Ideas & Updates

For whom the cash tolls

Transportation Series: Blog 2

November 28, 2018

This is blog 2 in this series that examines three key aspects of the transportation sector: Tolling, urban transit, and ride-sharing with a focus on emerging economies. We review key impediments to the flow of goods and people, and dive deep into extraordinary examples of innovation that have leveraged digital payments to overcome barriers, reduce costs and increase productivity. Read the introductory blog, blog 3 on urban transit, and blog 4 on ride-sharing.

Congestion is strangling roadways throughout low and middle-income countries. In Manila, gridlock costs the city $70 million every day. If traffic were eliminated in Cairo, it could raise the Egypt’s GDP by as much as 3.5%, according to the World Bank. And a Nigerian transport firm calculated that for every ten years a person lives in Lagos, they will spend three of them in traffic.

Electronic tolling – simpler, easier, faster

In other blogs in this series, The Better Than Cash Alliance has demonstrated how electronic payments can speed up the flow of goods and people. The same is true for cars.

Tolls – fees paid for the privilege of using various pieces of infrastructure – have been around for thousands of years, since travelers had to pay to use the road connecting Susa and Babylon in 7th century BC. Building roads is both time and capital-intensive; by collecting money from users, overseers can repay project financiers and provide for scheduled maintenance. Unlike other mechanisms (such as gas or sales taxes) tolls recoup infrastructure costs directly from drivers. For these reasons, tolls are on the rise: the consultancy firm Ptolemus estimated that 60 billion euros were paid in tolls globally in 2015, and that this could triple in just ten years, with digital payment systems playing an increasingly important role.

Electronic tolling systems make driving easier: no stop, no slow, just go. They eliminate leakages, cut costs, and facilitate open-road, no-stop tolling. Toll plazas are dangerous places; implementing electronic tolls cut accidents by 76% in the American state of Florida. Electronic tolling is faster and safer, and reduces the cost of collections. But the larger impact of electronic payments on traffic congestion may actually be increasing the price of driving.

Congestion pricing – the cost of one more car

There is a clear and painful cost of congestion, of having too many cars on the road. Tolls within cities are rare, and speeding up tolling can induce demand and create more congestion. The issue cities struggle with is how to accurately price the use of their streets, and in doing so to incentivize more efficient means of travel. One extra car on the road at midnight imposes little societal cost; the same car at midday is tightening the gridlock. City planners might prefer that driver either use public transit, or pay a higher price that corresponds with their marginal impact.

Congestion pricing is an old idea (and not without its detractors). But in most countries road usage remains underpriced, partly because countries have lacked the tools to modulate the cost of congestion. However, electronic payments are taking congestion pricing from theory to reality, allowing cities to finally get ahead of their traffic.

Congestion pricing in Singapore

24% was the reduction in the number of trips taken into the city after switching to all-electronic tolling

In Singapore, electronic payments make congestion pricing possible. Singapore is an island city, and planners were acutely aware of the economic effects of congestion. They began experimenting with ways to reduce traffic, and developed a system of gantries manned by auxiliary police officers. Although effective in lowering congestion, the system proved too costly and time-consuming. In 1998 Singapore upgraded to their Electronic Road Pricing program; tolls are now collected automatically, and the price for driving a given stretch of road can vary from S$2 to S$15 throughout the day. The switch to all-electronic tolling resulted in a 24% reduction in the number of trips taken into the city, and a corresponding 25% increase in the speed of travel.


Evidence elsewhere

More and more countries are experimenting with cashless tolling and congestion pricing. The first phase of Bank Indonesia’s National Payment Gateway involved cashless payment of road tolls, with an eye towards open-road tolling in the near future. India is experimenting with a variety of payment modalities that would leverage its unique payments infrastructure, including a national tolling system called FASTag. Nandan Nilekani, one of the fathers of Aadhar, argues that FasTag could help transform Delhi’s roads through congestion pricing and other transportation-related payments.

And in Colombia, ASOBANCARIA, the domestic banking association, is leading the development of an interoperable electronic tolling platform that would allow drivers to pay all tolls in the country using the same technology. The payment technology will be installed on the car itself and can be linked with existing cards or be recharged at top-up points. But the project is not limited to tolls; ASOBANCARIA hopes that this can facilitate the electronic payment of all sorts of transportation expenses: gasoline, parking, food, etc. Lorena Garcia Simbaqueva told Better Than Cash, “It is a great opportunity to reduce cash throughout the transport ecosystem, generating greater traceability of payments. Banks are designing products to make that a reality, and these initiatives help to incorporate electronic payments in the daily life of Colombians.”

Electronic toll payments can reduce the cost of collecting tolls, and make driving easier for everyone. In crowded urban centers they can allow cities to accurately price the externalities of congestion, eventually leading to less constrained mobility. Solutions cannot be implemented overnight, but rather must be carefully evaluated and rolled out over time. Governments and road operators need frictionless tools for gathering data and billing for usage. Electronic payments are an intrinsic piece of that evolution.