REVIEWOF CARD SURCHARGING June2011

SUBMISSIONBYTHE

AUSTRALIANTAXIDRIVERSASSOCIATION

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RESERVEBANKOFAUSTRALIA

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REVIEWOF CARD SURCHARGING June2011

For thirtyyearstheAustralian TaxiIndustryhas been atthe forefrontofunreasonablecredit cardsurchargepractices,and consumersof taxipassengercreditserviceshavesufferedthe impostof excesschargesby thedominantmonopolisticsupplier of thoseservices.Noteven, and despite thecomments in theReserveBank’sdiscussion paper,did theremovalof the“no- surcharge” rulesin 2003 oncredit cards and in 2007onschemedebitcards makeany differencetotheexcessive10%plus GST chargesimposed byCabchargeonthetaxiindustry’s passengers.

The intentthat marketforceswouldexertadownwardspressureonmerchantsurchargesmay haveworkedin acompetitivemarketplace,but that wasnevertobetheoutcomefortaxi surcharges.Priortothe20003reform,the“no-surcharge” rulehad,inany event,been ignored since theinceptionof theCabchargePayments Systems in theearly 1980’s.

Thereisnoreasontoindicatethat furtherreformsnowmooted willmake anygreater differencein situationswherelargeanddominantmerchantswillsimplycontinuetodoasthey please,andsmallermerchantswilltagalong. Standardswhicharenotmandatorywillhaveno impactonthat marketmisbehavior.Variablecostswithintheschemesandasadditional related,merchantcostswillalwaysblurthetotalcost to consumers.

The ReserveBanknotesthat ithasnodirect influenceovermerchantpricing.

Theaction takenbyMichaelJools and theTaxi Driver’sAssociationagainsttheAustralian CompetitionandConsumerCommissionresulted,in 2006,in therevocationofanExemption givenbytheTradePracticesCommissiontopermitThird LineForcingbyparticipatingTaxi Networksto enforcetheuseby taxidriversof theCabchargePaymentSystem.Newentrants, nowfreetoparticipateintheprovision ofeftposservicesin taxisdid notseektochallengethe industrywidepracticeof a10%plusGSTSurchargeonalllinesof credit,aswell asonstraight eftposcards.Itwas too lucrativean opportunity.

Partof theproblem,so farathetaxiindustryisconcerned,isthatthesurchargeisimposed on a“regulated”fare,andoneonwhich there isnoabilityfortheentity ( inthis case,thetaxi driver)to modifypricesandincorporatevariablecostsintothetotal farecharges.Nor can the driverchargeahigherfarein theeventofapassengerchoosingtopaybycredit.Butthe Merchantprovidinganon-cashservicecanimpose asurcharge.Inanopenand competitive marketsuchsurchargeswould,ashadtheReserveBank hoped, be marketreflective.

Thereareextracostsinvolvedinusing any ‘proxy’ cardasthefunding for thenon-cash transaction,andthosecostsvarycardbycard,be theydebit,creditor accountcards.Thetaxi driverhastheregulatedrighttodemandthemeteredfare,andthenceprobablytherightto seekadditionalpaymentfor additional costsbeyondthefareamount.

But howtoassess thosecosts?

Bankinterchangeand transferfees,retentionforfraud,administrativecostsandGST compliancearebutsome of themerchantcostsadditionaltotheschemefeesof Visa,Amex, Mastercardor Diners.Bankand non-Bankeftposcardsaddalayerofcomplexity.

AccountandStoredValue Cardsareyetanotherlayer.

TheThirdPartiesnow involvedinsupplyingan electronicdevice,or apaper /vouchersystemto beused asaproxyforpaymentof thefaresarenotstrictlyapartofthetaxi service,butare actingaspaymentfacilitators.Assuchtheyarechargingforthatservicewith aflat10%fee.

For thoseeftposproviderssupplyingtaxidriverswith devices,theyareacceptingpassenger paymentsasthemerchantonbehalfof thedriverandhavean agreementwith thedriverto pass on thepaymentwith acommissionof between20%and50%of the10%surchargelevied.

Wherethedeviceissupplied tothe taxioperatorratherthan thedriverperse both driverand operatorgetashare, andthefareisavailabletobe cashedout bythedriverortobedirectedto theoperatoras“bailment”.

For Cabchargethedeviceis fixedinto thetaxiandallfunds,faresandsurcharges,flowfirstly to Cabcharge,then and with somedeductionsmade,totheTaxi Network,thenandwithall surchargesdeducted,totheTaxi Operator’sNetwork account. At thesametime theTaxi Driver whohasprovidedthetaxi servicecanusethenetfarespaidas paymentto theOperatorfor bailment of thecab,and withaprocesstoadjust“under’sand overs”of theshift’s fares.

Thereiscurrentlynosharing ofanyofthesurchargewithdriveroroperatorin theCabcharge model.Therearenovariationson the10%standardsurcharge.Nor,tothebestofinformation availabletotheauthorsof this submission, arethere any writtenor signedagreements betweentaxidriversandCabchargeacceptingthisarrangementofreceivingpaymentsfrom passengers,onbehalfsome unspecified thirdparty.

Theremaywellbe sometechnicalimpedimentsonpreventingtheblending ofchargesacrossall cardsor withinaparticularcardscheme,andcurrentmarketdevicesmaynotbeable to differentiatecards.Inthelongrunitshouldbetechnicallypossibletoso differentiate. However theconfusioncreatedfor consumerswillbehuge,with a bewilderingvariationin servicefees charged.Correctapplicationof theGSTdepending on the“financialservices”statusof the schememerchant,and theservicemerchantadds yetmorevariables.

