Squeeze approaches for Cabcharge's service fees

Ian Rogers
The business model of taxi payments processor Cabcharge may take a knock if the government in Victoria adopts proposals suggested by an inquiry headed by two former competition regulators.

In a draft report, released yesterday, Allan Fels and David Cousins proposed that the government's Taxi Directorate should halve the service fee of 10 per cent (or 11 per cent, including GST). If implemented in Victoria, the move would affect around one sixth of the annual revenue of Cabcharge.

Rivals providers of payments processing in taxis would also be harmed since they have built their business models on sharing a greater percentage of this fee with operators and drivers compared with Cabcharge. Those firms include National Billing Group, operator of the Cabfare payment system.

Fels and Cousins also recommends that the two technical monopolies that favour the use of Cabcharge terminals be removed.

Cabcharge faces a further, and potentially more direct, threat over the course of the next year as the Payments System Board finalises its decision on whether to allow card schemes and banks to curb surcharging.

The industry expects that the PSB will soon adopt a model that limits surcharges to actual fees incurred.

If this is the case, then, on one view, Cabcharge would have to slash its service fee on card-based payments to less than one per cent, in line with the merchant fee paid to National Australia Bank.

The company is likely to argue that the service fee reflects a legitimate fee for service model. A short history of this fee, in the draft report of the Taxi Industry Inquiry, lends some support to this view given the 10 per cent surcharge applied to voucher-based payments dating from the 1970s.

The more recent and more controversial history is NAB's acquiescence in allowing Cabcharge to extend this service fee to credit card payments in the 1990s. Electronic payments now account for around 40 per cent of all taxi payments, based on Victorian data.

A literal reading of the MasterCard and Visa scheme rules, and their contracts with the banks, appears to put the service fee in breach of the terms of the contracts between NAB and the card schemes (and possibly also in breach of the contract between NAB and Cabcharge).

The credit card schemes expect, or hope, that NAB will rein in the Cabcharge service fee (assuming the payment providers cannot negotiate to incorporate the service fee into the base level of taxi fares).

The card schemes expect all the banks to patrol the surcharging activities of their customers, assuming they gain the legal authority to do so from the PSB. Qantas is another target often mentioned as lifting its pricing under the guise of a credit card surcharge.

If NAB doesn't act then the credit card schemes could, in theory, fine the banks and make their dealings with Cabcharge uneconomic.