Predicting the Future of Payment Methods
We hear it with the emergence of every new payment technology: “This is the new payment technology that will revolutionize the way we pay for products and services! In X years, previous payment methods will be so passé and will wane. RIP cash and current technologies…”
OK, maybe it is too much of a dramatization, but effectively this is the tone we heard when credit cards were introduced as a method of payment for public transit, and this is the tone and excitement we are hearing with the emergence of NFC as the next exciting payment technology for public transit; and smart cards before that.
So let’s take some time and consider what happened in the evolution of payment systems at the ticketing point of sale at public transit stations and try to draw conclusions on what the future might hold in this regard.
Payment technologies at the public transit points of sale
The point of sale for a public transit service could be either at a booth manned by a human teller, or can be an automated pay station. Since the desire of most operators is to phase away the booth in favour of automated methods of payment, we will focus here on the latter. Automated pay stations can be a Ticket Vending Machine (TVM), Add Value Machine (AVM), or a fare box. For the purpose of this discussion, let’s consider what happened at the TVM.
First, it was cash payment, then magnetic stripe-based credit and debit cards. And yes, these two cashless payment methods were forecast to eventually completely displace cash. Then payment for ticketing using the PC over the internet, then contactless credit cards (at least in some countries). Not long ago, we saw the introduction of ticketing using applications on the mobile phone. And now comes NFC on the mobile phone as the new method payment on the block, promising to become the new king of payment for public transit.
Think of the above, and then take a look at TVMs today, and what you will see is a machine that, more often than not, enables all of these payment methods combined. Cash payment is still offered at most TVMs as is some form of cashless payment. Each time a new payment method is added, the capital and operational costs of Automatic Fare Collection (AFC) systems increase for the operator, which is increasingly finding itself unable to phase out any existing payment method.
There have been instances where some operators wanted to phase cash away from their TVMs, but they did that by enabling their ridership to alternatively purchase tickets with cash at designated retail locations, thereby simply shifting the channel, perhaps even at a higher operational cost than would have been if the operator processed cash at its own premises (after all, those retailers want a cut).
In fact, when one abstracts the different payment methods into two main categories: cash and cashless, and regardless of whether the consideration is payment share in public transit or any other industry (like retail for example), an observable pattern
emerges. Cash did indeed, in the past few decades, lose significant market share to cashless, but that share loss is now tapering off and has stabilized. What is evident is that the different cashless payment methods are now simply stealing market share from each other.
A word about NFC
This now brings us to the next big question: will payment with NFC technology using the mobile phone change all of this? Will it take over all the other cashless means of payment and then completely run cash over?
This is the multi-million dollar question for operators that are looking to add NFC payment as an option to their new TVM deployments. Can the operator afford to not offer NFC payment?
This is a debate that has been raging on in NFC forums for some years now. NFC has been successfully and unsuccessfully trialled at various retail outlets and also at some public transit stations. Transit for London, Europe’s biggest transit operator, tried it not long ago. Different trials in different industries yielded various degrees of success. A discussion on what is going on in the NFC ecosystem would take numerous pages, but suffice it to say that the NFC technology and business ecosystem is not yet completely figured out. There are many competing value chains and business models (which in turn may need different elements of technology). We should be of the opinion that all technical problems would eventually be ironed out, and a dominant value chain would emerge, making NFC a seriously viable payment option.
But then the next thing to look at here is the other side of the coin. Will consumers or riders actually adopt NFC payment en masse like they have done with plastic? No one really knows what the future will hold, but experts are now formulating a consensus on this: NFC payment will become a much more prevalent form of payment in the developing world and not as popular a form of payment in the developed world.
One can see why that is anticipated. To pay with a credit card, all you need to do is whip it out of your wallet, wave it in front of, or insert it into, the credit card device, and off you go. To pay with NFC, on the other hand, you have to take out your phone, key your PIN code or use your fingerprint to get in, launch the NFC application and enter its PIN, select which card the payment will go through, and finally wave the phone in front of the transceiver at the point of sale. Clearly, it is much easier and more expedient to pay with a credit card.
Proponents of NFC payment, though, say that eventually all these steps will become second nature as we migrate towards the virtual wallet. But who seriously thinks that e-, or m-, or virtual wallets is really the future? What would I do if I lose my phone? What will I do if the battery dies out? There are many real-life complications with NFC. The value proposition for the virtual wallet has yet to be resolved.
What will happen in the future?
So what will the payment share landscape be in the future? Nobody knows, but if history is an indication, then cash will maintain a certain (but steady) share, and cashless methods of payment will continue to exchange market share amongst each other. The same predicament operators face today will exist in the future: having to support multiple payment methods. NFC will have its adopters, but in the UK and America for instance, it will not rule.
Andrew McArdle Booker, Marketing Manager, Transport
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