The AustralianTaxiDriversAssociationhaslong been activelyinvolvedin developinga competitivetaxiindustry.Ittook ontheACCC in2003intheAustralianCompetitionTribunal over theTradePracticesExemptionthrough which Cabchargewasempoweredtocreatea monopolisticempirewhich chargedsignificantly for itsservices.Atthestart,thoseservices wereallpaper-basedtransactions,andthesundryparticipatingTaxiNetworksobtained ashare of thefees.In2011,witha primarilyelectronicprocessing oftransactions,thefeesare

excessiveandabhorrent.

Inordernotmerelyto complain,buttoofferabetteralternative,severaltaxidrivermembers

of theATDAhavebecomecommerciallyinvolvedinan enterprisedesignedasthealternative.It iscostfreetodriversandreducesthesurchargeonpassengerswhilstofferingbothabetter system.AsofJune2011thereisanemergingmarketplayerin thesupplyof taxijobofferand paymentsystemstodriversandpassengerswhosepresencemaywellbetheintervening

marketforcesorelieduponby theReserveBank.

TAXISisanewenterprisedevelopedbytaxidriverstoprovideamoreefficientandproductive taxijoboffersystemconnectingintendingpassengerswithavailabledriversovertheinternet.It also provides anintegratedpaymentsystemto createa directpaymentlinkbetweenthe passengerandthedriverprovidingtheservice.Thetechnologyinvolved permitsvariable surchargestobecalculatedoneverydifferentcardtype andforthatrateto bedisplayed and recorded ontripspecificrecords.The whole of thetransactioniscapableof beingconductedon thepassengersowninternetenabled mobile phone,ande-mailreceiptsareprovided.

InitiallytheTAXISmarketingapproachistopresentonly twomerchantsurchargeformats:

8.49%Surcharge,inclusiveof GSTonVisa,Amex, MastercardandDinersClubcreditcards

5%Surcharge,inclusiveofGST,onStoredValueAccounts.

Assoonasatransactionhistorycanbe ascertainedandallrelatedcostsfullyanalyzed,TAXIS proposestodifferentiateratesbetweenBankSchemeDebitCards,CreditCards fromVisa/ MastercardandCreditAccountCardsfromAmex/ DinersClub.

Ratesfor StoredValue Accountswillalsobe reviewed.

Having fourdifferentratesfornon-cashpaymentsinataxicab isprobablysufficient.Comparing anyof thosefour againstthe10%beforeGSTof the currentsystemsshouldprovideamarket impetusfor reasonablechargingtoconsumers.Morewouldbepossible butconfusing.

Withinthosereducedchargesatwentypercentamountisreservedasadirectshareforthe driver,togetherwithotherbenefits.TAXISismindfulthatsuchan effectivecommissionis necessaryto gain driverparticipation,evenat amarginalcostburdentothepassenger.Itis moreoverappropriatethat partof thedirecttimecostsofataxidriverin acceptingnon-cash paymentsbe recognizedasanadditional expense.

Inits startupphase,TAXISisalsoburdenedwitharatefromsome schememerchantsof an industryspecific ratinghigherthantheaveragemerchantfees. Thisisdueto ataxiindustry specific historyof fraudandcharge-backswhich canbe apportionedmoretodeficiencies of the processingsystemsthantodeliberateactionsbyeither drivesorpassengers.TheTAXISsystem hopestodevelopafraud-freehistorywith improvedtechnologicalapplications.

The conclusion wewould puttotheReserveBankis that,indefault ofcoercivepowersto regulateCardSurcharges,itmustrelyonmarketplaceforcesto createacompetitive environment.Thatwas theoriginalobjective.

For atleasttheTaxi Industry,boththeReserveBankand theACCC shouldbedoingallthatthey can tofosteranddevelopsuchacompetitivemarketplace.

As commentontheIssuesnoted:

i) Unlessthey aremandatory,modifyingtheStandardsto allowlimitsto Surchargeswillbeas ineffectiveasithasalwaysbeenin thetaxiindustry.

ii) A competitivemarketplacewill bethebestarbiterofreasonablecharges.A reserveBank

Standard,assistedbyproactiveinterventionfromtheACCC wouldbe mosteffective.

iii) Thetoleranceexistsinanyeventwithoutmandatoryregulation.ForCabcharge,Standards havelongbeenignored,andasin thedisputeoveracceptanceof Visacardatthe timeof the SydneyOlympics,theinterestsofconsumersaresubjugatedwellbelow anynon-mandatory standards.

iv) The merchantservicefeeisnotofitselfagoodmeasureof the cost of cardacceptance, especiallyin an industrywherethat fee isalreadyexcessive.

v)It wouldbe veryconfusingfor consumers tobe presentedwithdifferentsurchargeswithin a cardscheme,andonly marginallyless sofordifferentratesfor each card,andbeyondthe ReserveBanks’ issues,forothernon-cashcards.

vi) Thearrayof costsofacceptancebytheacquirer isprovided,buteffectiveapplication is excessivelycomplex.Suchasupply ofcommerciallysensitiveinformationofendmerchant servicefeesmaybe reasonablyrejected.

vii) Unless,atleastfor taxis, disclosureof allcard costs alsoappliedtoAccountCards (ie: Cabcharge’s own accountcard),theinformation would beinsufficient. Againthismaybe beyondtheReserveBank powers.

Michael Jools PresidentATDA Sunday,June12,2011