Part D – Understanding and improving industry performance (PDF ...

Case study
Authorisations granted by the ACCC to taxi networks to require use of the Cabcharge
payment system
On 25 February 1986, the Trade Practices Commission (predecessor to the ACCC) granted authorisation to De
Luxe Red & Yellow Cabs in Sydney to provide radio booking services on the condition that taxi operators and
drivers accept the taxi hiring account system (Cabcharge) and display the decals of that system.
At the time, the Cabcharge Account System covered the acceptance of most major credit cards and vouchers.
The Commission agreed that consumers should not be misled as to the availability of credit card services and
that it was in the public’s interest for De Luxe to require that all taxis offer the Cabcharge payment system to
passengers. Between 1986 and 1994, 11 other taxi companies/cooperatives in New South Wales, Victoria and
South Australia (many linked to Cabcharge) were granted authorisation for similar conduct to De Luxe.
Most, if not all, of the networks who had authorisation put in place incentive schemes to encourage operators to
process card transactions through Cabcharge in preference to other providers.
In 2004, the ACCC commenced the process for revocation of the authorisations on the basis that there may no
longer be any public benefit in continuing them because credit card payment had become such a universally
accepted form of payment and it was in the taxi drivers’ interest to process most cards. However, the ACCC
decided that the small public benefit generated by the authorised conduct marginally outweighed the negligible
public detriments and chose not to revoke the authorisations.
Mr Michael Jools, President of the New South Wales Taxi Drivers Association, was dissatisfied with this decision
and applied to the Australian Competition Tribunal under s101(1) of the Trade Practices Act 1974 for a review of
the decision. The Tribunal considered further whether the authorisations would continue to make new entry and
competition less likely than would otherwise be the case. They considered that with the authorisations in place,
the opportunities for a new market participant would be severely reduced. However, without the authorisations,
there would be very little incentive for Cabcharge to permit its credit cards to be used in other systems. Further,
Cabcharge did not need the authorisations in force to encourage taxi networks to take up their system.
The Tribunal found that the potential benefit in sustaining the authorisations could not be said to amount to a
sufficiently certain benefit and the authorisations were revoked in June 2006.
The interconnectivity between the NSPs and Cabcharge
means that potential entrants have to negotiate
individually with taxi operators or drivers for the supply of
competing non-cash payment systems. Negotiation with
many thousands of individual taxi operators and drivers
is highly inefficient and takes time. The inquiry has also
been told that operators who are affiliated to NSPs with
links to Cabcharge are hesitant to install Cabcharge’s
competitors’ payment systems as they fear being
penalised either directly through the booking network or
indirectly by losing assigned licences that are effectively
under Cabcharge’s control.
12.4.3. Market performance
The surcharge and the behaviour of payment
processing providers
The market characteristics described above have led to the
10 per cent surcharge on electronic payments becoming
standard practice for all payment systems providers.
It is important to understand the reasons why this charge
remains so high – that is, so far above the merchant
service fees that are levied on payments processors.
The inquiry understands that a significant factor in
maintaining the surcharge is that portions of the surcharge
are directed to NSPs – and, in some instances, to
operators and drivers – as incentive payments for the use
of particular payment processing systems.
The Gange Corporation told the inquiry that under Silver
Top Taxis’ commercial arrangement with Cabcharge,
Silver Top Taxis are entitled to a service fee of 2.5 per cent
on all transactions it processes on behalf of the relevant
operator. Beyond a certain threshold, a further two per
cent rebate on Cabcharge transactions is also provided
by Cabcharge to Silver Top Taxis, which is passed through
to the taxi operator and not retained by Silver Top Taxis.
So, in total, up to 4.5 per cent is offered by Cabcharge as
incentive payments. 20
20 Gange Corporation, Op. Cit., p. 7
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