Feb 022017
a sydney taxi parks in a city bike lane

Not so long ago, lending for taxi medallions was a safe bet. Now it’s pretty risky, as US lender Capital One revealed in a presentation last week.

Bloomberg reports the lender believes over eighty percent of its taxi loans are at risk of default.

In New York, medallion values have halved while in San Francisco taxi companies are going out of business. As a result Capital One’s loans that looked good a few years ago are now risky.

That problem is global. As I wrote two years ago for The Australian, the Aussie taxi industry has been tipped upside down by Uber and a cast of smaller competitors.

How the taxi companies failed to adapt is interesting. In most cities they were protected by a nest of laws and regulations that were ostensibly to protect passengers and drivers but actually acted to create high barriers that benefited license owners.

In most cities, certainly in New York and Sydney, taxis were dirty and unreliable – drivers were treated poorly and passengers were taken for granted – which made alternatives attractive even before the cheaper UberX and Lyft services arrived.

The protection also made the taxi companies slow to adopt new technologies. There was no reason why Australia’s Cabcharge or San Francisco’s Yellow Cab Company couldn’t have developed a smartphone app to order taxis, track progress and improve business expense reporting – that they didn’t speaks volumes about their inefficiency and complacency.

Being complacent was understandable though as regulators were tame and kept competitors out. Customers had nowhere else to go.

When customers did get the chance, they voted with their wallets and now its the bank accounts of taxi owners and their lenders who are hurting.

That Capital One is feeling the effects of that change is telling – when genuine disruption happens there’s a range of businesses, people and stakeholders affected. We should never underestimate that.

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