After reading a recent Businessweek article about how much New Yorkers tip cabbies, Ben Wellington at I Quant NY (IQNY) noticed something weird about the numbers. With some research and analysis, he discovered that half of New York’s cabs calculate tipping differently. That difference generates an extra $5.3 million a year in tips.
Businessweek used publicly available data to conclude that in 2013, riders tended to tip between 20% and 25%, two of the default options on credit card readers in cabs. But IQNY notes:
[Businessweek’s] plot showed bumps at 20%, 25% and 30%, the default tip options on the credit card readers in cabs, which made sense. But something else did not feel right to me about the plot. For the people not using the default buttons, why did so many more end up tipping 21% than 19%? Is every rider rounding up? Curious.
As I looked more at the article, things kept unraveling a bit. Another chart in the article showed that at 4PM, people suddenly started tipping 1% more.
After taking a deeper look, Wellington found that the city’s cabs operate two different types of payment systems and “when it comes to calculating tips, payment systems provided by Creative Mobile Technologies (CMT) are programmed differently than those provided by Verifone (VTS).” The CMT payment system calculates tips based on the fare and surcharge with tolls and taxes and VTS calculates it’s gratuities based on pre-tax and toll total. That means drivers with the CMT system are making more money in default tips than drivers with VTS — about $200 more per driver, Wellington estimates.
And as for that 4PM uptick? In turns out the 1% bump was actually fairly simple. “There is a surcharge from 4PM to 8PM, exactly in line with the increase observed by the Businessweek article,” Wellington explained.