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

Chapter 12.
12. Payment systems
Key messages
• Unlike most other goods and services, all
electronic payments in Victorian taxis attract
a ‘service fee’ or surcharge of at least 10
per cent of the total fare (in addition to GST).
This surcharge costs taxi users at least $30
million per year and appears to be well in
excess of the costs incurred in processing
such payments.
• High surcharges on taxi fares are linked to
both a lack of competition in the payments
systems markets and to markets in which taxi
services are supplied. This lack of competition
stems from significant barriers to entry and
expansion for firms seeking to process noncash
payments and the limited incentives for
taxi operators and networks to compete by
offering lower surcharges to taxi users.
• The Victorian Government has inadvertently
created barriers to entry to the payment
instruments and payment processing market
through (a) its policies allowing Cabcharge to
be the sole provider of data collection services
for the Multi Purpose Taxi Program (MPTP)
and (b) through the approvals process for
EFTPOS terminals in cabs. These barriers
can and should be removed.
• Existing competition in payments processing
focuses on attracting taxi operators and
drivers by offering rebates funded from the
prevailing 10 per cent surcharge. On average,
these rebates account for around half of
the surcharge.
• Even if some barriers to competition in
payments processing are lowered – such
as access to processing Cabchargebranded
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 will only occur if and when taxi
operators and/or network service providers
compete effectively for consumers.
• There are some technological developments
that offer the promise of lower fees to taxi
users. It will be important to ensure that
regulation facilitates, rather than stifles,
such innovation.
• The Australian Competition and Consumer
Commission and Reserve Bank of Australia
are well placed to oversee and enforce
regulation of anti-competitive behaviour in the
payments systems market.
A number of concerns have been
raised with the inquiry in relation
to in-cab payment systems, most
notably the 10 per cent ‘service fee’
or surcharge that applies to electronic
payments and the lack of competition
in the payments instruments and
payment processing markets.
This chapter outlines concerns about taxi payment
systems raised in submissions and consultations.
It describes the history of these systems and the
characteristics of the payment systems market. It
discusses market concentration and vertical integration
(including Cabcharge’s dominance of the market),
regulatory and commercial barriers to entry, the behaviour
of payment processing providers and the potential effects
of technology. Finally, the chapter discusses options for
reform to enhance competition and reduce the 10 per
cent surcharge currently imposed on Victorian taxi users.
12.1. Introduction
As with most other goods and services, taxi fares can be
paid by a variety of methods. Passengers can use cash,
debit cards, credit cards (such as Visa and MasterCard)
or third party charge cards (such as American Express
and Diners Club). They can also obtain an electronic or
paper-based taxi-specific payment instrument (a card or
voucher) prior to commencing the trip and have the fare
charged to a personal or business account.
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