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

To compete with Cabcharge, the newer entrants to
the payment systems market have to differentiate
themselves by offering rebates directly to operators
and/or drivers. CabFare, Taxi LiveEpay and GM Cabs
all provide rebates or commissions to operators
and/or drivers who use their facilities. This can be
up to a five per cent rebate on the surcharge. 21
Some taxi operators have told the inquiry that this feature
has become an important revenue stream to their business.
However, one industry participant advised the inquiry that
the economics of these rebates are ‘marginal’, representing
only $1,000 to $1,200 of income per year (or approximately
$14 per week) in the best case scenario (based on a two
to four per cent rebate on $40,000 worth of electronically
processed fares).
The inquiry understands that payment processing
system providers use the remaining surcharge revenue
to pay for such things as investment in terminals, backend
processing and merchant service fees to card
schemes and acquiring banks. These are the resource
costs associated with supplying the services. The
other payments appear to simply be transfers between
consumers and operators, drivers or networks. 22
Third party providers also compete with Cabcharge
through their payment arrangements with operators. All
payments from Cabcharge are transferred to operators via
the NSPs to which they are affiliated. This process enables
the NSPs to deduct charges such as assignment fees and
affiliation fees from the incoming credit reimbursements
before they reach the operator. The inquiry has heard
from operators that this eventual reimbursement usually
takes up to two weeks (but can take longer) and that the
process is not transparent and is difficult to reconcile.
Conversely, third party providers do not involve the NSP
and transfer money directly to operators in a much more
timely and accountable manner.
Inquiry findings
è The competitive practices that disburse the
proceeds of the 10 per cent surcharge do not
benefit consumers in any way. Rather, they
simply serve to demonstrate that a 10 per cent
surcharge far exceeds the resource costs of
providing the payment service.
è The inquiry considers the service fee levied on
the procuring of electronic payments should
be brought under regulation as part of taxi
fares and set at a level that better reflects the
resource costs of providing this service.
What’s happening in other places?
New York City
In New York City, around 50 per cent of taxi trips
are paid for electronically, either by credit cards or
debit cards.
Passengers do not pay a surcharge for using credit
or debit facilities. Drivers are not permitted to charge
more for credit or debit than for cash payments.
Medallion owners are responsible for the technology
in the taxi and are able to deduct up to five per cent
of the fare box paid for electronically from drivers’
payments. The credit/debit card fees for owners are
around 3.5 to 4 per cent. These costs include fees for
banks and vendors.
The industry regulator, the Taxi and Limousine
Commission, argues that there are significant
benefits from using non-cash payments that accrue
to both the industry and passenger.
Research shows that acceptance of credit and
debit cards presents an opportunity for increased
revenue – more trips and greater tips! Drivers will
also benefit from increased safety. 23
21 The Australian (8 October 2011), ‘Cabbies want cut of plastic fare fees’,
www.theaustralian.com.au/national-affairs/cabbies-want-cut-of-plasticfare-fees/story-fn59niix-1226161614795,
accessed 4 January 2012
22 Given the highly competitive situation of operators, the inquiry would
expect that these rebate payments to operators are competed away
(likely to be reflected in higher assignment prices for licences): that
is, operators with access to these additional revenue streams will be
able to outbid other operators for licence assignments. Therefore,
the ultimate beneficiaries of these payments are likely to be licence
holders. Given the less competitive situation of networks, it seems more
plausible that the networks benefit from fees received from Cabcharge
23
As discussed in section 12.3.2, even with the lessening
of some barriers to competition – such as access to
processing Cabcharge-branded cards and the removal
of the MPTP-Cabcharge monopoly – the 10 per cent
surcharge is likely to remain common practice. Market
pressure for a reduction in the surcharge may only occur
if and when taxi operators and networks effectively
compete for consumers by lowering fares and the costs
of associated payment methods. 24
23 See www.nyc.gov/html/tlc/html/industry/taxi-cab_serv_enh.shtml,
accessed 4 April 2012
24 At present, customers have limited ability to know if a taxi fare will be
discounted. For example, operators have only limited opportunity to
let their customers know that their card processing fee is less than 10
per cent. Given this, and the fact that fares are mandated, there is little
incentive for discounting on a wide scale
Understanding industry performance CUSTOMERS FIRST 259