Fare Play: Rivals Have Reason to Be Wary if Square Grabs NYC Cabs
Yesterday, the New York Times reported that New York City’s Taxi and Limousine Commission is considering the installation of tablet computers in the back of taxicabs, and that Square — the Jack Dorsey-led mobile payments start-up that nabbed $100 million in funding from top-notch investors last year — will throw its hat in the ring to power the credit card payments in cabs.
The experiment, should it become a reality, would involve a special Square-built payment terminal on tablets in the back of 50 taxicabs to start, as well as a Square application that would process riders’ credit card payments. And the swap-out — and the stakes — would go beyond just hardware.
If tablets running Square were to supplant some of the existing technology in the back of New York City cabs — currently supplied by Creative Mobile Technologies LLC and VeriFone Systems Inc., one of the world’s largest electronic payment companies — fee structure and revenue from “Taxi TV” content would also come into question. (It’s important to note that the New York TLC hasn’t formally submitted the Square proposal to its board of commissioners yet; it plans to do so on March 1.)
Of the 13,237 official taxicabs currently on the road in New York City, VeriFone processes the credit card payments in approximately half of them; CMT handles the other half. The two companies were awarded the contracts in the summer of 2007, after the Commission had put out a challenge seeking innovative tech and electronic data tracking for taxicabs; by November 2008, the technology had been fully implemented in all cabs.
The systems currently use cellular data to power the transactions, which is also technically possible through an iPad or another type of tablet device. In addition to the payments technology, current systems provide automated dispatch capabilities, GPS, computerized trip logging and text messaging — also functions that a tablet could likely provide.
So hardware aside, consider the content on the Taxi TV’s. Those loops of news updates, late-night talk show clips and dining guides that cab riders see on the backseat TVs are the result of a partnerships that VeriFone and CMT have forged with TV networks (though the TLC commands 20 percent of the screen time on the primary channel for public service announcements). VeriFone has rolled out NBC content in 12,000 cabs across the U.S.
While we know that content can stream quite nicely on tablet devices, too — and likely provide an even slicker viewing experience — the companies are making money off of back-of-cab media and would lose that if they lost control of the screen. At the same time, more gaming and social networking options are being proposed for the back of cabs, which would provide potential ad revenue streams.
But ultimately the real sticking point could be fees. It’s unclear what a new payment structure would look like, but David S. Yassky, the chairman of the Taxi and Limousine Commission, has been quoted as saying he hopes credit card transaction fees could be lowered.
The TLC Web site currently says that cab owners can expect credit card and debit fees to average 3.5 to 4 percent, whereas Square charges its small-business users 2.75 percent per transaction without additional interchange fees. If Square offers taxi cab medallion owners — who also pay for the installation of the technology up front — a lower fee option on credit card transactions, the way it does for small businesses that shy away from investing in bulkier credit card systems, Square could have a leg up on its rivals.
And those rivals are unlikely to remain quiet.
Verifone has previously taken direct aim at San Francisco-based Square for what it alleged was a security flaw, saying that Square lacked the ability to properly encrypt data. (Square’s Dorsey quickly responded by saying that credit cards are inherently not secure, but that Square continually reviews, verifies, and stands behind the protections that it has put into place in its credit card reading device.)
For now, the San Jose-based payments giant isn’t offering a formal response to the new taxi cab proposal. A spokesman for VeriFone would say only that the company is not going to comment on a proposal nobody has seen yet.
According to the New York Times, Creative Mobile Technologies has also raised concerns about the security of Square’s technology and has previously requested that the vote on the proposal be delayed.
But if the proposal were approved next month, the pilot program using Square on tablets could kick off “within a month or two,” according to Allan Fromberg, a spokesperson for the TLC.
And that’s when things will get interesting in the back of taxicabs.
(Photo courtesy of Flickr/JosiSilva)