How UK payments were changed by London Transport

Payments are evolving at a staggering rate. Yet despite the hype around the new payment methods, the way a 150 year old transport network has driven payments adoption is perhaps as significant. The adoption of contactless by London’s transport network has been one of the understated but major drivers of the adoption of contactless technology in the UK.

It seems obvious that a technology that could shorten passenger queuing times, reduce congestion and speed journeys would be ideal for public transport. Less obvious is that it is these benefits that drive customer adoption. For contactless technology Transport for London (TfL) a critical partner for payment providers and likely to be a major factor in whose technology is most adopted.

TFL has long been exploring contactless payments. TfL first assessed the feasibility of contactless in 2006, in joint project with MIT (you can find the London Assembly report HERE – worth a glance if only for its scepticism about the benefits and likely take-up of contactless payments).  There had been a lot of success with the pre-paid Oyster card (which was inspired by Hong Kong’s Octopus Card) but from an early stage TfL was interested in true user payments, rather than just pre-paid cards and transport specific electronic wallets.

For TFL the technology really got going with “wave & pay” for selected busses in late 2012. By April that year, there were 10,000 people using contactless per day, a huge success at the time, but drop in the ocean of London’s over 3 billion annual passenger journeys.

It was only 15 months ago that Transport for London made the decision to make all bus fares contactless. At the time, there was opposition from parts of the Green party, concerned that it might reduce access. In one sense their concerns were valid. A quick look at the UK Card Association’s list of retailers who accept contactless implies that even amongst big retail chains, contactless is far from universal.

Yet thanks to pre-paid cards (Oyster and Travelcards), at time only 0.7% of fares were still paid by cash but cash meant every bus had to carry a change float plus incur associated cash handling costs. The business benefits by comparison were enormous, TFL calulacting that £24m per annum is saved by moving to fully contactless.

What the payments providers perhaps didn’t initially appreciate is that contactless creates very different spend patterns from those traditionally associated with debit or credit cards. These micro-payments are much closer in pattern to cash than the sort of payments traditionally processed by Visa, Mastercard and Amex. Initially (and I am talking c.2006), some in TfL expected that contactless would be more about consumers buying larger travel items (such as weekly travel passes) at the ticket office, rather than many smaller, individual payments at the point of travel.

Instead, the ease and flexibility of contactless has started to make for changes in consumer behaviour. The best evidence for this is in a Compass Technology survey from 2014. It was a good sized survey of 700 consumers and looked at UK regional variations in the adoption of contactless payments. The differences were stark. In London, 37.2% of consumers had contactless payment cards, while in Wellingborough (a commuter town just under an hour from London) only 23.5% had a contactless card. More significantly, in London only 17% of respondents didn’t know what contactless was, whereas in Wellingborough nearly half (43.5%) didn’t know.

In short, while the hype around technologies like Apple Pay may have created interest among the technology savvy, the geographic spread of knowledge suggests that the massive reach of Transport for London’s education around contactless may have more impact on adoption.