Evolving Payment Options and Infrastructure

As the Washington Metropolitan Transit Authority (WMATA) weighs the pros and cons of moving away from cash payment for bus shares, the agency knows it must strike a balance between transaction expediency and protecting the underbanked population.

In a series of information boards presented by WMATA at a September 2018 open house, and in a pamphlet distributed to bus riders, staff said passenger boarding and fare payment can take up to 25% of travel time on a bus route. The agency said 88% of its riders use its refillable plastic SmarTrip cards, so a transition to cashless would affect only a small portion of riders.

Meanwhile, WMATA cited research from TransitCenter and the National Association of City Transportation Officials showing that U.S. buses spend nearly one-third of their time sitting — or "dwelling" — while riders pay their fare, which further supports the cashless argument.

"Research shows that cash payments take significantly longer than SmarTrip taps, and takes even longer when customers add value to a SmarTrip card at the farebox," WMATA officials said in a statement announcing a possible cash-free expansion. "These transactions cause the bus to hold longer at the bus stop, resulting in a longer trip for all riders."

To ensure the cards and the ability to refill them are accessible, WMATA said there are still plenty of options for riders who use cash, including the ability to top up at CVS and other retail locations, while local bus routes will continue to accept cash payments.

A case for the underbanked

Other cities have started to move toward cashless transit, presenting a precedent for WMATA’s latest moves. London has gotten rid of cash fares completely, and it is part of a wider trend in Scandinavian countries such as Sweden that have gone cashless across their society.

The trend comes with transit agencies looking for different ways to manage fare collection. In a research report by Mass Transit, cash handling and operations was viewed as the second-biggest concern of transit agencies, especially as cash collection systems often require far more expenditure on maintenance than other systems.

But the move in Washington, DC has some advocates uneasy. DC Council Member David Grosso, I-At Large, sent a letter to WMATA Board Chair Jack Evans raising concerns about the impact of the cashless bus pilot program on low-income and disabled riders.

"It is very important that we continue efforts to make our buses more efficient and faster, and I have no doubt that this proposed pilot for the 79 bus will show that this reduces overall trip times," Grosso wrote. "However, a speedier bus should not be a result of leaving some of our residents behind."

In his letter, Grosso said those who rely on cash, either because they do not have a bank account or prefer to manage their finances by using cash only — known as "underbanked" — could have longer commutes as it will be harder to find and use a machine to reload their travel cards.

And for those who work in the service industry and are paid in cash, such a cashless rollout could be a struggle, said David Rothstein, a principal at the nonprofit Cities for Financial Empowerment Fund (CFE Fund), which looks to work with local governments to help them provide finance options for low and moderate-income residents.

"Especially if someone doesn't have regular hours or is in a type of job that's not going to pay them through direct deposit, they're still going to be in that cash economy," Rothstein told Smart Cities Dive. "More and more vendors are moving for security reasons, for safety reasons, for efficiency reasons, to either no cash or quicker access to the services by swiping a card. And I don't think that the legislative route of dictating what they can and can't accept is going to change that trend. That's just the way that a lot of this is moving for certain payments."

In response to Grosso’s letter, WMATA General Manager Paul Wiedefeld assured him that appropriate steps are being taken to inform customers of the change and of their options if they rely on cash.

Grosso’s office said in a statement they would have liked to see him offer new ways to help passengers that rely on cash, but he "awaits the result of the pilot program and will continue to monitor its potential expansion to other routes to ensure that WMATA buses remain an option for all residents.”

In a similar vein, Grosso has raised concerns about city restaurants going cashless, and introduced legislation to ban the practice in DC. “Practices like this further stratify our diverse city when we should be working to foster greater inclusion,” Grosso said in a statement on that bill’s introduction.

His concerns are similar to those raised in Boston, where advocates worry some bus riders who do not live on the ends of routes will have a harder time topping up their cards. In an interview with TransitCenter in 2016, David Block-Schachter, chief technology officer at the Massachusetts Bay Transportation Authority (MBTA), said the city won't skip straight to cashless bus routes to ensure low-income riders are not left behind.

Moving toward a cashless society

The move away from cash and into new technologies has accelerated in recent years, and partnerships between Mastercard and Microsoft on various smart cities initiatives are indicative of how financial institutions are looking to technology to ease the payment process.

