Payment infrastructure is evolving at a rapid pace, yet few global metropolises have truly embraced the speed of innovation — and there needs to be a change in strategy.
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.
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?
From 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.
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.