London's Transit Payments Light the Way for Other Regions

There’s a fintech rivalry brewing between New York City and London. But in terms of transit payments, London is winning with an interoperable contactless system that runs more smoothly than New York's MetroCard. 

In London the most predominantly used ways to pay for a trip on the Tube are based on Near Field Communication (NFC) technology. Funds can be pre-loaded at a ticket machine or counter onto an NFC-equipped Oyster card, but an increasingly popular option is to tap a bank-issued credit or debit card can directly on the reader outside the turnstiles.

The use of a bank-issued card has become such a popular method of payment that transit systems almost always choose to support contactless bank-issued cards when revamping their systems, said John Hill, managing director of Cubic Transportation Systems Inc. in Europe. And that’s mostly because of the success of the London initiative, he said.

The system is operated by Transport for London (TfL) in partnership with U.S.-based Cubic.

“Since we launched in September we’ve had more than 60 million journeys undertaken with [bank-issued] contactless,” Hill said. “At the moment [contactless] is 14% of all pay as you go journeys.”

And that’s been without much of a marketing budget.

While the prepaid Oyster card is contactless, the Cubic and TfL differentiate between the two payment methods by using the term "contactless" to refer only to bank-issued card purchases (Oyster purchases are simply called "Oyster").

TfL is currently settling on average more than 1 million pounds per day through contactless, Hill said. It supports contactless cards throughout London’s transportation options, including the bus network, National Rail lines and river services.

The system's prepaid Oyster card is cheaper for TfL to accept, but Cubic and TfL said they are ambivalent to which contactless payment method commuters use. Any contactless card payment is one less ticket sale to manage. It decreases both the queues at the manned ticket booth and at kiosks. This, in turn, reduces a number of costs, including staffing costs and kiosk upkeep, Hill said.

TfL is Cubic’s largest client. Cubic is paid to maintain and operate the ticketing system; TfL pays Cubic a fixed monthly fee that Hill would not disclose.

And while the London system reduces paper-based cards and the costs of managing a transport payments system, it might not be so fair to compare the two systems directly, said Hill. Revamping New York’s subway system will be a monumental undertaking, he said. But it could be happening soon.

New York riders pay using stored-value MetroCards, which are sold with unlimited rides for a day, week or month. Unlike London’s system, where commuters' fare depends on how far they travel, New York charges $2.75 for all trips (a fare hike of 25 cents took effect in March).

The city of New York is launching a program this year which will allow transit management companies to compete over a contract to replace the existing system. Hill thinks there’s a good chance it will include contactless acceptance, which New York tested nearly a decade ago with MasterCard and Citigroup.

Cubic is very interested in working with New York, Hill said.

Hill predicts New York will continue to accept magnetic-stripe tickets as well, just as London does.

“If you think about [contactless acceptance] what you’re potentially doing is eliminating the step in the process of converting money into transportation currency...whether in the form of a top-up on Oyster or magnetic ticket,” said Martin Howell, worldwide marketing communications director at Cubic. “If you eliminate that step you save money.”

And while these cost savings are offset by the transaction fees that merchants pay for accepting card payments, banks are likely to give transportation agencies a good deal because of their processing volume, Howell said. But it’s not only that.

“What they’re doing is helping to create the contactless market; banks very keen to promote contactless everywhere,” said Howell.

This could be an important move for cities in the U.S. with Apple Pay's recent launch. The U.S. hasn't been as quick to adopt contactless as other countries, and industry experts predict contactless adoption in other industries could make consumers more comfortable with the technology.

Cubic works with three transportation agencies in Chicago and the Calgary Parking Authority through its ParkPlus system. With the rich and substantial amount of data Cubic has, the company is looking to expand its business into information management, helping both the public entities that employ the company and the end users of its system better plan their journey.

Cubic is also working on an E-ZPass solution which uses video to recognize commuters and a payment card either carried with them or linked to a mobile application. The company has partnered with SenSen Networks, a video analysis provider out of Melbourne, Australia on the project.

Cubic has some competition in the transportation technology market. Bytemark, a New York-based provider, is working to create gateless ticketing lines in the next three to five years. Bytemark plans on leveraging the Bluetooth technology on smartphones to track commuters.