Cabcharge

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.

"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."

"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)."

Controversy over surcharge

Cabcharge was criticised for the 10% surcharge it collected on taxi fares paid by credit and debit cards. 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. The Reserve Bank also reviewed taxi payment surcharges and excessive card surcharging. Victoria legislated in late June 2013 to limit the surcharge to 5% or less from February 2014. New South Wales reduced the surcharge to 5% from December 2014. Western Australia reduced the surcharge to 5% in February 2015.

Concluding criticisms about misuse of commercial power

"Perceptions of poor service performance, high fares and a low level of innovation are major contributors to stagnating demand for taxi services. The uneven distribution of income derived by the taxi industry also affects service quality. Licence holders benefit significantly from the scarcity of licences; others in the industry with market power, such as network service providers (NSPs) and Cabcharge, also do well. On the other hand, taxi drivers engaged by operators receive around half the wage they would be entitled to if they were treated as employees. Taxi operators who are paying fees to licence holders under assignments are also under increasing cost pressures.... there are now significant anti-competitive forces at play within the industry, with many years of constraints on competition creating an industry mindset that is heavily focused on protecting incumbent interests, rather than seeking ways to improve services to consumers."

"NSPs generally appear to have significant market power. They have few competitors and, in many cases, have no other competitors in their allocated zones. There appear to be significant economies achieved by having larger network size, but regulation has also contributed to high market concentration. Where firms have significant market power, this may be extended into other markets by vertical integration and other vertical relationships. Of particular concern in this regard, are the links between Cabcharge and one of the major metropolitan NSPs and the extension of NSP activities to in-vehicle equipment supply."

"The inquiry’s view is that commercial barriers set up by Cabcharge are best addressed by the ACCC and the Reserve Bank of Australia, who oversee and enforce regulation of anti-competitive behaviour in payment systems markets and the efficiency of the payment systems and are best placed to ensure regulatory consistency between the states."