Transit is the "killer" application for Smart Cards

Transit has often been cited as the killer application for Smart Cards. Drawing from my extensive involvement as a customer in Hong Kong's Octopus system, I wish to share with you today how the deployment of smart card technology in transit not only achieves an internal return in investment but provides a platform for the expansion into other small value transaction markets together with the potential to leverage the smart card infrastructure to develop multiple application products.

The driving force behind every technology venture
Smart Card systems require significant initial investment in The design, implementation and operation of a transit smart card system requires a significant investment.

The principal investment elements are:

Smart cards and card management system;
Fare payment and reload devices;
Communication system for data transfer and device monitoring; and Backend system for transaction validation processing, reconciliation, settlement and reporting.

Transit Systems are well positioned to achieve a return on the initial investment

Citywide multiple operator transit systems generally provide the critical mass in terms of:

Card base;
Device quantities; and
Buying power to leverage at a marginal cost existing distribution and cardholder support channels
to achieve a positive business case.

A compelling business case for operators

For transit operations, the sharing of common infrastructure and citywide products yields significant commercial and operational benefits including increased patronage, enhanced revenue protection and increased operational control through improved reporting.

Importantly, the system architecture allows for the maintenance of operator independence, operator specific product offerings and operator competition.

Proving the case

The Hong Kong Octopus system well demonstrates the commercial and operational benefits of an integrated approach.

Hong Kong

Hong Kong has today:

Over 7 million population
A car ownership rate of approximately 15%; and
Over 11 million public transport trips per day.

Establishing the Octopus System:
Magnetic stored value tickets introduced in 1981.
Five major transport operators formed Smart Card joint venture in 1994 to introduce common Octopus Cards.

Octopus Cards are prepaid stored value cards, operating within purse/wallet up to 10 centimetres with less than 1/3 second transaction time.

International Tender for a supply contract won by ERG of about USD50 million - 3 million cards, 5,000 devices, 9 sub-systems, central clearing house.

Introduced Octopus cards to public on 1 September 1997.

Five years later 8.5 million cards issued and over 7 million transactions per day.

Over 95% of population owned a card.

Hong Kong - World's first Contactless Smart Card System

Advantages of Octopus to Customers:

• One card for all modes of transport;
• No need to carry change;
• Convenience/speed of contactless functionality;
• No need to know fares - automatically deducted;
• Some transport operators offer reduced fares with Octopus;
• Convenience of automatic add-value service;
• Octopus enabled consumer products:
• Watches;
• Banking cards (incorporating Octopus functionality); and
• Potential for smart devices e.g. mobile phones, key fobs

Advantages of Octopus to Transport Operators:

Reduced maintenance costs versus magnetic tickets
Reduced coin handling costs
No card recirculation costs
Reduced opportunities for fraud
Flexibility on Fares - peak/off peak, inter and intra modal discounts
Capability for loyalty schemes - within transport or transport/retail
Improved passenger information
Greater reliability - less ticket problem handling
Shorter transaction times - improved boarding rates
Opportunity to eliminate non-revenue maximising weekly and monthly tickets

Hong Kong non-transit applications

Extension of the Octopus into non-transit markets

Private Transport:

• Some 20 off-street car parks using Octopus
• Trials of Octopus on Parking Meters - contact card now used
• Trials of Octopus in Taxis

Unattended Businesses:

• Vending machines
• Pay phones at railway stations
• Photocopiers
• Ticketing Selling kiosks

Recreational Facilities:

• Public swimming pools
• Leisure venues
• Racecourses

Into Retail:

• Concentrate on high-volume, low-transaction value businesses
• Examples already implemented - fast food, convenience stores, cake shops

Non-Payment Services:

• Access control for Residential Estates
• School attendance

For Non-Government Identity purposes

The commercialisation of the transit card/applications into other vertical markets further contributes to the business case and provides offsetting revenues for the maintenance and operation of the transit system.

Multiple applications on Smart Card

With the emergence of the dual interface or Combi card, it is now possible to offer consumers from day one the choice of multiple application card products.

