Beyond the balance sheet, loyalty is the primary currency restaurant and hospitality operators survive on.
But it’s not just the loyalty of their customers that keeps restaurants in business — it is the loyalty and dependability of their workers, which is undergoing a transformation as innovations like instant digital payouts help address long-standing challenges within the industry such as income stability, worker churn, and employee satisfaction.
And as highlighted by the Wednesday (Aug. 28) news that Kickfin has joined the Toast Partner Ecosystem, allowing Toast customers to instantly calculate tip pools or shares and send payouts directly to their employees’ bank of choice — no cash or pay cards required — instant digital payouts are rapidly becoming the new standard for the restaurant industry.
“What we’ve seen is that operators have been spending close to an hour each shift actually doing the calculations, dividing up the cash tip pool, trying to understand what each and every employee is making,” Justin Roberts, Co-Founder at Kickfin, told PYMNTS’ CEO Karen Webster during a conversation with Drew Edwards, CEO at Ingo Payments.
“Tipping is here to stay and getting more complicated than ever. And this expectation of instant and choices is just getting started, trending up and to the right,” Edwards added.
According to PYMNTS Intelligence, 62% of restaurant workers prefer same-day tips, and 37% want their tips immediately, statistics that reflect a broader move toward cashless transactions across the sector.
Read more: Where Instant Payments Is Headed — and Why
Historically, cash was king in the tipping economy, and it was easy at the end of a shift to count the cash taken in by the restaurant and divide it among the workers. The increase in credit card transactions and the complexities has all but eliminated cash tipping, but not the archaic process of paying out tips in cash to those workers at the end of the shift. The frictions — and risk — associated with cash handling have driven operators to seek digital payout solutions. Being integrated into the restaurant point of sale (POS) can save the restaurant operator time at the end of the shift in calculating tip payouts — from 45 minutes to an hour, Roberts said, to “literally 60 seconds.”
“Cash is not organically flowing into these businesses; they’re literally paying companies like Loomis to bring money in by truck every day,” explained Edwards, adding that it “annoys the bigger guys, the McDonald’s and Starbucks of the world,” adding that 90% of restaurants still give their workers tips in cash.
The growing expectation among workers for instant digital payouts, both Edwards and Roberts noted, is a trend that is not just a nice-to-have but increasingly a must-have feature for hospitality businesses.
“When we first brought this product to market in partnership with Ingo, the whole goal was to displace cash,” said Roberts. “From the employee’s perspective, it’s about, How can we make it really easy for them to be rewarded for their shift?”
And the emergence of the digital tipping landscape is not just about speed; it’s also about managing the growing complexity of tip distribution. In many restaurants, tips are not only earned by waitstaff but also shared among back-of-house staff, such as dishwashers and cooks.
The ability to instantly move money directly to the worker’s bank of choice represents a leap in not just efficiency, but also employee satisfaction and retention. The ability to access earnings instantly can help workers manage day-to-day expenses, avoid high-interest payday loans, and improve overall financial well-being.
Read more: Why 2024 Will Be ‘Tipping Point’ for Instant Payments
As digital tipping becomes more widespread, the opportunity to integrate embedded finance into these platforms is growing.
Embedded finance opens up new possibilities for managing the flow of money within these systems. As Edwards explained, managing the inflow and outflow of funds in real time requires sophisticated controls and risk management, especially as the scale of transactions increases. The ability to offer a range of payout options, including issuing cards, adds another layer of flexibility and convenience for both workers and operators.
“These workers are used to walking out with cash, and they want to walk out with real money that they can spend,” said Edwards, noting that many restaurant employees can be teens or others who do not have a bank account — elements which present their own complexity.
To address this, Kickfin and Ingo are exploring options such as issuing new virtual accounts to workers. This not only provides a solution for workers who want another banking option, but an opportunity to expand market share by tapping into the quick-service restaurant sector, where average tips may be lower, but the demand for digital payouts remains strong.
“When you can instantly provision a new account and repeatedly fund it for a worker in a high-turnover environment–especially when those workers move around and rely on that income– you have all the makings for a very profitable kind of relationship,” Edwards said.
And while restaurants are a primary focus, the application of digital tipping and instant payouts extends to other service industries as well. Spas, salons and other personal service providers also rely heavily on tips, and their workers are demanding the same level of immediacy and convenience in their payouts.
“When we look at the partnership that we have with Ingo, [we’re] always looking for ways to establish your beachhead,” said Roberts, noting that other industries present opportunities for expansion, as they share similar pain points with restaurants in terms of tip distribution and payout efficiency.
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