That technological evolution could extend to ATMs themselves, said David Tente, executive director for the United States and Latin America at the ATM Industry Association. He said ATM upgrades will be arriving in the coming years, with the new machines potentially addressing the balance between cash-based customers and a much needed mobile-integrated process. 

"We see that the ATM is going to be more like your smartphone or your tablet, and if you want a new app to do something different, to take a different type of payment or add functionality to it, it's going to be a fairly simple matter of adding that app onto the system, and we won't have quite the fiasco we have today with having to get everything tested and certified and so forth from six different vendors in order to make one new function happen," Tente told Smart Cities Dive.

Rothstein said cities should do more to encourage low-income residents to have bank accounts that require only $25 or less to be opened, give free access at a branch or at an in-network ATM, and have no load fees for when someone needs to pay cash into their account.

CFE Fund has national standards for such accounts through its Bank On initiative, something Rothstein said more and more cities are signing up to participate in, including DC.

"The benefits of having a bank account over being in a complete cash society are huge if the account is the right kind," he said. "[When] a public transportation agency or a utility company decides to no longer accept cash, they're already in one of these accounts and can easily start to make payments in an efficient way for themselves."

How tech-savvy is your city?

Ask this question to the average New York City resident and they’ll probably respond enthusiastically. Home to "Silicon Alley," NYC has quickly grown into a high-growth technology center that rivals San Francisco in talent and tenacity.

But let’s not get ahead of ourselves. The question wasn’t about the tech companies that have made a city their home, but rather the use of technology by the city itself. Innovation is at the heart of urbanization and smart city growth, and one might be quick to assume that a city like New York would rank fairly high on the municipal IQ scale.

That is, of course, until you consider the Metropolitan Transportation Authority's (MTA) MetroCard.

According to The Wall Street Journal, the MTA responds to more than 2,500 (often profanity-laced) tweets a day. One of the most popular irate tweet topics? The MetroCard. A thin, magstripe-enabled piece of plastic, the MetroCard has long been a necessary evil for NYC commuters. (Never mind the malfunctioning service kiosks, unknown card balances, and temperamental gates.)

Implemented as a replacement to traditional subway fares, the MetroCard's swipe technology has caused a laundry-list of issues for riders since its introduction back in the early 1990s. And while the MTA has announced a new contactless system, the implementation will take upwards of six years — and, unlike other examples of transit systems in Japan and the United Kingdom, will still lack a bigger vision for a smarter city-wide system. That's because it will be missing solid payment infrastructure.

The benefits of a hyperlocal payment system

When it comes to smart city building, municipal and urban planners are more than familiar with the importance of infrastructure. Roads, subways, buses, airports — these are all vital for the movement of people and goods, and critical to the economic well-being of city. What I’m proposing here is that payment systems — the solutions that enable citizens to use other infrastructure in a quick, easy, and productive manner — should be planned and implemented with the same control and attention to detail as a new rapid transit line or bus route. That's because payment infrastructure and the data that’s connected to it has the power to influence almost every aspect of civic planning.

The MTA’s decision to replace the MetroCard with a new contactless payment system is a step in the right direction. Come 2023, riders will be able to pay for their fare on the system simply by waving or tapping their credit or debit cards, smartphones, and MTA-issued contactless smart cards on an NFC-enabled turnstile.

On the surface, the benefits of this type of system are obvious. First and foremost is usability: Having an interoperable system that’s open to multiple payment types helps ensure that visitors will be able to make use of public transit options without unnecessary difficult. Secondly, a contactless system will help the city significantly reduce the cost of collecting public transportation fares.

Upon closer examination, however, there are still holes. While there’s no denying the ease of tap credit card payments for end users, not everyone has a credit card, and the interchange that’s charged on each one of those taps can be quite steep (roughly 2-3% of the total cost of acceptance in most cases). To solve for these issues, the MTA has announced that it will issue its own contactless smart cards that can be pre-loaded with funds.

As it stands now, this MTA-issued payment alternative will likely become nothing more than MetroCard 2.0: a basic card with payment capabilities limited to MTA-operated transit systems. But what if it could be a part of a unified payment solution for local residents? Why stop at a transit card when the MTA could create a unified city e-wallet — a hyperlocal payment solution that would enable residents to easily pay not just for transit, but for any other municipal or community service?