The systems in Rome and Manchester have been designed to accommodate both contactless only and dual interface cards with the objective of early penetration of other markets on the back of the critical mass of transit.

The cost of Combi cards is currently a major constraint to the wide scale adoption of the technology platforms. As a consequence, most cities are following the contactless card path leaving the introduction of Combi cards to external card issues who see value in offering transit utility as part of their card product offerings.

Points to consider

Drawing on my experiences in Hong Kong and other city wide smart card transit systems currently being implemented including Singapore, San Francisco and the London Prestige project, the following key points need to be considered in the system planning and design:

Timings: Complex transport smart card projects, which inevitably involve several transport operators, take longer to implement than expected.

Popularity: Contactless smart cards are warmly welcomed and readily adopted by transit passengers.

Generating a Card Base: In cities with high public transport usage a near-universal card base can be established if a common card is utilised.

In cities where private transport is more prevalent a large card base will probably only be generated with a common card for both public and private transport.

Institutional Arrangement: No conclusions can yet be drawn on the effectiveness of different methods of introducing/extending smart card systems:

(i) by transport operators (e.g. Hong Kong)
(ii) by public/private partnership (e.g. Singapore)
(iii) by outsourcing to private contractors (e.g. San Francisco)
Extended Card Usage: With a “killer” application such as transport generating a large card base, there will be rapid usage of cards in non-transit areas:

(i) for similar payments such as turn-style access to recreation facilities; and
(ii) for “unattended environments” such as vending machines or photocopiers

Extending Card Usage -

Retail: For high-volume, low-transaction value businesses such as fast food and convenience stores there will ultimately be high smart card payment usage but it will take time to change people's habits for paying cash for small transactions.

Extending Card Usage -

Other Applications: It seems from limited actual experience (and common sense) that customers would prefer multi applications on one card e.g. credit/debit/stored value payments, loyalty schemes, access control, identity (non-critical) rather than on a multitude of difference cards.

Emergence of Global Standards

Another critical consideration is standards.

Contrary to protestations of some sections of the smart card industry, standards have yet to be settled.
In the contact world, there remains conflicting and incompatible standards at the card operating system level. While certainly more advanced than the contactless world, it will still be some time before the technocrats stop the Beta vs VHS argument and we truly have an open standard.

Integration of Transit Systems

Another important consideration is inter-regional and inter-city interoperability. This is particularly important in Europe and UK where inter regional commuter travel is commonplace.

Interoperability standards have been recognised as important as smart card systems evolve in Australia. While instances of a transit customer wishing to use say their Sydney transit card in Brisbane may be small, interoperability is important for road tolling and non-transit applications.

At a commercial level, it also makes sense to adopt a National standard for scale economies and market leverage reasons.

The adoption of National standards will allow each city to develop, tender and implement their systems as and when required knowing that there will be inter-city compatibility and thereby providing the opportunity longer term to realise further benefits and scale economies from participating in whole or part in a Nation wide scheme.

Planned or Under Construction

The success of the Hong Kong Octopus System has been the genesis of some 30 major smart card based transit projects either planned or under construction around the world.

Collectively these projects will provide the impetus for the convergence of standards and realise scale economy driven cost savings in cards, devices and supporting infrastructure.

1987 - 2002

Finally, turning to Australia, customer smart cards albeit contact and relatively small scale deployments have been part of the local transit scene for some time.

One of the early adopters of smart card technology was Darwin Bus Services in 1987. Other private bus operators in NSW and QLD currently offer closed customer stored value and ticketing systems. Contactless card systems have also been deployed by a number of Australian and NZ operators.

The letting of contracts for integrated multiple operator ticketing systems in Sydney and Brisbane are well advanced. Both of these contracts provide for the potential expansion of the transit application into other vertical markets.

A call for tenders for Perth is expected within the next two moths with other capital cities expected to follow suit over the next 1 to 2 years.

Finally,

Over the next 2 to 3 years, the use of smart cards will become commonplace both here and globally. Transit is and will continue to be a if not the major driver of smart card deployment.