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

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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
Opportunities with new technology New technology, particularly the use of GPS-enabled smartphone applications to book taxis may have the potential to undermine the 10 per cent service fee. New smartphone apps with payment functions potentially also enable the transfer of payment from a passenger’s account to a driver’s (or operator’s) account, bypassing the need for non-cash payment instruments or their associated payment processing systems (see case study). Of course, it will still be possible for a surcharge to be applied to a fare irrespective of how payment is made, but using these new applications may at least ensure that the bulk of any surcharge finds its way to those providing the service. While it is difficult to predict how these developments may affect the taxi industry in the future, the inquiry is concerned to ensure that regulation does not stand in the way of technology improving competition in the payments processing market. 2526 12.5. Reform options The inquiry is concerned that consumers pay excessive fees for processing electronic payments of taxi fares. The significant market power historically exercised by Cabcharge in setting its 10 per cent service fee appears to act as a ‘marker’ for other payments service providers. This is a particular concern in relation to general bank issued or third party payment instruments, given that average surcharges applied by merchants in other sectors are between one and four per cent. However, the complexity of the operation and regulation of payment systems, the prevailing market characteristics and the uncertain impact of technology all need to be considered carefully when considering options to deal with this problem. Case study Technology and fares Alternatives to using taxi-specific or third party payment instruments are beginning to emerge. The inquiry is aware of at least one application, ingogo, that enables taxi users in Sydney to hail a cab and pay the fare using a smartphone. ingogo has developed a safe payment function that uses a four digit payment code to protect a passenger’s credit card details. Customers download the free ingogo app, load their credit card details and enter a four digit payment code. At the end of the trip, customers check the fare entered by the driver is correct, enter the code to authorise payment and receive a receipt via email. The fare is deposited the next business day into the driver’s bank account. ingogo advertise a lower booking fee for using the app and an eight per cent credit card charge, claiming that customers can save 4.7 per cent on an average cab fare. 25 The Australian Taxi Drivers Association advised the inquiry that it is working with TAXIS (also currently only operating in Sydney) to offer ‘an alternative job offer and payment system’ to drivers at any time that also reduces costs to passengers. TAXIS also offer registered users the ability to pay a cab fare using a web-enabled mobile phone, without presenting a credit card. The Association observes that “this action by taxi drivers themselves has the potential to fundamentally reshape the industry by re-directing cash flows from the monopolistic and anticompetitive bodies now dominant”. 26 25 See www.ingogo.mobi 26 ATDA, Op. Cit., p.4 260
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Part D Understanding industry perfo
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Case study New Zealand’s experien
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Case study Singapore’s unique reg
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Case study London’s quality contr
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From these comparisons, we can obse
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New Zealand is an example of a taxi
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Chapter 10. 10. Taxis, hire cars an
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Nonetheless, there are market mecha
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10.2.2. Detriments from restriction
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On the other hand, some submissions
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Country licence releases and the pu
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10.2.3. Are there offsetting benefi
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The inquiry conducted research into
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10.2.4. Valuing the effect of licen
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It would also be possible to implem
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Inquiry findings è The detriments
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In its 1999 report, KPMG argued tha
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10.3.4. Effect on taxi operators an
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The practices raised with the inqui
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Historically, the zones generally r
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Page 82 and 83: Walters FM also said: Until such ti
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Page 86 and 87: The ACCC also noted that West Subur
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