Is Tip.ly's new mobile gratuity app a gratuitous product, or can it be the tipping point for mobile payments?

Many companies have struggled for years to find a way to get consumers to use phones for payments. Some wallets promise better rewards and others promise stronger security, but Tipl.ly's approach is a bit more primal: it's targeting the embarrassment consumers experience when they don't have enough cash to tip someone.

"Tip.ly is a bit of a Trojan Horse in mobile payments," said Tip.ly CEO Stephen Campbell, who estimates that cash tips amount to $80 billion a year. "Being able to solve this cash conundrum is a big deal."

Its mobile app, which launched today, asks cash-strapped consumers to snap a photo of a service worker and upload it to Tip.ly with the desired tip amount. To claim the tip, the worker must go online within 14 days and enroll by linking a bank account and uploading a photo to match through facial recognition to the one the consumer snapped earlier.

Tip.ly has no immediate plans to expand its application beyond its current purpose while the mobile-wallet market remains so crowded, Cambpell said.

"There are some great mobile wallet products out there already," he said. "It's not that we don't want to go there, it's just that what we do is very different from what they do."

Tip.ly's target market of merchants — couriers, gardeners, hair stylists — resembles the target market of companies like Square, which already provide a built-in means for tipping. Tip.ly says there is still an opening for its service even among the micromerchants equipped to accept tips through credit cards.

"The technology keeps the tips separate, which is how a service provider likes it, because tips added onto a card payment mean they pay fees on those transactions," said Tim Baldwin, chief technology officer for Tip.ly.

The tip's recipient does not pay anything for the Tip.ly service. Tip.ly charges a convenience fee to the tipper, who funds the tips by linking a credit or debit card. Service providers receive tips deposited to their bank accounts within one to two business days.

One of the nation's largest massage therapy businesses receives $216 million in annual revenue from tips, Baldwin said. "When adding a 2% or 3% card processing fee, that's a huge number," he said. "We could save them $5 million a year."

Also, valets at major hotel chains have told Tip.ly executives that anywhere between 20% to 40% of the time, a consumer will not leave a tip, saying they would make up for it the next time they received the service.

Tip.ly's goal is to "serve the tip recipient and empower the tipper," Campbell said. It plans to give literature to service providers to hand to cash-strapped consumers to tell them how to use Tip.ly.

The company developed its technology over the past year and completed successful tests while verifying platform scalability on Amazon Web Services, Campbell said.

Tipping has become such a problem for consumers that more technologies like Tip.ly will seek to bridge that gap, or businesses will start embedding tips into the cost of their services, said Maria Arminio, president of Avenue B Consulting Inc., a Redondo Beach, Calif.-based payments management consulting firm.

"It's happening more and more that businesses will say no tipping, and that a percentage is already part of the fee," Arminio said.

Tip.ly's business model may clash with other models being tested in the realm of mobile payments, she said. For example, companies such as Square and Starbucks are adding order-ahead capabilities, which can address the tipping issue up-front.

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