F​​rom bike-shares to road tolls, water bills to the local newspaper, a proprietary open-loop payment system wouldn’t just help the MTA cut back on angry Twitter trolling, but would also help make city services more accessible to the unbanked and underbanked population — those who arguably are most in need of these services. 

Building a proprietary system isn’t that unheard of. For example, take Japan’s Super Urban Intelligent Card, or Suica. A rechargeable contactless smart card, Suica’s primary use is as a fare card on train lines throughout the Kantō region, but it can be used interchangeably with other transit cards in Kansai and San’yō regions, as well as in the city of Hiroshima and Yamaguchi Prefecture.

But that’s not it’s only use. Suica is increasingly being accepted as a form of electronic money for general purchases at stores, vending machines, and kiosks. Stores like 7-Eleven, Ministop, Bic Camera and Circle K Sunkus all accept the card. With 75 million transactions a month, Suica is doing more than just making the daily commute for Japanese locals easy; it’s providing them with a hyperlocal payment solution that’s also informing local urban planning.

Similar to Suica, Hong Kong’s Octopus card gives transit riders a quick and easy way to cover basic retail transactions during their daily commute. And while the more than 24 million Octopus cards in circulation today are used primarily to pay for transit, 40% of the total usage is now generated from retail sales. In both of these cases, payments are helping improve efficiency by blurring the ease-of-use line across both private and public services.

A proprietary payments infrastructure can also help cut costs. In the case of London's Oyster card, using a modern, contactless payments system (along with other initiatives) enabled the city’s transit department to reduce the amount they spent on revenue collection from 15% to 8% in 2016. According to a report from McKinsey & Company, London city officials expect these costs to continue dropping closer to the 6% mark as more passengers adopt the contactless system. 

Using payment infrastructure to support intelligent urban development

It's unsurprising that efficiency and cost-cutting measures come as a result of improved payment infrastructure. But what if Suica, Octopus, Oyster — and yes, even the MetroCard — took things one step further and leveraged the anonymously aggregated data sets collected through their payment infrastructure to further drive urban design? Instead of building infrastructure and services based on estimates and projections, governments could tap into real-world purchasing information in order to improve services.

We know that mapping applications, search engines, and telecom operators have been mining and monetizing user data for years. In fact, many cities have been purchasing data from private companies, such as Citymapper, in order to influence their urban planning. And while this third-party data is useful, imagine what a city could do with its own hyperlocal datasets, mined directly from the usage of actual citizens. Faster, cheaper and more efficient transit, sure, but that would just be the start. Using payment infrastructure as the underpinning for both public and private developments could help ensure more effective application of city funds, private investments, and community-led initiatives.

Payment infrastructure in the U.S. and everywhere else is evolving at a rapid pace. We pay with our smartwatches, merchants accept cards on mobile phones, and everyone is accustomed to the idea of requesting a ride or ordering food while the payment happens in the background. Still, few global metropolises have truly embraced the speed of innovation, and there needs to be a change in strategy.

Cities can no longer treat payments like something that is out of their control. With the volume of transactions in our largest urban centers, they should be driving the agenda, taking ownership, and demanding that payment systems are built around their citizens’ needs. American cities can learn a lot by looking abroad, and I certainly hope we won’t have to wait another decade before we see the first Oyster, Octopus or Suica-like system built here.  

Dive Brief:

• Research from Intel found smart cities technology could give urban dwellers back as much as 125 hours per year from lost productivity via improved transportation, public safety, healthcare and workflow.
• Intel found the biggest time saving comes from improving transportation, which it found could save city residents 60 hours per year through smart traffic systems and new technology in public transportation systems like apps, cashless payments and automation.
• "These small points of friction, if you can remove them, it adds up to a lot of benefit in terms of better throughput of people moving from one point to another and therefore less time for them to get from one place to another," Sameer Sharma, Intel's Global General Manager of Smart Cities Internet of Things (IoT) solutions, told Smart Cities Dive.

Dive Insight:

According to this research from Intel, lost productivity could be a thing of the past if cities adopt various smart initiatives. People can spend more time on vacation, exercising and feeling less depressed. In 2014, Time magazine linked commuting to increased risk of depression, anxiety and higher blood pressure, among other things.

