system . for the publicly listed company with that name see cabcharge australia ltd. the cabcharge account payment system was established in 1976 to provide taxi passengers a way to pay for taxi fares by non cash means . the payment system is owned and operated by cabcharge australia ltd an asx listed public company . the cabcharge system has several aspects cabcharge accounts customers can create a line of credit for use to pay for taxi fares and related charges and involves the use of a cabcharge credit card e ticket or paper voucher . the value of taxi fares paid using such instruments in australia in 2007 08 was 455 307 773 . cabcharge levies a 10 % service fee on such payments . payment processing system drivers can process cabcharge instruments and other non cash payments e.g. credit and debit cards manual or electronically . the manual system uses dockets and cheque like vouchers supplied by cabcharge which are processed using credit card imprinters . the electronic system uses eftpos terminals and other equipment supplied by cabcharge . in 2008 cabcharge s eftpos terminals were present in approximately 95 % of australia s taxis . cabcharge does not charge drivers owners or networks for supplying equipment for the payment processing system instead charging passengers a 10 % service fee . networks are paid a commission out of the service fee . taximeters and meter updates cabcharge began supplying these from late 2004 . taximeters which record the charge for each passenger s journey require regular updates for taxi fare changes . updates can not be installed by drivers or operators . a significant point of difference of cabcharge s meters compared to their competitors is that updates can be installed over the air by mobile telephony and cabcharge s eftpos systems whereas competitors meter upgrades have to be physically installed requiring taxis to be off the road for a period of time . the meters and updates are part of an integrated electronic payment and radio dispatch system with other taxi equipment supplied by cabcharge . 1 though called a service fee by cabcharge to the general public and government authorities it is commonly referred to as a surcharge and has given rise to controversy litigation and government legislative intervention . contents 1 controversy over surcharge 1.1 10 % surcharge on taxi fares paid by card 1.1.1 criticism of 10 % surcharge 1.1.1.1 criticism by professor allan fels 1.1.1.2 criticism by major credit operators 1.1.1.3 action by victoria to reduce the surcharge to 5 % and below 1.1.1.4 action by new south wales to reduce the surcharge to 5 % 1.1.1.5 other criticism 1.1.2 reserve bank action to limit card surcharges in response to the criticism 1.2 findings of the taxi industry inquiry 1.2.1 general anti competitive conduct 1.2.2 predatory use of payment instruments 1.2.3 predatory activities through mergers and service controls 1.2.4 observations about cabcharge s 10 % surcharge 1.2.5 concluding criticisms about misuse of commercial power 2 winner of one of australia s shonkiest products 3 see also 4 references 5 external links controversy over surcharge edit cabcharge australia s commercial activities have been controversial at times and the company has faced regular accusations of excessive charging or profiteering and predatory and anti competitive practices . the company was recently subject to adverse court proceedings and a major settlement arising from these behaviours . the company used to impose a surcharge of 10 % on taxi fares for the use of its payment system but justifies the surcharge on the basis that it incurs the costs associated with transactions including card and other product production in taxi processing administration fraud protection and investigation provision of statements and driver education . the surcharge has been controversial and has been found to be excessive and predatory and victoria and new south wales have by law restricted the surcharge to 5 % . cabcharge australia was the subject of federal court proceedings in 2010 over alleged anti competitive practices including predatory pricing activities . the company was fined heavily and forced to pay a record high 15 million settlement for these behaviours . 2 the company is also facing accusations of profiteering for the 10 % surcharge it imposes on taxi fares paid by a payment card and the matter is currently being investigated by the reserve bank of australia . 3 the surcharge has been reduced by law to 5 % in victoria following recommendations made by the taxi industry inquiry and a further review of the surcharge in that state may lead to the figure being set at well below 5 % . 4 in december 2014 the surcharge was also reduced to 5 % in new south wales . 10 % surcharge on taxi fares paid by card edit cabcharge provides eftpos terminals free of charge or below cost to approximately 97 % of taxis in australia . the company incurs the costs associated with transactions including card and other product production in taxi processing administration fraud protection and investigation provision of statements and driver education . however this situation also allows the company to exert substantial and anti competitive control over most of the australian taxi industry . 2 criticism of 10 % surcharge edit cabcharge has been criticised for the 10 % surcharge it collects on taxi fares paid by credit and debit cards and for the general anti competitive control it exerts on other industry participants through its control of electronic payments and other areas of the taxi system such as vehicle and related repairs and installation of in vehicle equipment insurance vehicle leasing and training . criticism has emanated from various sources including the chair of the taxi industry inquiry professor allan fels the former head of the australian competition and consumer commission and leading card companies . the 10 % charge is currently being reviewed by the reserve bank of australia . 