In recent years, a lot of cities installed credit card machines in cabs – Chicago, Boston, New York and Philly are examples. Cab drivers, however, hate it when you pay with a credit card. One time, a cab driver offered me a non-trivial discount for paying in cash. I’ve heard stories of drivers claiming their machine wasn’t working only to back down when they realized the rider had no cash.

I’ve had a few discussions about why cab drivers hate credit cards. One popular theory was that it takes them a while to get the money from a credit card transaction, but they get it immediately with cash. Another was that credit card payments made misreporting fares and tips impossible. Finally, the third was that credit card companies charged hefty fees.

Today, at least one of those reasons was confirmed. I rode a Boston cab that prominently displayed the following sign on the glass divider: “Driver pays 6% fee on all credit card transactions.” Now standard economic theory would say that me seeing this sign would have no effect on whether I pay cash or credit. After all, maybe there’s also some person working for the credit card company who counts on these fees to keep her job. But I promptly paid for that cab with cash.

By the way, the high 6% may be due to the cost of running a wireless credit card network (see this slightly outdated article).