Square Will Replace Meters in Washington Taxis

(Bloomberg) -- Washington, D.C., is enlisting Square Inc.’s help as its taxi commission tries to help the city’s cabbies compete with Uber drivers. By the end of August, all of the taxis in Washington have to tear out their traditional meters and start using smartphones or tablets, in what the city government has been describing as a complete reimagining of how the cab system works. On Wednesday, the Department of For-Hire Vehicles is announcing that Square will process the payments going through those mobile devices.

For Square, the deal reflects an increasing focus on becoming the payment platform for a range of other company's mobile applications, websites and point-of-sale devices. No money is changing hands between the company and the city. Square agreed to satisfy the department’s requirement that drivers give up no more than 2.65 percent of their fares in transaction fees, according to the department. That’s lower than the standard 2.75 commission it usually takes and significantly less than the 3.5 percent to 5 percent commission that drivers currently pay to use the mechanical meters, according to Ernest Chrappah, the director of the city's taxi regulator. A spokesman for Square said it doesn’t comment on individual rates.

Chrappah said the lower fees will help make it easier for cabbies to sustain themselves. But the bigger changes come in the increased flexibility that taxi drivers will have once they’re untethered from mechanical meters. There won’t be a single taxi app. Instead, the department is asking developers to build apps, which it will then certify for use by licensed taxi drivers. It is currently working with seven developers, who will make their apps public between now the deadline to replace the meters. It will continue to consider adding new apps as developers pitch them. 

All of the certified apps must be able to operate as meters for street hails. They’ll also be able to provide digital receipts showing the route they took and give riders the option to rate drivers. Developers can also build services like carpooling or delivery systems that will connect drivers to local merchants looking for people to drop off food, groceries or other products. A developer could build an Uber clone, creating a way to connect drivers to passengers requesting rides through an app. The exact contours of these services will become clear as the individual developers release their software.

Taxis will also be able to offer dynamic pricing, where drivers can give discounts during periods when they have trouble securing fares. This resembles Uber’s practice of charging more when demand rises as a way to coax drivers onto the road, only in reverse. Drivers won’t have the option to increase their fares.

The backdrop to these changes is the rapid rise of ride-hailing companies like Uber Technologies Inc. and Lyft Inc. The city government has been trying to blur the lines between cabs and ride-hailing companies for over year. Last June, it even changed the name of the taxi regulator from the D.C. Taxicab Commission to the Department of For-Hire Vehicles. Chrappah said the changes will end a situation where regulations kept taxis from competing on even ground. “Taxis are so resilient. They’ve been around for a long time, and their demise has been overblown,” he said. “There is a unique window of opportunity to give them a chance to compete.”

Several years ago, Square ran a pilot program to be the payment processor for some New York City taxis, but the company said this is a deeper integration. “It’s definitely exciting to be working with the Department of For-Hire Vehicles,” said Carl Perry, who leads Square’s developer team. “They're one example of thousands of developers that are going to be building solutions with Square.”

Goitom Abselab is a longtime cab driver who is now chairman of the Taxi Operators Association, a driver group affiliated with the Teamsters. The association has taken issue with many changes in the local taxi industry, criticizing everything from the city's approach to Uber to new rules specifying how their cars have to be painted. Abselab is actually looking forward to the lower transaction fees. But he's also skeptical about the more ambitious aspects of Chrappah’s vision. He said it’s hard to imagine an upstart app competing with Uber, which has seemingly endless resources and is already firmly entrenched. Nor is he particularly interested in moonlighting as a deliveryman. One advantage of driving a cab is that you can stay in your car, rather than worrying about where to leave it while you run into a store or an apartment building. “Delivery, food, laundry—for me, those things don’t look to be very profitable,” said Abselab. “I’ve lived here for a very long time, and believe me, parking is a problem.”

To contact the author of this story: Joshua Brustein in New York at jbrustein@bloomberg.net.