When we look forward to 2021, it is no surprise that COVID-19 is the dominant factor. So far as the merchant payments world is concerned, the shape of the post-pandemic new normal transaction environment must be the key strategic consideration for stakeholders and I am desperately keen to hear the variety of informed opinion on this topic that I have come to expect at Merchant Payments Ecosystem every year. At Consult Hyperion we like to contribute to these conversations by providing a useful framework for discussion: our annual “Live 5”, our yearly set of suggestions for strategic focus. This year, we choose to look at the key issue of pandemic transformation and its impact of on the three key domains where our clients operate: Payment, Identity and Transit, together with (as is traditional!) a suggestion as to a technology that the POS world may not be thinking about but probably should be.
It’s that time of year again: where’s it’s traditional to take stock and look to the future. At Consult Hyperion, we do that through our ‘Live 5’ process; where we look at major trends in business, technology and consumer attitudes and project them onto our areas of business focus, with twists of our own. This is more than a marketing exercise. It informs our advisory services, but also sets our own strategy, for example by determining what technologies are investigated, and protypes built, by our Hyperlab unit.
I recently presented at the Transport Card Forum 2017 in Birmingham. The subject I was asked to speak about was “How will we pay for transit in the future”. Knowing how slowly things move in the transport industry, the easy answer would have been, exactly as we pay now.
However, I thought it would be more helpful to assume that the answer is not cash, and to survey the categories of payments available and emerging today and put them into the context of paying for transit.
The direction of travel of the transit ticketing industry is to use Account Based Ticketing (ABT) and so I further assumed that ABT lies at the heart of any solution. Next, the travelling customer has a choice of media used to identify them to their payment mechanism. This is ring 1.
These customer media can be categorised as either open- or closed-loop. Open loop means that they can be used to make payments generally, whereas closed loop means they can only be used within the transit ticketing scheme.
Next comes the ‘authority to travel’ and ‘time of payment’ rings. Either the customer pays for authority in advance (e.g. season ticket) or they pay for it at the time of travel (e.g. pay on a bus or train) or they pay later. ‘Authority to travel’ might take the form of a ticket, but increasingly there will be no tickets issued. These are rings 2 and 3.
Finally, the outer rings (4 and 5) were added to show what kind of account might be used and how these relate to existing models such as those from the UKCA for the use of contactless bank cards in transit.
The UKCA models on the left-hand side have been discussed in previous blogs. Models 1 and 2 are what are being used in the UK building on what was achieved in London on TfL between 2008 and 2014. UK buses are now implementing Model 1 (and some are implementing parts of Model 2). Transport for the North (TfN) is implementing Model 2 for the whole of the North of England. Model 3 seems to have been abandoned as too hard to run in parallel with the other models. Perhaps other technologies will continue to dominate, such as bar code and ITSO smartcard ticketing for Pre-purchased authority to travel on national rail. Perhaps there is no need for a third way?
But what about those unable to use, or who do not wish to use, their own contactless bank cards? The right-hand side shows the equivalent models needed for them. As the figure below shows, there are two options for them, Either:
- They fund a pre-paid transit account (a bit like loading value to an Oyster card, but value is loaded to the account instead for ABT. Or …
- They allow payment to be taken directly from their payment account outside of the transit scheme. Payment is claimed from an open-loop account such as a payment card, bank account, online wallet (PayPal, Google Wallet, etc.).
The challenge for the latter option is that the transit scheme will struggle to manage the risk since the cannot tell whether the payment account has funds in it to pay for travel. Therefore, the preference at this stage is likely to be for for pre-paid transit accounts. And, therefore, this is what is likely to be chosen by TfN and other places as their solution for those not using bank cards with ABT schemes.
Thanks are due to my colleague, Alex Lithgow Smith, for developing my original idea of the rings showing aspects of payment in transit.