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D.C. Taxicab Drivers Say Modernization Eats Into Bottom Line

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Some, but not all, D.C. cabs will have credit card payment systems by the beginning of September.
Victoria Pickering: http://www.flickr.com/photos/vpickering/4040551209/
Some, but not all, D.C. cabs will have credit card payment systems by the beginning of September.

Washington taxi drivers have until tomorrow to show the D.C. Taxicab Commission they have scheduled the installation of a credit card payment machine in their vehicles in order to receive a 30-day extension to the District’s deadline for cashless payment acceptance. If they do not request 30 more days, taxi drivers are required to accept credit card and smartphone payments by the end of this month.

As some cab owners struggle to meet the commission’s deadlines—cabbies delivered 513 signatures on a petition asking for another extension on Monday—the paying public is asking why is this so complicated? At a time when you can buy a pack of gum with plastic, installing credit card readers in cabs should not seem so difficult.

But the head of a major D.C. taxi company says the problems are less technical than logistical and financial, leaving drivers inexperienced with cashless payments groping for a favorable deal with any of the ten payment service providers (PSPs) approved to process cashless payments in D.C. Moreover, large taxi companies must make a large, upfront investment for their fleet’s payment equipment with no guarantees their drivers will stick around.

“Even though I have made a commitment and signed a contract for 550 systems, my drivers are out there who have not signed up yet. They are out there shopping. So we are all in a situation where there is a lot of uncertainty down the way,” said Roy Spooner, the general manager of Yellow Cab Company, which owns 100 taxis and has another 450 affiliated with his brand.

Yellow Cab Co. has accepted credit card payments for seven years and its drivers process $4 million annually in credit card sales. But after D.C. passed a taxi modernization law, Spooner had to change his system to comply with the new system mandated by regulators. The investment was huge: $2.4 million that required signing a five-year contract with a hardware vendor.

The good news for Yellow Cab’s customers is all 550 of the company’s taxis will be ready to accept credit cards and smartphone payments by the end of September, as is required by the D.C. Taxicab Commission. But Spooner’s new costs have to be passed down to his drivers, who are now shopping around with other companies for a better deal, looking for the lowest possible credit card processing fees (Yellow Cab is one of the ten approved PSPs, in addition to being a taxicab company).

“The PSPs are signing contracts, long-term contracts, with vendors, some of which are worth millions of dollars. They now have to turn around and sell that equipment to drivers. They have to have the same commitment from the drivers that they’ve made to the equipment vendors,” said Spooner, who said five of his drivers have already left his company, leaving five taxicabs sitting in his garage with pricey new credit card equipment that may potentially go unused for some time.

Spooner’s criticism of the process doesn’t end with the financial challenges posed by installation. He also believes the new credit card systems will be a loser for most cabbies, who will be required to install backseat video monitors with advertising and a new dome light as well.

“With all of the front seat and the back seat and the advertising and all the things they’ve asked for, it’s ten times more than what you should have been spending just to get credit card systems into cabs,” he said. “This is a loss leader to the drivers because when the companies pass on the costs to get the equipment, the drivers are going to lose.”

Spooner uses the example of a cabbie who takes a passenger from D.C. to Dulles Airport: the fare would be about $80. A credit card processing fee would eat up about $4 but the driver would receive only $.25 in return, tacked onto D.C.’s base cab fare to help drivers cover the cost of such fees.

“No matter how many trips they run, even if they run 100 percent credit cards, the only thing that will cover their losses is if the passengers tip them generously,” Spooner said.

The D.C. Taxicab Commissioner strongly disputes Spooner’s analysis.

“We anticipate ultimately driver revenue will see an increase after calculating the expenses for installation and transactions fees and that increase will be somewhere between two and four percent,” said Taxicab Commission spokesman Neville Waters.

“The commission did its due diligence and spent a good a deal of time researching the adoption of cashless payments in other markets and our calculations indicated that adoption tended to increase driver revenue. Passengers tended to also tip in a greater percentage,” Waters added.

While the commission expects the great majority of cab drivers and companies to meet the District’s deadlines for cashless payments, it seems likely that some cabbies will be late, or may quit driving altogether if they cannot come up with the capital to invest in the new technology or if a vendor does not trust a driver’s credit worthiness.

“Unfortunately you don’t have the time to install 6,500 cabs” by Sept. 30, said Spooner, who said other mandates for expensive dome lights and new paint jobs are heaping too many layers of regulations on drivers while largely unregulated companies like Uber grow in popularity.

“So when you make this industry so highly competitive and now it is highly expensive, this opens the door for the Ubers of the world, because the industry becomes that volatile and that chaotic and there are other simple solutions are off to the side.”

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