The card industry's efforts to increase small-business acceptance is finding stiff resistance at the point of sale in a market with the potential for high volume: New York taxis.

The city's Taxi and Limousine Commission says that by the end of the summer card readers will be installed in all of New York's 13,000 cabs. But drivers, who are charged up to 5% for every card transaction, have discouraged riders from paying their fares with plastic, according to both drivers and passengers.

That fee looks high, considering that the interchange rates set by Visa Inc. and MasterCard Inc. hover around 2% for taxi-related payments. Even American Express Co., the most expensive network, agreed to lower its small-merchant rate by more than a percentage point, to 2.15%, for New York cabs, according to the commission. (Amex would not discuss the matter.)

The drivers are paying as much as 5% in part because of the idiosyncrasies of the city's taxi business. Their fees can include markups not only from the merchant acquirers and from the vendors of the card acceptance technology, but also from the owners of the "medallions" that authorize a taxi to operate.

"Every driver wants to be paid with cash," said Javid Tariq, a cofounder and organizing committee member of the New York Taxi Workers Alliance. Many drivers ask customers not to pay with cards, though "we cannot force them" to use cash.

Ira Goldstein, the commission's chief of staff and project manager for its card acceptance program, said card use in taxis has been increasing every month since October, when drivers were required to begin installing readers; by the end of June cards were being used to pay for 13% of all rides, more than twice as much as before the requirement took effect.

But Tony Calcagno, the vice president of partnerships for Moneris Solutions Inc., a joint venture of Royal Bank of Canada and Bank of Montreal that is one of the three merchant acquirers in the New York taxi program, called drivers' resistance a problem. "The acceptance is not where we would anticipate it would be at this particular time," he said. "Within six months to a year we would like it to grow exponentially."

Mr. Goldstein said the base rate merchant acquirers charge is "coming out to an average of somewhere around 3.5% or a little bit lower," but those rates reflect much more than just merchant acquiring services. "It's an integrated solution."

The medallion owners can choose from three technology vendors, each of which is working with a different merchant acquirer. (VeriFone Holdings Inc. is working with IRN Payment Systems. Creative Mobile Technologies LLC is working with Bank of America Corp.'s merchant services division, and Digital Dispatch Systems Inc. is working with Moneris.) In addition to the readers, the vendors provide global positioning systems, television monitors for passengers, and other technology.

"The overall package is very competitive," Mr. Goldstein said.

Medallion owners can charge their drivers an additional fee, he said. "Under our rules, owners are allowed to charge the drivers a maximum of 5%" per card transaction, including tolls and tips. "In situations where you have individual owner-operators, they're paying closer to the 3.5%."

Mr. Calcagno said he believes the rates that Digital Dispatch is charging medallion owners are "very competitive for industries with smaller tickets," like fast-food restaurants, convenience stores, and movie theaters. (Digital Dispatch did not return calls.)

Jesse H. Davis, the president of Creative Mobile, said that "all our customers open up merchant accounts directly with Bank of America," whose rates vary depending on the type of card and amount of the transaction. "We don't add any money in" for the technology, he said.

A spokeswoman for B of A said its prices are "competitive" but would not elaborate. IRN Payment Systems referred questions to VeriFone. Amos Tamam, the president and chief executive of VeriFone's transporation systems division, said by e-mail that his company had responded to a request for proposals "and disclosed all of our rates."

Tristan Jordan, a spokesman for MasterCard, said, "There are tremendous benefits that cards provide to cardholders, passengers, and drivers." He would not address the drivers' resistance.

Paul Wilke, a spokesman for Visa, said, "Taxicabs have the right to not accept cards, but they run the risk of losing customers."

In any sector, "opening up acceptance channels is a challenge," he said. "Taxis are no different."

Adil Moussa, an analyst at Aite Group LLC, predicted that the acceptance rate for cabs would eventually reach 35%. If cab drivers start making "a significant profit" from higher tips and longer trips, the 5% transaction fee "will become the cost of doing business" in their eyes, he said.

Edward Rogoff, a professor of management and the academic director of the Lawrence N. Field Center for Entrepreneurship and Small Business at Baruch College, said drivers are more upset about "moving from cash to noncash in a business that's always loved having instant cash for drivers" than about the fees themselves. However, because "there's a huge amount of turnover" among drivers, eventually the majority "won't know any other system," he said.

Bruce Cundiff, the director of payments research and consulting at Javelin Strategy and Research, said, "Cabbies as a small business are an anomaly. They don't own the business itself. They're not in the same situation as the grocery store owner on the corner." Although barred from doing so by networks, such stores practice the "same type of steering at the point of sale … but that independent store owner is his or her own boss," he said.

"There's a ways to go," but "once you get over these hurdles" and the drivers warm to card acceptance, "we'll definitely see this continue to grow," he said.

The commission approved the card acceptance technology when it agreed to raise fares by 26% in 2004. Neither a lawsuit nor a two-day drivers' strike in September stopped the drive to install the readers; Mr. Goldstein said last week that 11,616 of the city's 13,000 yellow cabs have installed the systems, and that the rest are on track to be compliant by the Sept. 1 deadline.

The fact that tips are generally higher on credit card transactions should serve as an incentive for drivers to stop discouraging card use, he said. The commission will "review and have a public hearing at some time in the future to see if the 5% figure is a fair figure," Mr. Goldstein said. "That was set and based on projections."

New Yorkers interviewed last week said they continue to encounter driver complaints, reluctance, and claims of broken equipment when trying to pay for rides with cards. "I've gotten a lot of pushback," said Ashley Porter, the director of catering for Carnegie Hall, who often takes taxis home after working at late events and prefers using her corporate card over paying cash and submitting an expense invoice.

Many drivers have told her their readers were broken, she said, and one driver physically threatened her after claiming that her transaction had not gone through. That incident only increased her resolve, Ms. Porter said. "For a while, I was on a crusade to use my credit card as much as possible" in taxis.

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