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This story appears in the September 2009 issue of Cards&Payments.
Peter Enger already was accepting credit and debit cards voluntarily for fare payments in the taxis he drove around the Chicago area before the city mandated card terminals and acceptance in all fleet taxis a few years ago.
But like many cab drivers, Enger does not like being forced to accept credit cards for fares. As a driver who leases his taxi from American United Cab in Chicago, Enger is an independent contractor and, like most drivers, he receives no health benefits, vacations or sick days for his work.
"We're told we're independent businessmen and can make independent decisions," Enger says. "But then we're told we have to accept credit cards." As secretary of the United Taxi Drivers Community Council, an organization that represents Chicago drivers, Enger says he hears similar complaints from other drivers.
That said, if Enger must accept cards, two changes would help make acceptance a bit more palatable: easier reimbursement for noncash fares and more-reliable wireless card-acceptance networks.
One card-acceptance pain point for drivers is having to show up in person at dispatch garages to receive reimbursement for noncash transactions, such as credit card payments and corporate vouchers, Enger says.
Drivers for American United must wait 24 hours before claiming reimbursement for card transactions, according to Enger. Then they have to show up at the garage to receive them.
"I have to take time out of my schedule and go in to cash my receipts. It can take an hour," he says. "And if I'm a night driver, I have to wake up and go in during daytime hours."
Similar complaints by taxi drivers across the country have spurred interest among some taxi fleet operators in using prepaid cards to reimburse drivers for noncash fares.
First National Bank of Omaha has completed a pilot involving reloadable prepaid cards it issued to San Francisco Yellow Cab Cooperative drivers. First National is planning to roll out the service to the entire fleet of approximately 500 drivers some time this fall, says a representative of the Omaha, Neb.-based issuer, which is in talks with other taxi fleets in cities around the country.
The bank's acquiring unit, First National Merchant Solutions, processes the drivers' prepaid card transactions and those consumers initiate with credit and debit cards to pay fares for Yellow Cab Cooperative. It also serves as the acquirer for Yellow's credit card transactions.
The Visa-branded cards, which bear the design and logo of Yellow Cab Cooperative, enable Yellow to reimburse drivers directly to their reloadable prepaid card accounts for fares paid with credit and debit cards or corporate vouchers.
Before the prepaid card initiative, drivers had to come to Yellow Cab garages for reimbursement of noncash payments. "Now the driver has a device that provides more-mainstream access to their money," says Scott McCormack, First National vice president. Funds appear in drivers' prepaid accounts within seconds of transactions settling, he says.
Drivers can view and transfer funds online to their bank accounts, or they can withdraw cash for free from any Allpoint ATM. Bethesda, Md.-based Allpoint operates 35,000 surcharge-free ATMs across the United States and 3,874 ATMs in California.
Network Reliability
The 300 to 400 drivers who participated in the pilot did not report any problems using the cards, McCormack says.
Enger likes the idea of taxi-fleet owners providing reloadable prepaid cards so they can reimburse their drivers automatically for noncash transactions. But he has another complaint about card acceptance common to drivers in many cities: unreliable card-network connections.
Reducing network communication failures could go a long way toward reducing driver frustration with card acceptance, according to Enger. "The equipment, no matter how good they make it, sometimes doesn't work," he says. "I would say a good 25% to 30% of the time it doesn't work."
Card transactions tend to fail most often on stormy days or when drivers are under an obstruction, such as a canopy above a building entrance. In those cases, after waiting a few minutes for electronic card authorizations that never arrive, drivers have to capture card details on old-fashioned paper forms, which takes another minute or two to complete.
Not only does the delay annoy passengers, but "if it's a busy downtown location, now a policeman comes up to me and writes me a ticket because it's taking too long" to move from a less-than-ideal curbside parking place, Enger says.
Mike Levine, chairman of Taxi Medallion Management LLC, which owns and operates some 2,400 taxis in Chicago and its suburbs under the brands Yellow Cab Chicago, Metro Yellow and Metro Checker, agrees that Chicago's card-acceptance networks could be more reliable. Levine's company also operates some 300 taxis in New York City.
