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Digital Transactions, February 2014

Acquiring: Hailing Payments
February 1, 2014

Kevin Woodward

With more than 171,000 taxis in the United States, the opportunity to convert cash to electronic transactions can go far.

Change is coming to Washington, D.C., at least to the taxis roaming the streets of the nation’s capital. Washington is just the latest major U.S. city to add credit and debit card acceptance to its fleets of taxis.

Given that such efforts only gained traction beginning in 2008 when New York City became the most prominent city to adopt payment card acceptance in taxis, many current estimates say only half of U.S. taxis are set up to accept electronic payments. That leaves a lot of potential transactions to be converted from cash to electronic.

Just how much? Estimates vary. At Taxi Magic, a unit of RideCharge Inc., Sanders Partee, president, says his company services approximately 100,000 taxis, or about half of the nation’s fleet. On average, those taxis generate about $4,000 per month in fares. Doing the math yields an estimated pool of $400 million in monthly fares that could be electronified. Los Angeles-based research firm IbisWorld says the U.S. taxi industry generates $10 billion in annual revenue.

In New York City alone, an estimated $1.27 billion in fares continue to be paid in cash, assuming the total average daily farebox collection is $7.4 million, with 53% of that paid with a credit or debit card, using figures from the NYC Taxi & Limousine Commission.

All 13,237 NYC taxis accept payment cards, says Allan J. Fromberg, NYC Taxi & Limousine Commission deputy commissioner for public affairs. Nationally, some estimates suggest only half of the U.S. taxi fleet is equipped to accept credit and debit cards.

Huge Payoff

The potential payoff for payments companies is huge, given that taxi fares are a new market. And that is creating a surge of interest among traditional payments processors and nascent technology firms.

Major players in taxis include payment-terminal maker VeriFone Systems Inc., San Jose, Calif., and taxi specialist Creative Mobile Technologies LLC, New York. Notably, each of them splits the New York City taxi fleet and installs video displays and payment terminals inside taxis.

Other players are primarily app-based, taking advantage of the growing ubiquity of smart phones, with some devoted to the taxi market and others seeking a broader base of merchants.

These include San Francisco-based Square Inc.; Intuit Inc.’s GoPayment, Mountain View, Calif.; Troy, Mich.-based North American Bancard’s PayAnywhere; Taxi Magic from Alexandria, Va.-based Ride Charge; San Francisco-based Uber; Gett by GT Get Taxi Ltd., New York; Lyft, San Francisco; mytaxi by Intelligent Apps Gmbh, Germany; Hailo, London; and Taxi Mojo from San Francisco-based Swishly Inc.

All accept credit and debit cards as payment, but Uber also accepts PayPal. Braintree Payment Solutions LLC, now owned by PayPal parent company eBay Inc., is Uber’s payment gateway.

And consumers who are American Express rewards cardholders riding in New York City taxis equipped with the VeriFone system can use their AmEx points to pay for rides.

‘A Whole Different Attitude’

While each of the schemes is rooted in converting cash fares into electronic ones, their approaches to enticing consumers, and drivers, into choosing to pay and accept payment with a card are different.

For example, VeriFone and Creative Mobile Technologies, known as CMT, use in-vehicle systems that combine a payment terminal with a monitor that displays advertisements and entertainment programming. These systems are fixed and provide logistical information about the vehicle’s location, and fare data via a connection to the taxi meter.

The other group of taxi payment services relies on smart phones to power apps that can be used to hail and pay for taxis, and, in some cases, for private cars. It’s been only in the past three years that many of these smart-phone apps have gained ground, thanks to the increasing consumer adoption of smart phones, faster and more reliable cellular data networks, and cards replacing cash for low-value transactions, a trend validated by the Federal Reserve’s 2013 Payments Study.

Even with all of these companies vying for taxis, there remains plenty of opportunity for them, says Gil Luria, managing director for Los Angeles-based Wedbush Securities. “There’s room for all of these solutions,” Luria says. “There are still a lot of cabs without terminals installed.”

Taxi owners have a lot of incentive to install terminals because of the visibility they offer into fares and trips, he says.

That visibility is one reason Washington, D.C., mandated credit and debit card acceptance in taxis, says Ron M. Linton, chairman of the District of Columbia Taxi Commission, in a program called the Taxi Smart Meter System. The commission estimates that taxis under its jurisdiction make 20 million to 24 million annual rides.

Part of the incentive also has to do with changing consumer habits. “We are getting new residents of about 1,000 a month,” Linton says. “Most of them are under 40. We’re getting a younger population with a whole different attitude about moving around and carrying cash.”

Another factor is the thousands of tourists—many of whom are from other nations—who visit the District and who want to be able to use their credit cards, Linton says.

About 6,400 Washington taxis have the new meter system installed, Linton says. “For the user, it, of course, eliminates the necessity of worrying about if they have enough cash in hand,” he says. “The District is unique in that we don’t have a lot of long rides, but people take a lot of them. The last thing they want, particularly businesspeople, is being bothered by fooling around with cash.”

