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 (formerly Cabcharge Australia), part of ComfortDelGro. In the UK and Singapore, Cabcharge is operated by other 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 (e.g. credit and debit cards) 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 at the centre of bullying allegations, John Legge, Herald Sun, 15 May 2011. 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.ACCC v Cabcharge Australia Ltd FCA 731]; ACCC v Cabcharge Australia Ltd (No 2) FCA 837
Controversy over surcharge Cabcharge was criticised for the 10% surcharge it collected on taxi fares paid by credit and debit cards."Reserve moves to tackle card fee", Peter Martin, The Age, 21 March 2012. Critics argued that the charge was excessive compared with the cost of processing card payments. Professor Allan Fels, the former head of the Australian Competition & Consumer Commission, approached the Reserve Bank of Australia in 2011 to help lower the surcharge.Watchdog puts bite on taxi charge, Herald Sun, 4 August 2011. The Reserve Bank also reviewed taxi payment surcharges and excessive card surcharging.Fels call to cut taxi slug on cards, Natasha Bita, Consumer Editor, The Australian, 6 October 2011. Victoria legislated in late June 2013Transport Legislation Amendment (Foundation Taxi and Hire Car Reforms) Act 2013 – see http://www.legislation.vic.gov.au. to limit the surcharge to 5% or less from February 2014.VIC changes Cabcharge Surcharge BIS Expense Management New South Wales reduced the surcharge to 5% from December 2014.Cheaper taxi fares: NSW Government halves credit card surcharge for taxi customers Transport for NSW 11 December 2014 Western Australia reduced the surcharge to 5% in February 2015.Cheaper taxi fares: Electronic payment surcharge reduction FAQ's Department of Transport
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 "There are now significant anti-competitive forces at play within the industry, most notably the concentration of power with the major taxi networks and Cabcharge."Customers First – Service, Safety, Choice, Taxi Industry Inquiry Draft report, May 2012, page 21.
"The inquiry is concerned primarily about the effectiveness of competition in markets for payments processing and payment instruments. Over time, it appears to the inquiry that Cabcharge has been extremely effective in stifling the development of competition in these markets."Customers First – Service, Safety, Choice, Taxi Industry Inquiry Draft report, May 2012, page 243.
Predatory use of payment instruments "In relation to payment instruments, if the market is defined for taxi-specific payment instruments, then Cabcharge has a very strong position in this market. It appears to have largely captured the network effects and has reinforced this by integrating into payments processing and network services."Customers First – Service, Safety, Choice, Taxi Industry Inquiry Draft report, May 2012, page 254.
"There is a high level of market concentration in the non-cash payment systems market with one enterprise, Cabcharge, historically holding market power in both taxi-specific payment instruments and payments processing. Cabcharge is the only significant taxi-specific payments instrument, and Cabcharge estimates that its electronic payment processing system is found in approximately 97 per cent of Australian taxis, limousines and water taxis, including all – or nearly all – taxis in Victoria."Customers First – Service, Safety, Choice, Taxi Industry Inquiry Draft report, May 2012, page 255.
"...markets for payment instruments and processing are characterised by strong network effects. Cabcharge has been able to take advantage of these network effects by tying its branded cards to its processing facilities; that is, only Cabcharge EFTPOS terminals are permitted to process Cabcharge cards. Cabcharge has not given other payment providers access to process Cabcharge’s own cards and vouchers. As Cabcharge cards are the most widely used payment instrument, and the only significant taxi-specific payment instrument, a taxi operator that does not have the ability to process these cards will be seriously disadvantaged. This means that alternative processors face a significant barrier to establishing a market presence. Market inquiries indicate that Cabcharge branded charge account cards and eTickets account for up to 40 per cent of non-cash transactions in the taxi industry. This was a key issue that the ACCC sought to address in ACCC v Cabcharge Australia Ltd."Customers First – Service, Safety, Choice, Taxi Industry Inquiry Draft report, May 2012, page 256.
Predatory activities through mergers and service controls "Numerous vertical mergers involving Cabcharge have been cause for concern for the ACCC over the past 15 years. Cabcharge’s acquisition of network service providers (NSPs) in Australian capital cities is considered to have given Cabcharge valuable influence over the payment systems installed in its affiliated taxis and raised barriers to entry that have protected its position in the payments system market."Customers First – Service, Safety, Choice, Taxi Industry Inquiry Draft report, May 2012, page 257.
"Through its NSPs, Cabcharge also provides a wide range of services to the industry, including driver training, taxi vehicle 'fit-outs', taxi cameras and meters, licence brokerage and insurance for taxi operators. It is the inquiry’s view that these activities have implications for competition in the payments services markets. More specifically, they help to maintain market power in payment instruments and payments processing: that is, Cabcharge is not likely to be seeking to 'foreclose' downstream markets by providing affiliated NSPs with lower cost access to payments services, but is seeking to make it more difficult for entrants into payments processing to provide services to taxi operators. Through this strategy, elements of the market essentially become foreclosed to other processors, making it harder for them to build scale and compete with Cabcharge. This protection of the 10% surcharge is a key consideration for Cabcharge given that income from the service fee contributes around $87.3 million to its annual revenue (almost 50 per cent of the company’s total annual revenue)."
Observations about Cabcharge's 10% surcharge "... 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."Customers First – Service, Safety, Choice, Taxi Industry Inquiry Draft report, May 2012, page 259.
"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 payment 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."Customers First – Service, Safety, Choice, Taxi Industry Inquiry Draft report, May 2012, page 260.
"The lack of access to Cabcharge branded cards has also reduced competition nationwide in markets for taxi payments processing. However, the Victorian Government has little power to effect change in this area. Competition law rests in the federal domain, with the ACCC being responsible for ensuring that payments system arrangements comply with the competition and access provisions of the Commonwealth Competition and Consumer Act 2010. As discussed above, the ACCC has endeavoured to address the commercial barriers to entry in the past and continues to monitor Cabcharge’s behaviour. The inquiry supports the ACCC’s continued scrutiny of this issue."Customers First – Service, Safety, Choice, Taxi Industry Inquiry Draft report, May 2012, page 261.
"... the inquiry remains concerned about the 10 per cent surcharge currently imposed on Victorian taxi users. The fact that half of these fees overall are funnelled back to drivers, NSPs and operators strongly suggests that the 10 per cent is unnecessarily high and that there will be significant consumer benefit in lowering the charge to a level where these payments are minimal or eliminated."Customers First – Service, Safety, Choice, Taxi Industry Inquiry Draft report, May 2012, page 262.
Concluding criticisms about misuse of commercial power