What’s the common factor that binds Oyster and Octopus with London and Hong Kong? Both are, of course, delicacies available at some of the finest restaurants in the two cities, but are also two of the world’s leading transit payment systems. Both have provided efficient scalable payment platforms that together address the transaction needs of more than 20 million passengers daily.
As India rapidly expands its infrastructure, the large investments in mass transit projects would require efficient payment management systems. The Delhi National Capital Region, for instance, has seen the setting up of a world class metro transit system Delhi Metro Rail Corp. Ltd (DMRC) and toll road corridors connecting New Delhi with the suburbs of Noida and Gurgaon. Also in place are thousands of government-approved parking lots to cater to the burgeoning car population and a large bus fleet. An estimated six million-plus transactions are carried out daily across the metro, toll, taxi, bus and parking payments alone, wherein the value of funds exchanged would be in excess of Rs900 crore per annum.
Both large and small transit service providers face costs and challenges in cash management and accounting and in, several cases, leakages leading to financial losses related to fee collections. From a customer perspective, though the toll road services and the Metro do issue smart cards for payments, they are required to carry multiple cards, each for a single end-use. Limitations of the renewal and top-up mechanisms and options for each of the service providers as well as the fact that these payment instruments have limited utility together hinder the broad-basing of usage of electronic payment means, especially for services with low usage frequencies.
There have been multiple trials and implementations with smart card-based transit systems in India, including the BEST (Brihanmumbai Electric Supply and Transport) bus service in Mumbai and one of the larger ones—the Delhi Metro. New payment technologies, including near field communications (NFC) integrated into mobile phones, are being experimented with in Europe, but few large metropolitan cities across the globe have been successful in achieving scale in electronic payment systems.
Electronic transit payment systems offer payment convenience, minimized cash losses, measurability and even a new revenue model. But one of the main advantages would be in enhancing the customer service efficiency levels by reducing the waiting time at toll bridges or queues at stations or the hassles of exchanging change in buses and parking lots.
It, therefore, makes sense to create a common transit payment standard that can be used by all transit, toll and parking players and shift consumer payments to electronic formats in India’s larger cities. The sizable customer acquisition, transaction and related revenue opportunities have not gone unnoticed by banks and financial institutions, but the key challenges have been in getting multiple state-owned and private players to converge on a common framework and standards.
The starting point for this lies in determining the primary sponsor, in the investments for creating such a system and in finalization of the choice of technology.
Different approaches have been adopted across the world, including the formation of separate companies to manage the new systems. In India, transit service providers have been attempting to work with banks and third parties, hoping that the latter build, own and operate these systems, but not often with each other. However, quite clearly the customer owner —in this case the transit service provider—is best poised to take the first step. The local government should ideally provide the momentum required to commence such a project. In New Delhi, for instance, the DMRC is poised at a vantage point as it has already issued a large number of smart cards which have found acceptance among passengers.
Extending the utility across multiple service providers would include the following steps:
First, the creation of a clearing and settlement system that would enable transfer of funds among transit providers. The recent introduction of the Payments Bill by the Reserve Bank of India allows for a third party to facilitate this.
Second, the establishment of a transaction acceptance infrastructure, which can vary substantially for each transit mode.
Third, mechanisms for issuance of cards to customers and collection of the identification documents for this.
Fourth, the establishment of channels and points at which passengers can load value onto their cards to be used as funds across the multiple services, which would require regulatory clearances if these are to be undertaken at non-banking locations.
Finally, tying up with banks and financial institutions would follow suit as customers would increasingly use their bank/credit card accounts in funding the top-ups required on these cards.
The road towards establishing an electronic transit payment system may seem long and arduous, but is perhaps the most definitive step that could be taken to catalyse the adoption of electronic payments in India (and in finally reducing the congestion levels at those toll gates!).
Upendra Namburi is a senior banking and finance professional with a multinational company. Comments are welcome at email@example.com