why we built a payments app

the editor   |   monday, april 25, 2016

Q&A with the founders

What is "tiptotem?"

Tiptotem is a mobile tipping app that enhances income opportunities for gratuity earners within the creative, entertainment, hospitality, and similar industries. Tiptotem enables gratuity earners to establish a direct connection with engaged customers and fans and enables tippers to connect with and help promote their favorite service providers and local musicians and performers.

Where’d you guys come up with the name?

Obviously, tiptotem is about "tips." But the other part of our name ("totem") refers to our system of ranking preferences for people that earn tips and that we observe being preferred by tippers - i.e., when a tipper opens tiptotem and looks up someone to leave a tip, we rank results within their search preferentially to show the individual a tipper most likely would be searching for (e.g., according to tip history, location, rating, and other criteria).

What, really, is the purpose of your app? Why should someone bother using tiptotem to send a tip if they can just as easily leave a couple dollars for their waiter or the band and be done with it?

Well, what we are trying to do is supercharge gratuities and the market for giving - we are trying to amplify (quantitatively and qualitatively) the gratuities market and pick apart the payments experience to bring value to tippers and tippees.

In our view, a tip includes a number of discrete elements - obviously, there is the cash transfer element - but no less important are a number of related social and informational components which are communicated in the act of tipping.

To speak in terms of microeconomics, tiptotem enables better price discovery and value creation by broadcasting the informational component of tipping to all tippers and tippees.

Let's take just one example of this social / informational aspect of tipping. The dollar value of each tip you leave in tiptotem is posted publicly (although you may mark associated comments private if you like). Because tiptotem knows and broadcasts to other tippers each tipper's relative generosity (i.e., as compared with a recipient's average tip), tippers and tippees within tiptotem are able to gauge both the caliber of service or performance provided by a given tippee as well as the relative generosity of the tipper. It is this informational component of tipping that gets lost (or, at least, it does not get captured) with what we call a traditional "cash-in-hand tip." In contrast to cash-in-hand tipping, when folks tip through tiptotem all prospective tippers and all tippees get the benefit of this informational component connected to each tip. And they can adjust their tipping behavior accordingly.

Practically speaking, what is the end result of all this? Well, we expect the end result to be that high-quality service providers and beloved performers and musicians will be able to capture more of the value they create - i.e., they will earn more tips because average tip values for the best tippees will creep upwards. At least, this is our goal and we will work hard to make sure anyone using tiptotem earns more in tips by using tiptotem than they would earn by not using it!

Separate from the value-add that comes from this social / informational component, we are assuming that most people will realize that, all things being equal, a tip paid through tiptotem enables a higher dollar-value payment than a cash-in-hand tip because tip amounts will not be limited by the physical cash-in-hand of the tipper - so, tippees can be confident that using tiptotem will always enable tippers to pay what they believe to be due notwithstanding the absence of cash in their physical wallets.

What about the convenience factor? Meaning, we’re curious whether part of what you’re trying to do is eliminate trips to the ATM?

Yes and no.

That is, we do think that tiptotem is cool in that it means you don’t need to make trips to the ATM to keep cash-in-hand for things like tipping, and in that way it cuts out potential ATM fees – which, by the way, can totally destroy your pocketbook when you pay fees of $2 - $3 just to get a $20 out of the ATM – that’s upwards of 10% you lose out of the gate! So yea we help folks avoid those fees and that is cool.

Also, of course, by receiving tips through tiptotem you don’t need to go deposit funds in the bank – because tips you receive through tiptotem get deposited directly into your bank account with no further action required. So that eliminates some footwork on the part of payees.

But as we said above we’re not really building this around a convenience concept – to us, convenience is a commodity (anyone can do it) so our focus is more intimate – we want to establish a direct connection with our users to help them earn more money because we think they deserve it.

So, what should I compare tiptotem to?

Basically, tiptotem is kind of like Venmo but while Venmo is more or less "between friends" tiptotem is for folks you may not know yet.

Also, tiptotem has embedded chat capabilities, user rankings, public / private toggles, map search, and group payment splitting which we don’t believe Venmo offers.

