Open payment for London

Transport for London announced today their intention to deploy an open payment system across the entire Transport for London network (including the Tube, DLR, Tramlink, buses, and river services) in time for the Olympics. I’ve been hearing rumblings about open payment in London over the past few months, but now we have a concrete announcement and timeline. On the face of it, this is a good thing, at least for the many visitors who will be coming to London during the Olympics in 2012. For these visitors, a contactless bankcard is all they’ll need to travel on any of TfL’s services. Given that European banks tend to be ahead of their US counterparts when it comes to adopting new technology, I would expect that penetration of bankcards which support contactless payment is higher in the UK and across Europe—so this may turn out to be a real boon for visitors to London, and even regular users of TfL services who’ve yet to get an Oyster card. At the same time, Oyster works well—40 million cards have been issued, and Oyster has become the principal means of payment across TfL services. Given Oyster’s success, why tamper with what works? Are the benefits of open payment sufficiently compelling to outweigh the risks?

The clear benefit to open payment is offering additional flexibility to passengers, particularly visitors and infrequent riders who don’t already have an Oyster card. However, that requires technology that works. One of the challenges in deploying open payment is the issue of performing an EMV transaction in roughly the same amount of time it takes to process a transaction with an existing smart card like Oyster. The simple answer seems to be that it can’t be done. Considering that many Tube stations already have crowding problems at peak times, anything which adds to the congestion is a concern. Simply put, slower transaction processing times means lower passenger throughput at the gateline, which in turn results in more passenger congestion.

TfL sees open payment as adding convenience for regular passengers, as well: “Customers who choose to pay this way will be charged for their travel directly from their bank or credit card account, removing the need to go out of their way to top up Oyster pay as you go credit balances.” What they seem to have forgotten is that there’s already no need for a passenger to “go out of their way to top up Oyster pay as you go credit balances”; Oyster has featured online and automatic reload for years.

There is also an issue of the cost structure. TfL sees open payment as a strategy for cutting costs:

Contactless payment will also reduce commissions and processing costs for TfL, as well as enabling a reduction in the number of Oyster cards produced and issued. It is another example of TfL’s efforts to operate more efficiently and provide value for money for London’s fare and taxpayers.

The reality is a bit different, though. The costs involved aren’t going away; they’re just being shifted. TfL’s direct processing costs may be lower, but in turn bankcard issuers and processing networks will bear the cost of the increased transaction volumes, and they’re bound to try to recoup that cost somewhere—probably in a way which will end up hurting riders, either directly or indirectly. TfL may be able to cut costs for Oyster if they process fewer Oyster transactions, but that may be linked to an increase in costs for credit and debit transactions. Alternatively, particularly in the case of prepaid cards, banks may pass the costs along to riders directly in the form of card activation fees, reload fees, and minimum reload amounts.

Finally, I take issue with the assertion made in the first sentence of the press release: “London will lead the world in 2012 when it will become the first city in the world where passengers are able to access an entire transport network with just a swipe of their contactless bank or credit card.” The Utah Transit Authority has had an open payment system in place across their entire network since 2009—and unlike many open payment systems around the world, it’s not a pilot project. There may be others as well that I’m not aware of, but at minimum Salt Lake City meets the criteria as a city “where passengers are able to access an entire transport network with just a swipe of their contactless bank or credit card”.