Cellular Connection
Taxi Medallion's New York taxis use terminals made by Creative Mobile Technologies of Long Island, N.Y., and Levine's company is testing the same back-seat terminals in 30 of its vehicles in Chicago.
The terminals route card transactions over the Sprint cellular network, which provides more-reliable connections for cab terminals than does the 450-megahertz radio network Taxi Medallion Management uses in most of the cabs it operates in Chicago, Levine says.
The advantage of back-seat terminals is that riders can swipe their cards themselves and initiate transaction authorizations before arriving at their destinations. Terminal screens can show trip progress on maps, which riders also may use to search for other locations in the city, Levine says.
Fleet owners can gain revenue by selling time for advertisers to pitch commercials and coupons to riders on the back-seat terminals, and riders with Bluetooth-enabled phones can upload coupons they can use at locations near their destinations, he adds.
Drivers are able to view transaction details on screens in the front seat, Levine adds.
Many drivers in New York were resistant to card acceptance in their taxis, despite the flashy new back-seat terminals, Levine says. But some of the lessons Taxi Medallion Management learned in New York will help it reduce friction in Chicago, he notes.
"The problem in New York was not inherent in the [equipment]," Levine says. "The problem is they went from taking almost zero credit cards to, in a very short time, taking 20% of their fares in credit cards. The system was not set up to give cash back to drivers at the end of each day."
Taxi Medallion Management pays drivers in Chicago by the end of each shift, and Levine is exploring providing drivers with prepaid cards for reimbursement similar to those used in some San Francisco cabs.
Card Payments Rising
In Chicago, about 6% to 8% of fares are credit card transactions, and Levine expects the percentage to rise to 18% to 20% of fares with more-advanced back-seat terminals in place.
Drivers for Levine's company in Chicago pay 5% of their fares to cover transaction and terminal-maintenance costs, but the terminals may help boost tips by giving riders the option of adding 15% or 20% to their fares instead of leaving tip calculations up to the riders, according to Levine.
About one or two out of every 15 to 20 riders in Enger's cab pay with credit cards. Most riders tip the same, about $1 to $2 per fare, whether they pay with plastic or cash, he says.
The biggest worry about increased use of credit cards in Chicago is the extra cost that might bring, Enger says, noting drivers in the city pay from 5% to 8% of each transaction to their fleet owners. "The owners could win a lot of support from drivers if they would introduce some fee for a minimum purchase," Enger says. "Or if it costs us 5% to [process the transaction], let us add on 5% to 8% to the fare."
Card-network rules prohibit such surcharges. But Enger may want to consider moving to San Francisco, which prohibits cab companies from passing along to drivers the cost to process noncash transactions.
"The result is that it's rare for Luxor drivers to refuse credit cards," says Charles Rathbone, assistant manager of Luxor Cabs Inc., which operates 215 cars and wheelchair-accessible minivans in San Francisco.
Luxor pays its acquirer approximately 3% of each credit card transaction, and the costs are difficult for Luxor to absorb, Rathbone says. He declined to name the acquirer or discuss whether Luxor has tried to negotiate lower rates.
Rathbone also declined to discuss the percentage of Luxor fares customers pay with cards or vouchers for paratransit, another large part of Luxor's business. "Noncash transactions are a huge part of our business," he says. "A driver can show up at a cashier's window with a couple hundred dollar's worth of receipts."
Some fleets get around San Francisco's rules by not providing electronic terminals or other card-acceptance services to their drivers, Rathbone says. Drivers for those fleets wanting to accept cards use their own manual carbon-paper devices to capture card data from riders. Then "a guy in a van" shows up near the parking lots of those fleets and charges drivers 10% of each transaction to process their fares, Rathbone adds.
Enger says he has never been "burned" by a bad credit card transaction in five years of driving in Chicago, and he does not mind accepting cards on principal.
But making that acceptance a little more convenient, reliable and less expensive would sweeten the card-acceptance deal for more drivers, he says. CP
