Taxi Cab Payments

Daniel thinks taxi drivers are missing out on some business by refusing to accept credit and debit cards, even though they are required by law to do so. I think this is an instance in which mandating that all cab drivers accept plastic payments leads to unintended consequences.

(from flickr user sunface13)

I understand why cab drivers don't want to accept credit or debit cards. Cash isn't subject to a "processing fee" - an amount that can be significant, particularly for small fares, like those under $10 or $15. Cash is also better when it comes to tips. People paying with cash often round tips up, especially if they need change. People paying with plastic often calculate an exact percentage tip. Not to mention that cash tips are easy for cabbies to hide from the tax man..

It seems like, if credit and debit fares were truly valuable, some cabbies would willingly exploit that market. They could put big stickers on the side of the car or a sign on top so potential customers know it's an option. If a cabbie typically patrols an area (like universities, as Daniel suggests) where people don't carry cash but like to spend money anyway, it might make good business sense for cabbies to accept plastic payments.

The problem with universal mandates in this case is that the winners are the banks and card processors, and the losers are either the drivers or the customers. In the short-term, non-cash payments will cut into drivers' profits and tips. Over time, cabbies might lobby for higher fares, which would be bad for the customers. Kevin Drum has made some good points on the cash vs. plastic debate. I recommend anyone who wants to learn more to check it out.


    The processing fees were the argument against New York cabbies accepting credit card fares - until two years after it was mandated, when cabbies realized that the convenience of accepting cards increased the number of people who used cabs for shorter trips. On top of that, they leave larger tips. In the end, accepting credit cards is better for the cabs, even if they find it annoying.