searching for their username or code on the app. For those receiving money on the app, Bravo will automatically move the funds into a linked bank account rather than hold it in escrow. “It’s not sitting in a Bravo account,” she says.

The startup rolled out an app in 2015 in Phoenix, appeared on Shark Tank in 2017 and is now readying to release a more refined app later this year. While it’s not been widely adopted, all kinds of people are using Bravo to collect tips, including nail technicians, pedicab drivers, drag queen shows, spoken word artists and Integrity Valet.

“What is at stake is what goes home. It’s personal. It’s people’s incomes.”

Ryan Rabish, owner and founder of Integrity Valet in Phoenix, sees the app as essential to his valet attendants’ income and his business model.

“You have to at least have an opportunity for people to tip in a cashless way,” Rabish says. “Otherwise, it’s just lost income.”

Integrity Valet has used the app since 2015, and Rabish sees Bravo’s advantages as its ability to make his restaurant clients happy. Customers no longer have to use their waiter as an ATM to tip the valet attendants when they lack paper money. Plus, the app helps the restaurant’s brand appear hip. As he sees it, the Bravo app also stops cashless guests from avoiding the valet stand altogether and reduces a safety risk caused by a pile of cash just sitting in a valet stand.

Bravo, of course, is not as well-known as Venmo. More than 40 million people have Venmo accounts. So, some of Rabish’s valets will get tips occasionally on Venmo. He prefers Bravo but realizes it’s not all or nothing.

“Is using Venmo better than not accepting a tip at all? Absolutely,” Rabish says. “The point is to reward someone for their efforts and to make guests feel comfortable.”

While there are plenty of people who don’t carry cash, make no mistake: The valet stand still gets plenty of tips in cash, too. So does Today’s Haircuts’ Nguyen Kim. We’re still a long way from transforming into a cashless country.

But there is at least one thing that cash can’t offer that Venmo can. On the payment app, the transactions come in with memos, like “Thanks for the great haircut” and “You’re amazing.”

“That’s great to hear sometimes, you know,” Nguyen Kim says.