Magazine article The Spectator

The Wiki Man: Rory Sutherland

Magazine article The Spectator

The Wiki Man: Rory Sutherland

Article excerpt

From October last year, it was compulsory for all London black cabs to accept payment by card. London cabbies aren't always sunnily disposed towards Transport for London, but those I have spoken to since the move seem to welcome the ruling, and acknowledge that business has picked up since.

There are, of course, plenty of reasons why taxi drivers preferred cash. It's quick and does not require equipment or entail the surcharges credit card payments do; it might also be a little more, ahem, tax-efficient. Never-theless, the case for cabs accepting card payments was compelling. Uber, for fair reasons and foul, was eating into their business. From New York, there was clear evidence that passengers tipped more when paying by card. And people carry less cash than they once did.

In fact, since contactless card terminals have become near universal, until October a cab journey was the last remaining reason that Londoners needed routinely to carry more than £20. So why, given that the advantages seem obvious, was a ruling needed? After all, no one has to make it a legal requirement for coffee shops to accept plastic: they just do. Why wouldn't natural market forces work?

This is what is called a coordination problem. The costs of handling credit cards fall immediately on the individual driver, but the economic gains only appear when a significant majority -- perhaps 90 per cent or more -- of all drivers accept them. For a coffee shop, the gains of accepting credit cards are instant; not so with a cab. Even if 90 per cent of drivers voluntarily accept cards, a curmudgeonly 10 per cent of hold-outs ('free riders' in economic parlance) could ruin it for everyone else. Most of us are too polite to tell a driver we've hailed to piss off if he doesn't take plastic, so these grumpy drivers could exploit the expectation of card-acceptance created by the other 90 per cent, without incurring the costs. …

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