The Cabcharge account payment system was established in 1976 to provide taxi passengers a way to pay for taxi fares by non-cash means. The payment system is owned and operated by A2B Australia, an Australian Securities Exchange listed public company. In the UK and Singapore, Cabcharge is operated by subsidiaries of ComfortDelGro. Cabcharge Australia's commercial activities, in which the Cabcharge payment system is an integral part, have been controversial at times and the company has faced regular accusations of excessive charging or profiteering and predatory and anti-competitive practices. The company was recently subject to adverse court proceedings and a major settlement arising from these behaviours.
Cabcharge system
The Cabcharge system has several aspects:
Cabcharge accounts – customers can create a line of credit for use to pay for taxi fares and related charges, and involves the use of a Cabcharge credit card, e-ticket or paper voucher. The value of taxi fares paid using such instruments in Australia in 2007/08 was over A$455 million. Cabcharge levies a 10% service fee on such payments.
payment processing system – drivers can process Cabcharge instruments and other non-cash payments manually or electronically. The manual system uses dockets and cheque-like vouchers supplied by Cabcharge, which are processed using credit card imprinters. The electronic system uses EFTPOS terminals and other equipment supplied by Cabcharge. In 2008, customers in Victoria paid at least $350 million in taxi fares using banking cards. Cabcharge's EFTPOS terminals were present in approximately 95% of Australia's taxis. Cabcharge does not charge drivers, owners or networks for supplying equipment for the payment processing system, instead charging passengers a 10% service fee. Networks are paid a commission out of the service fee.
taximeters and meter updates – Cabcharge began supplying these from late 2004. Taximeters, which record the charge for each passenger's journey, require regular updates for taxi fare changes. Updates cannot be installed by drivers or operators. A significant point of difference of Cabcharge's meters compared to their competitors is that updates can be installed "over the air" by mobile telephony and Cabcharge's EFTPOS systems, whereas competitors' meter upgrades have to be physically installed, requiring taxis to be off the road for a period of time. The meters and updates are part of an integrated electronic payment and radio dispatch system with other taxi equipment supplied by Cabcharge.
Controversy over surcharge
Though called a service fee by Cabcharge, to the general public and government authorities the charge for processing credit card payments is commonly referred to as a surcharge, and in the case of Cabcharge the initial 10% charge has given rise to controversy, litigation and government legislative intervention. Cabcharge has been criticised for the 10% surcharge it collects on taxi fares paid by credit and debit cards and for the general anti-competitive control it exerts on other industry participants through its control of electronic payments and other areas of the taxi system such as vehicle and related repairs and installation of in-vehicle equipment, insurance, vehicle leasing and training. Criticism has emanated from various sources including the chair of the Taxi Industry Inquiry, Professor Allan Fels, the former head of the Australian Competition & Consumer Commission, and leading card companies. The 10% charge was reviewed by the Reserve Bank of Australia in 2012. It was found to be excessive and predatory, and in February 2013 Victoria was the first State to restrict the surcharge to 5%, following recommendations made by the Taxi Industry Inquiry, and a further review of the surcharge in that State may lead to the figure being set at well below 5%. In December 2014 the surcharge was also reduced to 5% in New South Wales. Western Australia reduced the surcharge to 5% in February 2015. The practice was also investigated by the Reserve Bank of Australia. Cabcharge provides EFTPOS terminals, free of charge or below cost, to approximately 97% of taxis in Australia. However, there are competitors like Live taxi and Motorpass. Cabcharge justifies the surcharge on the basis that it incurs the costs associated with transactions including card and other product production, in-taxi processing, administration, fraud protection and investigation, provision of statements and driver education. However, this situation also allows the company to exert substantial and anti-competitive control over most of the Australian taxi industry.
Professor Allan Fels recently approached the Reserve Bank of Australia to help lower the 10% surcharge. He has been reported as saying that -
Criticism by major credit operators
Representatives from major credit card operators Visa and MasterCard have also criticised the 10% fee. Visa spokesman Adam Wand yesterday said Cabcharge was making taxi passengers pay more than ten times the average merchant fee charged by banks, and five times more than the average fee charged by retailers, based on Reserve Bank data. "Surcharges in the order of 10 per cent are simply excessive and way above the cost of accepting a Visa card," he said. "It's certainly more than 10 times the average Reserve Bank published cost."
Mastercard head of strategy David Masters said there was "no way" that credit-card processing could cost Cabcharge 10 per cent of a fare. "I don't know how they can justify it," he said. "There is no question it pads out their bottom line, rather than reflecting the cost of the transaction."
State limits on surcharge
Victoria legislated in late June 2013 to limit the surcharge to 5% or less from 1 February 2014, following recommendations of the Taxi Industry Inquiry. The Essential Services Commission is required to review the charge, which may lead to the surcharge being reduced below 5%, to reflect Cabcharge's reasonable cost of providing a non-cash payment option in taxis. New South Wales reduced the surcharge to 5% from 12 December 2014. Western Australia reduced the surcharge to 5% from 24 February 2015.
Reserve Bank action to limit card surcharges in response to the criticism
Reserve Bank data is reported as showing that banks charge merchants an average fee of 0.81% to process Visa or Mastercard payments, while the average fee passed on from the merchant to customers is 1.9% for Visa and 1.8% for MasterCard. The RBA considers that some companies charges are excessive and, as a result, it is drafting new rules to compel offenders to limit their charges to the costs actually incurred by merchants, and that "In the gun will be the 10% charge imposed by Cabcharge and similar companies for using credit cards to pay taxi fares..."
Findings of the Taxi Industry Inquiry
The Taxi Industry Inquiry headed by Professor Fels has made a number of major criticisms of Cabcharge and its activities in a recent report.
General anti-competitive conduct
Predatory use of payment instruments
Predatory activities through mergers and service controls
Observations about Cabcharge's 10% surcharge
Concluding criticisms about misuse of commercial power
Winner of one of Australia's shonkiest products
The Australian consumer magazine Choice confers awards annually, the Shonky Awards, to recognise Australia's poorest or "shonkiest" products. Choice states that the competition "recognises and reprimands misleading claims, false advertising, lack of transparency, faulty goods and/or poor service." Cabcharge was awarded a Shonky Award in 2012 for its 10% surcharge on taxi fares paid by card.