The District has eight payment-service providers cab owners can choose from. Payment processing fees range from none to as much as 5%, Linton says, with monthly fees ranging from $60 to $100.

Taxi Apps

But the big payoff for the commission, as it is for many other municipal taxi commissions, is the ability to obtain data about fares and trips. For each vehicle subject to the commission’s jurisdiction, the commission will know how many trips are made, their trip lengths, and if a trip was reserved, in addition to the fare, Linton says.

In one example of how that data can be used, Jason Gross, VeriFone vice president of strategy and marketing, recalls a situation a couple of years ago in New York City where a small minority of drivers used the out-of-town rate code instead of the proper local rate code. To prevent travelers from paying the wrong fare, the New York City commission asked VeriFone to use geo-fencing technology on the meters that would pop up a warning to them that the rate had changed, he says.

“The integrated system allows for a lot more of that kind of functionality,” Gross says. Some municipalities have inquired about adding cameras and placing an emergency button within passenger reach, he says.

Though that level of sophistication may be best achieved with a built-in taxi system, some of the smart-phone taxi apps are able to offer similar capabilities. With these apps, consumers can order a taxi, and with some, they can check the estimated time of arrival as well as pay for the ride using the app and an attached payment account.

Taxi Magic has that level of integration in most of the markets it serves, says Partee. “Since it’s connected to the meter and we’re connected to it, the app tells our service what the meter says,” Partee says. Taxi Magic serves 90 taxi fleets in 60 locations, and has backseat devices in more than 10,000 cabs.

Consumers, too, have a need for ride data beyond the fare, Partee says, especially if they’re traveling for business. Many corporate travel managers prefer receipts that have as much information about the expense as possible, he says.

As for payments, Taxi Magic is set up as an independent sales organization and a payment aggregator, he says. Its processor is First Data Corp. “We provide the settlement,” Partee says. “We can go directly to drivers and be an aggregator for the driver and disburse funds to them directly.”

Or, the merchant of record could be the taxi fleet owner, Partee says. Taxi Magic uses an interchange-plus pricing model, though Partee will not disclose the price.

‘The Way of the Future’

Even though taxi-company owners and regulators can mandate credit and debit card acceptance in taxis, some drivers may still rebuff a consumer’s attempt to pay electronically. In the District of Columbia, the commission has 76 pending cases of driver refusal to accept a card, Linton says. Younger drivers tend to be more adaptable, he says, “and they’re doing very well. The older ones don’t like change.”

Driver reluctance is nothing new, says Luria. “They perceive cash to have lower costs to accept,” he says. “But over time, they don’t always get a choice from who owns the cab and because they may get bigger tips from people who pay with cards.”

But change comes anyway, especially when consumers carry smart phones and use them to hail and pay for cab rides. “It’s the way of the future,” Linton says of the apps. “Most people will have some kind of communication device that will let them use an app to summon a ride.”

Taxi Magic recognized that several years ago. It initially was an app for BlackBerry mobile devices marketed under the Ride Charge moniker, and targeted to business travelers who traveled under corporate mandates to document all travel receipts, Partee says. But it has morphed beyond that to where it now provides booking, tracking, payments, and expense components.

But, not all of the smart-phone apps cover as much ground. And some, like Lyft, are not for taxis at all, but private cars. Uber, too, started as a personal ride-sharing service, but now offers taxi and licensed car services in some cities. These services have encountered some resistance from traditional taxi companies, primarily because they may not be subject to the same regulations.

Hailo is an app that works with cab companies. Consumers can use it to book a taxi and pay for it with a credit or debit card via the app. It is one of the first apps to integrate with VeriFone’s Way2Ride platform, which debuted in August, and provides a direct connection to the cab meter.

“Whatever comes off the meter is the fare that’s charged,” says VeriFone’s Gross. He maintains that is the best situation for passengers and drivers. “If you get into the cab, you have some expectation of acceptance and consistency,” he says. At least with the Way2Ride platform, travelers do not have to hand over their cards.

That is not the case for apps pressed into taxi service, though they are not designed at the outset for taxis. That hasn’t deterred them, a Square spokesman says. “Taxi drivers are among our most active and loyal users,” he says. Usage is particularly high in major cities such as Baltimore, San Francisco, Portland, Ore., Orlando, Fla., Miami, and Seattle, he notes. “The more options taxi drivers have for accepting payments, the better and easier the payment experience for riders,” he says.

A better experience is essential for drivers and cab owners, too. For example, VeriFone settles payments within 24 to 48 hours. And, travelers tend to be generous with tips when paying by card, says Fromberg, the New York City commission representative. The average tip is 18%, he says, when travelers pay electronically. And in Washington, travelers already have come to expect payment card acceptance, Linton says. “They’re very angry when the taxi driver says the [terminal] doesn’t work,” he says.

It’s that expectation, along with municipal demand to know more about taxi trips, that continues to fuel electronic payments in taxis. “It’s become so ingrained in the taxi culture,” says New York commissioner Fromberg. “Certainly, this was necessary for consumers. Consumers wanted it, and in many ways, demanded it.”

 


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