Hairdressers could face losses of over £81 million in missed tips if they reopen without proper consideration for cashless practices, says a new study from financial markets analysts.

According to the research, two in three consumers would avoid tipping if they couldn’t use cash, equating to losses of £81,270,000 for hairdressers based on a standard 10% tip.

As hair salons prepare to reopen across the UK, many are putting social distancing measures in place, including the use of cashless payment systems, but this study raises the necessity for those businesses to adjust processes and systems to facilitate a cashless way of tipping.

Those in London will be hardest hit, with 71% of customers living in the capital saying they wouldn’t tip without cash. In the UK, there is currently no legal requirement for service charges to be passed on to front line staff, so employees could face losing out.

Abigail Oleck-Hewett is the MD of BeauSkin London, a hair and beauty salon in the capital. She said:

“Unfortunately, clients are very much less inclined to tip when using cashless, especially when prepaying for treatments and booking online. Therefore, we will be working on a % commission for our team on all retail orders from their clients, even online orders and treatments bookings.”

Habitat Cafe in Aberfeldy was forced to go cashless after their local bank branch was closed down. Speaking on their Facebook page about the reduction in tips as a result of contactless payments, they said:

“Contactless cards now make up around 80% of customer payments (at least in our business). They are fast and less bother than chip & pin or cash. Just hover and go. Our customers love contactless.

“But the flipside of this speedy payment method is that customers are mentally already out of the door whilst the transaction is still going through the phone line. Whereas previously they might chat a little with staff during cash or card payment, now they just wave their plastic and zoom off in a cloud of coffee grinds. And in the process, they forget something. The agreement. Their part has not yet been fulfilled. There has been no tip.

“Now if cash had been exchanged, there would be a prompt to tip. Oh look, I have change in my hand. I’m supposed to do something with this aren’t I? Aah yes, 10%. Or a few quid. In the jar. There. Done.

“But technology has begun to kill the tip. At least with chip & pin, customers had the option to add a tip onto the payment. But with contactless that is not possible, or at least not practical.”

Dennis Relojo-Howell, founder of psychology website Psychreg, explained the psychological rationale behind tipping:

“One reason people tip is because they feel that they are helping people. And it has been demonstrated in a number of studies that helping people makes us feel good. We also tend to have a preference for ‘physical evidence' when helping other people; that's why people are less inclined to tip if they can't do so with cash.”

Speaking of the findings, Nigel Frith, senior financial analyst at AskTraders.com, which conducted the research, adds,:

“It’s clear that a move to a cashless society is on the cards, as consumers have been encouraged to use cashless payments during the pandemic.

“The net gains of that move could be positive; the ease of digital payments combined with the rise in challenger banks and payment-enabled devices mean it’s a more accessible payment method than ever before. Yet the impact on those in service industries cannot be ignored.

“To move with the times, either the hospitality businesses themselves, or those making use of their services, will need to change their behaviours – either continuing to allow a level of cash payment, or making tips via cashless payment a clearer option.”

However, Clare Bailey, independent retail analyst, suggests there are broader benefits to going cashless from which those in the haircare and broader retail sector can benefit:

“Cashless society is something we've been nudging toward for some time, but a lot of retailers have previously assumed that taking card payments is more expensive. But what they weren't considering is the cost of using cash; the cost of someone having to cash up the till, get the money to the bank, keep a supply of change, plus the risks around taking the physical cash to the bank – all of these things are a major headache, and represent the true cost of cash in business.

“In these ways, cash actually leaves retailers more vulnerable and incurs costs. There's no reason why all independent retailers shouldn't take all forms of contactless payment.

“If we think of it another way, the members of society who want to stick with cash, typically, tend to be a bit older, and they are actually more vulnerable themselves, so it may be that the cashless effects of the pandemic will change the paradigm around their attitude to cash.

“We can expect consumers to be much more mindful of their own safety even after lockdown is lifted so this insight into the worries of consumers around using cash is important.”