No fare: Cabcharge loses in taxi reform

Cabcharge shares were savaged on Tuesday after the Victorian government said it would step in to force the monopoly payment company to slash fees on electronic payments across state's 5000-plus cabs, prompting speculation other states would follow suit.

The government detailed plans to cut the card surcharge on Cabcharge's electronic payment system from 10 per cent to 5 per cent as part of a broader overhaul of the state's taxi industry.

The move follows the state government adopting nearly all the recommendations of an 18-month inquiry into Victoria's taxis headed by former competition regulator Allan Fels.

Goldman Sachs analyst Jim Godsil said the decision to cut the surcharge in Victoria would likely have "ripple effects as taxi regulators in other states take note". Any moves by NSW to cut fees in taxis would have a major impact on Cabcharge, given that the state ranks as its biggest market.

Cabcharge, which estimates that its electronic payment system is in 97 per cent of Australia's taxis, closed down 15.3 per cent, or 75¢, to $4.15.

Professor Fels, the former head of the Australian Competition and Consumer Commission who chaired the influential report on which the decision was based, said last year that "Cabcharge's tentacles reach everywhere in the industry and any substantial reform in Victoria and elsewhere would have an effect on Cabcharge".

Cabcharge said in a statement that it would "study the document ... in its entirely and make a considered response in due course".

Cabcharge founder and chief executive Reg Kermode had previously responded to Professor Fels' recommendation to cut the card surcharge by saying last December: "If that's what you want, you can all go back to cash."

The move by the Victorian government goes a step further than the Reserve Bank, which attempted to push down charges two years ago. At the time the central bank claimed some fees including those charged by airlines and hotels were a form of raising revenue, rather than covering the cost of the transaction.

In March, the Reserve Bank said it would allow credit card companies to limit surcharges "where merchants were clearly surcharging at a higher level than is justified".

Mr Kermode said earlier this year that Cabcharge issued a service fee and not a surcharge.

Goldman Sachs' Mr Godsil said that although the timing of the surcharge cuts was in the hands of state regulators and credit card companies such as Visa and MasterCard, surcharges looked to be coming down.

The decision to allow taxi licence-owners to operate independently rather than being part of a taxi network reduces the power of the two large taxi networks in Victoria - of which Cabcharge operates one, Mr Godsil added.