Cash or Credit? In a Taxi, It Depends Which Side of the Partition You're On

03/18/2010 05:12 am ET | Updated May 25, 2011

Riding in a New York City taxi has never been more convenient. Forgot to take out cash? No big deal -- you can just charge it. But two years after the city mandated that credit card readers, ad-saturated "information" monitors, and GPS trackers (with no navigational capabilities) be installed into its entire cab fleet, these wireless devices continue to live at the center of a heated debate between the city's 46,000 cabbies and the Taxi & Limousine Commission (TLC).

A recent story in the New York Times reported that credit card use in the city's yellow cabs has risen steeply, suggesting that cabbies are making more money because of it. But, while it's true that the increased use of plastic in cabs has proven highly useful for many New Yorkers and has helped keep this formerly all-cash industry afloat during the recession, drivers are not bringing home more money than before. To the contrary, it appears they in fact have been hit with a pay cut, in the form of credit card processing fees, payment delays, bunk cards, chargebacks, and system failures.

While most businesses, from bodegas to bars, are charged an average of 2% on credit card processing fees, when you swipe your card in a cab, the driver has to pay a hefty 5% for the transaction. This fee is placed on the total metered fare, including the tolls, the tip, and now, even on the fifty-cent MTA surcharge. Why are New York's cabbies paying so much more than everybody else?

Because of all the middlemen.

That 5% goes back to the garage or medallion broker, where the owners take an average cut of 1.5%. The rest is passed along to the TLC-selected vendor supplying the device. That company takes out another average cut of 1.5% and then, finally, passes the rest on to the bank that is actually processing the credit card. Multiply these numbers by millions of cab rides a year and it becomes clear that a few people are making truckloads of money on drivers' backs.

The TLC has repeatedly claimed that these fees were offset by the fare increase of 2004, in which drivers got their first pay raise in eight years, (which, mind you, is now already five years old, with no future raise in sight). What they don't mention is that driver expenses also went up in 2004 in the form of higher lease prices for cabs and medallions.

When that argument fails, Matthew Daus, commissioner of the TLC, tries to justify the fees by saying that credit card tips are double those given in cash. But while they can track tips given on plastic over the past two years, they cannot record cash tips and have zero data to back up this claim.

What Daus doesn't like to talk about is how cab drivers are essentially paying for an updated version of the highly unpopular TVs-in-taxis program from 2003, which proved to be a colossal failure. According to a story in the New York Times from back then, the commission killed that program because "there was insufficient public support and ... advertising was an inappropriate accompaniment to a cab ride."

Not much has changed. Most people today find the looping ad-heavy taxi TVs annoying at best, and there are countless accounts of passengers struggling to turn the things off.

The credit card readers are indeed the only truly useful aspect of these devices. Unfortunately, the technology is still unreliable, with a wireless signal that too often fades or drops completely, rendering the credit card swipe unusable. If the passenger can't -- or won't -- pay in cash, it's the driver's loss. It's only too bad the signal doesn't die when Al Roker is blaring inanely on an endlessly repeating loop.

To make matters worse, if the card comes up declined or stolen after the passenger is already gone, or if a charge is later disputed, there is little chance cabbies will ever be able to recoup the fare -- another straight-up loss.

The New York Taxi Workers Alliance has spent the last year fighting for a piece of legislation called Intro 705, introduced to the City Council by councilmember David Weprin and backed by John Liu, chairperson of the Council's Transportation Committee (and soon to be comptroller). This bill would not only lower the credit card transaction fees, but it would cut out the middlemen and put financial control back into the hands of drivers, letting them negotiate and enter into their own agreements with the merchant bank of their choice. Since cabbies are independent contractors and not city employees, it is their right to have this kind of authority over their income.

While Intro 705 is a step in the right direction, what we ultimately need is to ditch the irksome TVs and improve the credit card technology. Still, even if we do that, without more cooperation and understanding between the TLC and the city's taxi force, we'll probably see TVs in cabs yet again in another six years.