The startup that's digitizing the Windy City

Set off a false burglar alarm in Chicago? That will cost you. As will water access and sewers. And a wide range of licenses for businesses. There's as many as 80 activities, bills or fees that require payment to the local government.

It's a mess of disconnected legacy systems that smacks of old-school municipal malaise and revenue loss as people trek to midcentury government facilities and wait in line to pay.

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"One third of the payments to the city of Chicago each year happen in person," said Mike Duffy, CEO of CityBase, a Chicago-based startup that just launched an online migration and digital payments project in Chicago. "That's 1.7 million walk-in payments per year. There's a tremendous opportunity to move these online or make these interactions more convenient."

CityBase is part of a sweeping project that will create an authentication protocol to access city websites and facilities. Users can turn this authentication into an account that allows them to view whatever fees they owe to the city—business costs, license fees, fines, public program costs—in a central location.

The project will enable more payment methods such as mobile wallets, online portals and mobile point of sale. Traditional countertop systems will be updated to handle payment apps in addition to traditional check and cash.

"There's a bunch of payments types," Duffy said. "Just when you think you've seen them all, there's another list that has to go online."

The fees go to different divisions within the city's treasury department. The project will centralize many activities, as well as streamline access and collections.

"This is the first step, and we're doing the heavy lift that will eventually add more activities," Duffy said.

The project can't solve the entire problem. CityBase and Chicago are not requiring the new IDs, and government agencies can't refuse to take cash payments in person. Also, Chicago's transit authority, which is operating a long-running automation and ticketing project of its own, is not part of the CityBase project at this time.

The Chicago project is part of a global trend toward smart cities, a term that refers to cities that unify and digitize processes that are usually distinct and manual.

Enabling open-loop payments on transit is a large part of the effort, since the credentials for a payment account are transferable to other uses such as building access or an ID for a license. Payments are also habit forming.

"This gets rid of having to use a cable bill to prove your address, for example," Duffy said. "You can use this ID to validate across departments."

Smart city projects are relatively far along in Singapore, London and Oslo, while Visa and Mastercard have made their online tokenization security an entry point for smart city projects.

But the overall trend to tie digital payments to a fully digital city is still in the early stages, and could struggle in the U.S. where most cities lack a centralized payment acceptance infrastructure that can serve as hub for a broader automation project.

"In most markets, particularly in the U.S., the smart city movement is evolving in fits and starts, similar to the challenges of getting consistent public transit in many U.S. markets," said Thad Peterson, a senior analyst at Aite Group. "The cities that are making the most progress have a consistent centralized structure that has the ability and authority to implement change across the community."

Such projects can also be catalyzed by the spread of networked consumer technology, he said.

"What might change this picture is if smart home and connected car achieve critical mass so that citizens understand the value of a smart city and leaders leverage that into a vision for their community," Peterson said.