Business Technology

Friday 21 July 2017

Underground revolution in how to thrive without cash

Payment innovations: Transport for London
Payment innovations: Transport for London

James Titcomb

Apple Pay - which launched in the UK last week - might seem cutting-edge, but contactless payment is old hat in London. One of the biggest innovators in the cashless economy historically hasn't been Apple or credit card companies - it's London's transport system.

Enabling passengers to use Apple Pay is only the latest in a series of payment innovations that Transport for London (TfL) has helped foster as it crams more people onto the underground network.

As far back as the late 1950s, TfL London began to look for a technology that would allow it to check tickets on the underground without putting inspectors at every barrier.

Manual inspection was time-consuming and labour-intensive, leading to bottlenecks at the gates during busy periods and forcing TfL to employ an inspector at every gate.

So in 1961, almost a decade before American Express introduced the world's first magnetic stripe credit card, TfL began experimenting with the idea. In the ensuing years, automatic gates entered service, and by the mid-1980s they were almost ubiquitous.

Five decades after the first magnetic stripe tickets entered service, Apple Pay, a new payment service allowing iPhone and Apple Watch users to pay using near-field-communication technology, reached the UK.

Apple Pay is heralded as a "simpler, faster and more secure way to pay" by the company, but to Shashi Verma, TfL's head of customer experience, it is just the latest step as the transport body looks to new technology to keep its creaking network upright, despite record levels of passengers.

"The more options people have of doing something, where the user experience related to their needs, then the better off we are," says Verma, who hopes that Apple Pay and the forthcoming introduction of rival services from Android and Samsung will be another step towards eliminating paper tickets on the Tube. From the 1960s, when magnetic stripe tickets were first introduced, to the start of the 1980s, passenger numbers on the Tube declined significantly, as car ownership rose and the emerging middle class moved out of the inner city. In 1982, the Tube carried fewer than 500m journeys, the lowest for 50 years.

However, globalisation and the rise of London as an international finance centre reversed this. While mag-stripe tickets had made trips more efficient, rush-hour queues started to build up again. In 1991, TfL began work on a new ticketing technology that it hoped would get passengers through the gates faster, which eventually became the Oyster card (similar to Dublin's Leap card).

"At that time, nobody had technology of this kind anywhere in the world, so when we did the first experiment in 1993 we really were the first people to experiment with it," says Verma.

By the time the Oyster card was introduced in 2003, more than 1bn journeys were being made on the Tube a year. Now, 10 million of the cards are in regular use, not only by Londoners but visitors from outside of the city and abroad. Oysters removed the need to queue for tickets or scramble for change on the bus, and meant passengers could get through gates quicker.

Only two years after Oyster was introduced, however, TfL started to look at what would come next. In 2005, it began a research partnership with the Massachusetts Institute of Technology to find the payment technology that would replace the new system.

"We cast the net as wide as we could," says Verma. "We were looking at all kinds of technologies that were there or in the labs, or in standards that had not been implemented, and out of that very wide trawl of technology there were two things that sounded interesting to us.

"One was contactless bank cards, and the other was mobile phones with NFC capability." Of the two, the latter at first appeared the more promising. As early as 2007, TfL teamed up with O2, Nokia, Visa and Barclays to trial mobile payments technology.

The early results were promising, but a failure among network operators to agree a set of common standards set mobile payments back years.

"There was this tussle between handset manufacturers and network operators, and the network operators held all the power so they changed the standards in their favour, except the standards didn't work anymore," Verma says. "As a result the NFC industry was completely neutered, nothing happened."

Contactless cards also first reached the UK in 2007, but a similar trial using the technology with Barclaycard had bad timing. Five days after it went live, Northern Rock collapsed. Credit in the UK dried up, and nobody wanted to use credit cards.

It wasn't until 2011 that the rest of the industry began to start issuing cards fitted with the technology.

Accepting contactless brings several benefits above Oyster cards. For one thing, they don't need to be topped up, preventing the frustrating experience of queuing at a gate only to be refused entry.

And passengers carry them around already, so less regular visitors to London don't have to purchase Oyster cards or paper tickets when visiting.

At the end of 2012 TfL introduced contactless payments on buses. It was such a success that by 2014, less than 1pc of passengers used cash, and a year ago, buses stopped accepting notes and coins after 184 years.

In September, the Underground and Oyster-compatible train stations began accepting contactless and that month, 810,934 train and Tube journeys were made with contactless cards.

Last month, there were 11.8m. Around 18,000 new cards a day are registered on the network, and now 4.5m cards from 61 countries have been used to make journeys.

This could well make TfL the biggest contactless merchant in the world.

The adoption of Oyster more than 10 years ago has made many Londoners comfortable with the technology, so it was no surprise when Apple announced last month that the UK would be only the second country in the world to have Apple Pay.

NFC payments have had previous false dawns, but with powerful backers such as Apple, rather than squabbling operators, it may have a much better chance of succeeding.

More than 650,000 locations in the UK are accepting Apple Pay, thanks to the groundwork done by contactless cards, and the technology accounts for two in every three dollars spent via contactless in the US.

"As far as the network operators are concerned frankly they've lost this game," says Verma. "But we are agnostic about it, 10 years ago we were perfectly happy to work with the network operators, now the fact is all the power is with the handset manufacturers and therefore we're happy to work with them too."

Apple Pay arrived with great fanfare last week, but Verma claims TfL deserves credit for the infrastructure that enables it.

"From our perspective, it's a real story about technology leadership in house, within a public sector organisation," Verma argues. "You hear about all this innovation coming out of Silicon Valley, around tech companies and so on but the reality is there's a lot of innovation that can be done outside of the tech sector and we've shown how to do it."

(© Daily Telegraph, London)

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