Ideas & Updates

How cities will win – digital payments and the future of smart

© © Better Than Cash Alliance

Transportation Series: Blog 3

This is blog 3 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 2 on tolling, and blog 4 on ride-sharing.

“Cities…are not only mankind’s greatest invention, but also our best hope for the future,”
Ed Glaeser, economist at Harvard University

Urbanization has been closely linked with economic growth over the last century, and that link will likely continue to hold. Over the next decade, cities in developing markets will drive economic expansion; McKinsey predicts that 440 cities in emerging markets will generate half of all growth through 2025.

In many countries inefficient public transit has prevented urban areas from unlocking their full potential. 1.2 billion trips are made using public transit every day, but the percentage of trips made via public transit declined in developing cities from 35.5% in 1995 to 23.7% in 2012. To realize the potential gains of urbanization, developing cities need to become denser, easier to navigate, and become more adept at using data to deliver public services. By eliminating delays and providing real-time visibility, digital payments can increase the efficiency and scale of public transit systems, enabling rapid urban mobility. In cities such as Kigali, they have already helped to transform the daily commute of hundreds of thousands of people.

© © Better Than Cash Alliance

© Better Than Cash Alliance

“Tap & Go” – Smart Bus Service in Kigali

Buses are the workhorses of mass transit in developing countries. For their operators, cash collection presents barriers to efficiency and widespread access:

  • Provides little to no transaction data
  • Expose users and staff to crime
  • Offers easy opportunities for petty fraud.
  • Interferes with bus operations

In Kigali, city buses were losing up to 40% of revenue to cash handling issues and fraud, and operators had little data that would help them to efficiently deploy their fleets. The city government had had enough.

Local company AC Group worked with Kigali Bus Service (one of three major co-operatives) to install near field communications (NFC) technology on buses, which facilitates ‘Tap & Go’ payments. Riders now use pre-loaded smart cards to pay without pause, and are transported without trouble. The cards can be topped up via mobile wallets, and customers were offered discounted fares to help spur adoption.

Results were immediate: revenues increased 140% in the first several months. Service is faster and more reliable, which has led to an increase in commuters. Bus operators have been able to handle it, however, by increasing their fleets and deploying more buses to crowded routes. Christa Munezero, Data Analyst and Head of Government Relations for AC Group, is proud of the initiative’s success: “Tap&Go is ensuring commuter safety by providing secure public bus fare payments, ensuring respect of the bus seating capacity and helping bus operators plan and monitor their fleet. Additionally, Tap&Go helps the government to make data driven decisions that influence infrastructural development, hence reducing traffic congestion.” One data-driven decision involves the rollout of a new Bus Rapid Transit (BRT) in Kigali, with city officials using ridership and transaction data from Tap&Go to help design a system that will further reduce congestion.The Rwandan government has been working hard to digitize urban functions throughout the country, and this is only one of their recent successes. Rwandan sub-Minister of Finance Eric Rwigamba told Better Than Cash that “the digitization of Kigali bus fares is an excellent example of Rwanda’s Smart City Strategy, which uses innovative technology to improve peoples’ lives through efficient, secure public services, creating jobs and improving economic opportunities for all of our citizens.”

© © Better Than Cash Alliance

© Better Than Cash Alliance

Benefits beyond cutting cash

Other cities have seen similar results, and used the digital payment platforms as channels to achieve broader objectives. In Bogota, for example, very poor residents faced affordability constraints to mobility, spending up to 17% of income on transport. The switch to an electronic transit card, Tu Llave, allowed the city to offer subsidized transit fares to its poorest residents. Subsidy recipients increased their monthly trips by 56%, compared to normal fare card users, and evidence showed that the subsidies correlated to 20% higher hourly wages for informal workers. Other major cities in Latin America (Rio de Janeiro, Lima, Buenos Aires, Santiago) have embraced electronic payments for mass transit.

When properly digitized, transit payments offer an excellent use case for cashless payment adoption: they are low-value, high-frequency, and (often) high-stress payments. If users see sufficient value and are offered sufficient incentives, they will adopt a new payment technology, resulting in a more bottom-up embrace of digital payments. However, this can only happen if regional governments take a strategic view of digitization, ensuring that any payment technologies are interoperable, and implemented as part of a wider vision. Cities around the world have seen in this example a potential avenue for driving digital payment adoption: in 2017 Mexico City rolled out a new transit debit card that can be used to make utility payments and purchases at participating vendors.

The future of smart cities

A shift from cash to digital payments helped tackle overcrowding on trains in Indonesia.

Digital payments in mass transit save time, reduce costs and revenue leakages, and provide real-time insights on service delivery, and lay the foundation for a transformation of city governance, planning, and organization. Visa estimates that 100 major cities could realize $470 billion in annual net benefits by going cashless, while generating $12 trillion in increased economic activity over the next 15 years.

In the oh-so-near future, cities can become frictionless, integrated places. City managers will be able to analyze vast amounts of data to allocate their resources and anticipate problems, while businesses can build sustainable solutions that integrate with ubiquitous super platforms. Developing cities fight a daily battle to ensure that the benefits of urban life are not lost to congestion. This is how they will win.