And then I guess we should mention that tiptotem is built around a direct bank-to-bank payment transfer model and doesn't interpose an escrow account that you have to manage like Venmo does.

Oh, and with Venmo you can't send services payments but you can with tiptotem (obviously!). And Venmo has a multi-tiered pricing structure that varies depending on whether you use a credit card for sending funds - tiptotem doesn't connect into the card networks at all because we want to stay as close to cash as possible.

Like we said, Venmo is sort of similar to us but not really. I guess, we're an app that you can use to send money and so is Venmo but maybe that's where the similarity ends. Because, these days, Venmo is more or less the customer-facing part of Paypal and as far as tiptotem goes we're totally independent.

You mentioned credit cards – what’s wrong with using the credit card networks for what you're trying to do?

We realized that the credit card system isn't really consistent with what we're trying to achieve at tiptotem through connecting gratuity earners more closely with their customer base and the cash earnings they rely on for a livelihood. Tips have always been direct cash payments, so having a credit card company in the middle is sort of wrong high-level conceptually. Plus, by tieing credit into tipping we think there is this weird potential for credit costs to creep upwards and eat away at our users' tip income, which is total anathema to us.

But aren’t tips already sort of intermediated by credit card networks through point of sale devices?

Maybe, but that setup is not ideal for gratuity earners and, in any event, it ignores the fact that there are a substantial portion of folks that work for gratuities but do not work at a place that relies on a credit-connected point of sale device to receive payments (think of your favorite “cash only” establishments and any barroom guitarist you’ve ever listened to in your life). We don’t imagine the buskers on the NYC subway will be setting up an ipad with a credit card dongle to receive tips through a credit card swipe any time soon. But they can use tiptotem to promote themselves and receive tips for sure! No special hardware or merchant contracts required.

For that matter, we don’t see any need for small service providers, vendors or performers to use any sort of point of sale device at all. Why all that brain damage and capital investment to sell ice cream cones or a $2.25 cup of coffee? Or to put out a hat and play your ukulele on the street corner?

In any event, our goal is to give tip earners the means to take back control of their tip income. If you think about it, the days are numbered for physical cash – and if physical cash is meat and potatoes for gratuity earners then what is to become of the tip earner’s paycheck? If a tip earner does not have a means for direct control of their income like we are offering they will end up fully at the mercy of the “leave a tip” option within a point of sale device. Kind of scary from the perspective of pay equity and livable wage. We don’t see the “leave a tip” options in POS devices as a good solution for tippers or tippees – we even suspect some merchants may prefer ultimately to eliminate tip options in POS devices since it imposes additional transaction costs (it slows the customer down) and introduces friction to the merchant transaction itself. I mean, why do you see big ticket restaurants trying to phase out tipping – because it causes potential friction between the restaurant owner and the customer that the restaurant owner wants to eliminate – and the restaurant owner tries to buy off the waiters by promising a wage rise – but then, doesn’t that assume uniformity in the quality of service that each waiter provides? We think that assumption is wrong and we think the best waiters won’t take that deal. We see tipping for services as separate from an invoiced payment to a merchant for goods or services – tipping should be disconnected from invoicing and our app is built around that premise.

So, how do you guys make money?

We are trying to figure out how to cover our costs at this point while staying true to our goal of increasing income opportunities for tip earners; particularly those on the lower end of the income scale. First, we’re setting a low dollar value range for tips of up to at least $5 that would carry no fee at all, which we think balances well with our overall living wage concern for tippees on the lower end of the scales. And we’ve done some math and we figure we can make our model work with fees of between 25c per tip or 2% applicable to tips received for tips above that threshold.

Down the line, we’re trying to figure out how to effectively instill a sense of ownership of tiptotem in our tippees. We want tippees to feel a sense of ownership in tiptotem as a financial tool that enhances their income opportunity and one of the ways we see of doing that is by introducing some financial cooperative-type elements to our business. For instance, we are working on a “dividends” program that will rebate a portion of our service fees back to tiptotem tippees on a pro rata basis according to their place within the “totem” – e.g., according to their use history. Stay tuned for more on these fronts.