Software & Design

Taxi Software Makes $5.2 Million In Extra Tips Per Year 

NYC Taxi Software Makes $US5.2 Million In Extra Tips Per Year

Taxi drivers already have to contend with a lot of crap. Drunk passengers, angry passengers, passengers who insist on eating tuna casserole in the backseat, Uber, criminals… the list goes on. Add this to the list of grievances: Some cab drivers are making more money for doing the same job as others in NYC, even if riders tip the same.

Most people use the default percentage options when paying for a New York cab. That means they just press 20 per cent on the sales machine instead of calculating it themselves. But two cab rides taken an identical distance with one rider can wind up with different results for that default 20 per cent tip. Differences in tipping software added an extra $US5.2 million to the coffers of cabbies using one system over another.

Quantitative analyst Ben Wellington investigated the strange tipping discrepancy after Businessweek published an article about tipping practices. The Businessweek article said that people tip 1 per cent more at 4pm, a stat that Wellington found bizarre. He dug into the methodology of the article, which used publicly available data about NYC taxi rides paid for by credit cards, and realised Businessweek’s data science was messed up.

People weren’t suddenly becoming more generous as the day wound down. Instead, they were tipping the same as always. But the tipping software for about half the taxis was including a surcharge that begins at 4pm in its calculated tip, causing an increase. That tipping software, Creative Mobile Technologies, includes surcharge and tax in its tip calculation, while competitor Verifone does not. This means people who ride in cabs with CMT end up paying more for their ride because the default tip options wind up being more expensive.

Wellington looked at the total excess tips amassed by CMT drivers:

To estimate the total size of excess tips, I looked at the subset of CMT processed credit card rides where users used default tips. The excess tips in 2013 amounted to about $US2.0 million in tips from tolls and $US3.2 million in tips from the $US0.50 MTA tax on most standard rides, for an annual total of about $US5.2 million in extra tips. That’s about $US200 in extra tips on average for each unique driver of CMT enabled cabs per year!

This is good news for CMT drivers, but it’s unfair to drivers with Verifone…and to people who, reasonably, assume that the default tip isn’t including surcharges, taxes, and tolls. [I Quant NY]

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