3 criticism by professor allan fels edit professor fels recently approached the reserve bank of australia to help lower the 10 % surcharge . he has been reported as saying that cabcharge has a monopoly . you have no choice if you pay electronically you have to pay 10 per cent extra . that s really high . there is no competition . you either pay 10 per cent or you pay cash . 5 the 10 per cent surcharge looks extremely high he said . for victoria the charges total is 25m a year so extrapolating that for australia it must be around 100m . when a consumer pays the taxi fare there are many hands in the till ... if they pay by card cabcharge gets 10 per cent . we think that needs to be looked at . 6 criticism by major credit operators edit representatives from major credit card operators visa and mastercard have also criticised the 10 % fee visa spokesman adam wand yesterday said cabcharge was making taxi passengers pay more than 10 times the average merchant fee charged by banks and five times more than the average fee charged by retailers based on reserve bank data . surcharges in the order of 10 per cent are simply excessive and way above the cost of accepting a visa card he said . it s certainly more than 10 times the average reserve bank published cost . mastercard head of strategy david masters said there was no way that credit card processing could cost cabcharge 10 per cent of a fare . i don t know how they can justify it he said yesterday . there is no question it pads out their bottom line rather than reflecting the cost of the transaction . 6 action by victoria to reduce the surcharge to 5 % and below edit the government of victoria is reducing the cabcharge surcharge to 5 % and less through law with legislation enacted in late june 2013 . 4 arising out of recommendations of the taxi industry inquiry . the new laws also require the essential services commission to review the charge at that level which may lead to the fee being reduced significantly below 5 % and more in line with cabcharge s reasonable costs for providing a non cash payment option in cabs . 7 the new laws came into effect from 1 february 2014 . 8 other states and territories are expected to follow victoria s lead . action by new south wales to reduce the surcharge to 5 % edit the new south wales government has also reduced the fee to 5 % from 12 december 2014 . 9 other criticism edit in an article in victoria s herald sun newspaper john legge noted that customers in that state paid at least 350 million in taxi fares with banking cards for which 95 % of victoria s taxis use the cabcharge system . legge noted that australian competition and consumer commission penalised cabcharge 15 million for abusing its industry dominance . 10 reserve bank action to limit card surcharges in response to the criticism edit reserve bank rba data is reported as showing that banks charge merchants an average fee of 0.81 % to process visa or mastercard payments 3 while the average fee passed on from the merchant to customers is 1.9 % for visa and 1.8 % for mastercard . 6 the rba considers that some companies charges are excessive and as a result it is drafting new rules to compel offenders to limit their charges to the costs actually incurred by merchants 3 and that in the gun will be the 10 % charge imposed by cabcharge and similar companies for using credit cards to pay taxi fares ... 3 findings of the taxi industry inquiry edit the taxi industry inquiry headed by professor fels has made a number major criticisms of cabcharge and its activities in a recent report . general anti competitive conduct edit there are now significant anti competitive forces at play within the industry most notably the concentration of power with the major taxi networks and cabcharge . 11 the inquiry is concerned primarily about the effectiveness of competition in markets for payments processing and payment instruments . over time it appears to the inquiry that cabcharge has been extremely effective in stifling the development of competition in these markets . 12 predatory use of payment instruments edit in relation to payment instruments if the market is defined for taxi specific payment instruments then cabcharge has a very strong position in this market . it appears to have largely captured the network effects and has reenforced this by integrating into payments processing and network services . 13 there is a high level of market concentration in the non cash payment systems market with one enterprise cabcharge historically holding market power in both taxispecific payment instruments and payments processing . cabcharge is the only significant taxi specific payments instrument and cabcharge estimates that its electronic payment processing system is found in approximately 97 per cent of australian taxis limousines and water taxis including all or nearly all taxis in victoria . 14 ... markets for payment instruments and processing are characterised by strong network effects . cabcharge has been able to take advantage of these network effects by tying its branded cards to its processing facilities ; that is only cabcharge eftpos terminals are permitted to process cabcharge cards . cabcharge has not given other payment providers access to process cabcharge s own cards and vouchers . as cabcharge cards are the most widely used payment instrument and the only significant taxi specific payment instrument a taxi operator that does not have the ability to process these cards will be seriously disadvantaged . this means that alternative processors face a significant barrier to establishing a market presence . market inquiries indicate that cabcharge branded charge account cards and etickets account for up to 40 per cent of non cash