The research also found using predictive crime software and prioritizing emergency vehicle routes through traffic lights could save city dwellers 35 hours per year, while apps and digital services for interacting with city agencies could save 21 hours per year. Finally, using apps and software could reduce the need to visit a doctor, and save 9 hours a year.

"What's keeping us from being happy? "That's a very complex philosophical question, but we said from a practical viewpoint, what are the things that are creating stress in our lives? One of the biggest things was lack of time," Sharma said.

Such innovations require investment in the likes of enhanced broadband internet and 5G to cope with the greater use of data. And while Sharma said the investment is huge — perhaps in the trillions of dollars — it will be worth it if smart city technology is rolled out properly.

"Cities are worried. They're saying they want to go and spend the money to build this infrastructure, but just like I didn't build separate highways for trucks and cars and cyclists, I want to build this infrastructure once for all these different services," he said.

Sharma said that as cities continue to grow at a rate of 3 million people per week across the globe, it is imperative for their infrastructure to use modern technology to adapt and cope with the influx.

"Because it's been happening consistently, I think collectively we sometimes become numb to how massive this transformation is and how much it will stretch the current set of resources," Sharma said.

We need to start preparing for a decentralized economy, said Bettina Warburg, co-founder and managing partner of Animal Ventures, to delegates in a keynote speech at Smart City Expo World Congress in Barcelona earlier this month.

This decentralized economy, underpinned by blockchain, will not only impact how we trade but will also radically change how we make, design and produce physical and digital goods. While there are many unknowns about some of the impacts of this evolution, one thing is clear to Warburg: The shift is inevitable.

Lowering uncertainty, removing middlemen

Warburg explained that throughout history, we have created "middlemen" to deal with uncertainty about trade – who are we dealing with, how do we know we are getting what we were promised, and what if we don’t receive the goods? These middlemen include banks, corporations and government entities, as well as online platform marketplaces like Amazon, eBay and Alibaba.

Now for the first time, she said, we can lower this uncertainty using technology alone – blockchain, meaning no middlemen are required.

Warburg described blockchain using the analogy of a checkbook. When we write a check, we are documenting the terms of a transaction. A signature provides authentication and the parties' banks execute the transaction. Over time as you fill out all the checks in a checkbook, the carbon copies become the equivalent of a block of data in a blockchain. Instead of using banks to execute the transactions, blockchain uses a network of computers that are running the same software and coming to agreement. There’s no central administrator; it’s run by all of the participating nodes.

"This gives us a global decentralized database of all of these transactions, like a global version of everybody's checkbook," Warburg explained.

Decentralizing the supply chain

Blockchain also enables smart contracts, automating not only business logic — the terms of deals — but also governance of them. Warburg said this is "an important step toward a decentralized economy."

However, she described how blockchain will do much more than allow us to trade between buyer and seller without middlemen. It will also change the supply chain.

"Everything we buy or use has a supply chain," she explained. Raw materials go through many different kinds of transactions to become a finished product. Modern supply chains are already innovating, using artificial intelligence (AI) and data to make better decisions and forecast supply and demand. However, these intelligence systems and devices typically communicate with a specific set of enterprises; they’re not shared with everyone.

Blockchain unlocks the idea of a "network state ... which you can think of as shared reality. Blockchain is in some ways giving us an autonomous network state — the ability to manage all that information and make choices on it by transacting it without middlemen," she said.

​"This means, we need to actually go beyond thinking about trade to thinking about how we design, make, deliver and even coordinate all of these products as they flow in our global trade."

This autonomous network state also gives us what Animal Ventures calls machine trust. "If you take this one step further, rather than just these innovations in the course of human history to improve how we trade and scale, we can also include how machines trade at scale," Warburg explained. "You should think of robots as the next consumer class, and they actually need an infrastructure upon which to transact and trade and use data. This is the role of network state, and it's part of what will take us forward to a decentralized economy.”

Learning and unlearning, faster

"I don't want you to think that I'm describing this as a better future, because I'm actually not. I'm describing it as inevitable”, said Warburg. She explained that preparing  will require us to "learn how to learn, earn how to develop new paradigms and innovate faster ... Then we also need to learn how to unlearn and to get rid of some of the old assumptions we've had about our trade but also about just how we do business together."

