Guess what app I had in my cab last night

Taxis in cities around the world are getting increasingly digital. But what does that mean for traditional cabbies? Jamie Merrill finds out

It's cold, wet and you've been shopping in town all day. There's not a bus due for 25 minutes and spray from passing cars is soaking you to the bone. Your inner bank manager relents, you decide to treat yourself and raise your hand to try to hail a cab home. One ploughs by without spotting you, the next two already have passengers, then there's nothing.

A few years ago you would have cursed under your breath and accepted a soggy wait. Not today. A few taps of your smartphone and a black cab comes around the corner, pulls up on the kerb in front of you, calls you by name and whisks you away.

London's cabbies are famous the world over for their bulbous black cars, gift of the gab and "the knowledge", but what isn't so well known is that in the past year, they've become an army of tech-savvy early adopters. And in an unlikely alliance have joined mobile-app developers to transform the way we hail a cab.

The exact business model varies from app to app, but essentially both driver (whether of a private-hire vehicle or licensed cab) and passenger download a free app to their smartphone. It uses the phone's inbuilt GPS and mapping to put the two together quickly and pre-registered credit-card details make payment easier.

No specialist equipment or subscription is required. The driver benefits from less time searching for a fare, while the passenger gets a cab at their door without having to pick up the phone or go out on to the street.

In Britain the biggest player is Hailo, with 9,000 drivers registered in the capital. It launched last year and has quickly been dubbed Facebook for cabbies but is being chased by rivals including cab:app, GetTaxi, London Taxi App and TaxiSquare.

Hailo, which operates in nine cities worldwide and is known for its bright-yellow sponsorship of previously black cabs, was set up by three cabbies and internet entrepreneurs Ron Zeghibe, Caspar Woolley and Jay Bregman after a chance meeting in a café off London's Tottenham Court Road. Working exclusively with licensed black cabs, it raised £20m from investors including the team behind Skype and now employs 100 people worldwide and makes more than £600,000 a week in new-found fares in London alone.

"The secret of our success," says Bregman, the firm's chief executive, "is that we focused first on establishing an engaged and happy community of drivers." Research by the company found that drivers can spend as much as 50 per cent of their time looking for a fare.

"So instead of just matching drivers with our customers we've also provided services such as a daily log so they can improve their efficiency, and an information service so they can share information about traffic and which taxi ranks need more cab."

From each successful "hail" – the company puts this in the region of five figures per day in the capital – the firm takes a 10 per cent cut.

"We've found that drivers, who are actually the CEOs of their own individual businesses, are more than happy to pay a matchmaker fee to find business they otherwise wouldn't have had," Bregman says. West London cabbie Seamus Balfe is a typical user. He started out using a rival app before switching to Hailo this year: "I got a job within two or three minutes of signing up and now I can get four or five extra jobs a day."

Steve McNamara, the general secretary of the Licensed Taxi Drivers Association, agrees new technology is crucial for cabbies who have been struggling to compete against private-hire operators. "For the first time in years, we have a way to fight back against the minicab firms like Addison Lee who have a massively unfair advantage over us with cheaper vehicles, less regulation and cheaper labour. Go and ask any cabbie using Hailo and they'll tell you, one reason they do it is because they enjoy seeing Addison Lee taking a kicking."

For the most part, taxi apps are proving popular in very large cities, where there are the biggest networks of licensed drivers, but that may be about to change. Salford-based engineer Vladica Mitrovic has spent two years setting up Cab My Taxi in Manchester and only a week after launching has 60 cabbies registered to work with his new app. Unlike Hailo, which works only with licensed cabs, Cab My Taxi gives the option of hailing a licensed cab or being offered three quotes for a minicab.

You can then use the app to book the best deal. "The feedback we've had already is amazing, and ours is the only app we are aware of that offers hackney carriages and private-hire services in one place," Mitrovic says.

A slightly different model is Uber, which started out in America, and is available in more than 20 cities worldwide and arrived in London this summer.

It's a darling of Silicon Valley investors and has attracted £32m of funding from Goldman Sachs, Menlo Ventures and Jeff Bezos. Unlike Hailo and other black-cab-style apps, it matches customers with private-hire, limousine-like cars and 4x4s rather than existing networks of licensed cabs.

It is not all easy motoring for taxi apps, though. Even Balfe, a keen smartphone user, is still circumspect. He picks up fewer Hailo passengers now than he did several months ago and often has to travel farther to collect them. "I still prefer to pick someone off the street because it is instant and I don't have to travel to get to them."

More worrying for taxi-app start-ups are the regulatory challenges they face in some cities that mandate certain regulations around card payment. Uber recently had to withdraw its Uber Taxi service in New York after such a dispute and in a separate development was slammed after Superstorm Sandy for hiking its prices by 200 per cent.

London, Bregman says, is "the biggest and most advanced taxi market in the world," but will it allow for a profitable business? Hailo claims it is focused on "expansion" but will come into profit for its London operations by the end of the year.

Firms such as Uber and Hailo will have to battle against fierce competition and established (and profitable) players such as Addison Lee and Radio Taxis to make it. If they can pull it off in London, though, the way we call cabs across the world may change for ever and the crisp raising of the arm and call of "taxi" could be replaced by the gentle tap of a smartphone screen.