And, she said, "We won't be doing this alone. We'll be working alongside machines and even new kinds of organizational structures to be learning together and creating value together in this decentralized economy. We need to train our machine to learn and also unlearn."

Blockchain for smarter cities: Prepare for impact

Blockchain was a hot topic throughout the week at Smart City Expo World Congress with many speakers being asked by the audience, “What about blockchain?” or “How will you use blockchain?” during panels on a variety of topics from transportation to citizen engagement. Speakers didn’t always look comfortable with the question.

In a separate panel on "City as a Platform," Andrew Collinge, smart city lead and assistant director for the Intelligence and Analysis for the Greater London Authority (GLA), noted that city leaders need to better prepare for the implications of technologies such as blockchain. He argued that while they may have a high level understanding of the technology there’s typically "zero comprehension" of the impact it could have for government and the communities it serves.

"That absolutely has to change in 2017," Collinge commented. “It's a matter of urgency that public services, and the leadership of those public services, is able to anticipate technology and the disrupted business models it creates; and that it can respond to that by setting out the key demands. We cannot find ourselves in situations again where we have to regulate after the event. That is government not doing its job properly."

Warburg sees a lot of opportunity for cities to use blockchain in the areas of open platforms and data management. There are tools within blockchain already to deal with confidential information, she noted.

"We're starting to see evolutions where we can actually scope and protect different data structures that are using a blockchain to communicate more freely," Warburg said. "There’s a great opportunity for cities to start to experiment. There are definitely ways to experiment safely, and I would recommend doing that."

Dubai is an example of a city doing this. It recently launched a blockchain strategy and sees blockchain as the "next wave of economic opportunity and digital innovation." It is running a number of proof of concepts in this area and aiming to be the first blockchain-powered government.

The world will no doubt be watching.

As cities, and particularly their public transit agencies, move away from paper fare cards, a raft of new technologies are being trialed and rolled out.

Some are looking at new ways to make use of reusable plastic cards, while others are looking to develop mobile apps that not only manage payments, but also provide other transit information, creating a one-stop shop for mobility.

Here are four cities that are looking at new, experimental ways to manage payments on transit.

San Francisco

Soon, riders across San Francisco’s 22 transit agencies will no longer be able to travel using a paper fare card after the Metropolitan Transportation Commission (MTC) approved a $461 million contract to upgrade its transit fare payment system.

The new system will include a mobile app which allows riders to pay fares and reload accounts with their mobile devices, with equipment in hundreds of transit stations and on 3,500 buses and light rail vehicles set for an upgrade. MTC also aims to integrate better with other transportation modes such as bike-share and paratransit.

The mobile app is expected to go live in 2020. The full system redesign is expected to be complete in 2021, and all customers should be transitioned to the new system by 2023.

Washington, DC

The Washington Metropolitan Area Transit Authority (WMATA) announced plans to become "mobile ready" in 2019 with a new app that will allow customers to pay fares using a mobile device.

Using the app, customers can check fares and get service information in real time. Modernizing the system’s infrastructure to accept mobile payments will be done in three phases, including installing new faregates at all 91 stations in the Metrorail system and new fareboxes on buses.

WMATA said in a press release that each mobile provider will announce when its customers can use the app for payment, as the transition depends on "certain technical requirements to ensure quick transaction speeds." Rollout could be piecemeal.

Las Vegas

In March 2018, the Las Vegas Monorail became the first transit agency to let riders pay their fares using Google Pay. Android users are able to purchase fares through Google Pay, then place their device on a payment terminal to gain access to the transportation system. Google Pay will also show users transit maps and send digital travel history receipts.

Google partnered with NXP to integrate the connectivity company's MIFARE, a contactless transportation payment system, with Google Pay. The company has pledged to roll the technology out to more cities in the future.

Los Angeles

The Los Angeles Metro plans to upgrade its TAP Smart Card into an account-based system that will become a one-stop shop for payments and signups across all mobility services.

Those services are intended to include bike-share, microtransit, electric vehicle (EV) sharing and charging, ride-hailing and parking. The new features started rolling out in December 2018, when the card, now known as TAPForce, was updated to allow transit riders to pay for rides on Metro Bike Share, the city’s docked bike-share system.

The TAPForce mobile app is expected to roll out in 2019.