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Going cashless: How cities benefit from simpler payments

Pursuing cashless initiatives could be an important step in delivering smarter cities, says Gemalto’s Ankit Kumar.

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Cities that implement cashless payments for government services and incentivise businesses to do the same could see economic benefits, including direct cost reductions, time savings, renewed economic activity and increased use of public services.

 

That’s the conclusion of a 2017 study by Visa on the evolution of digital payments. Visa estimated that the net benefit of cost savings and new revenue opportunities, on average across the 100 cities studied, represented three per cent of a given city’s GDP.

 

It’s one thing to suggest a cashless society as a solution to certain inefficiencies, but it’s quite another to put a plan into action to shift payments away from cash.

 

Luckily there are positive examples of cashless initiatives around the world that can help city leaders decide on good entry points, identify key vendors they can partner with, and adopt processes to help encourage the smooth roll-out of new technology



Changing payments in large city systems


Of all government services, taking transit systems cashless could have the biggest impact for consumers, transit agencies and local businesses.

 

Perhaps the best western example of cashless transit success comes from London’s famous Tube and the city’s other transit systems, managed by Transport for London (TfL).

 

TfL riders have paid for more than 1 billion rides without cash since new systems launched on buses in 2012. The London system sports an open-loop payment system, which means riders can tap to pay with contactless cards or their phones.

 

In 2017, nearly half of all London transit rides were paid for with contactless cards, and the city believes its contactless system, which also helps riders pay the lowest possible fare each day, has increased TfL ridership.

In the US, New York City’s Metropolitan Transit Authority (MTA) is in the process of rolling out an open-loop system across its rail, bus and subway systems, and the Chicago Transit Authority (CTA) is taking the open-loop system a step further to work with docked bicycles and parking payment stations, marrying personal mobility with mass transit.

It will likely take another year or two of data collection in those cases to extract meaningful insights about the impact of cashless initiatives, but those cities can at least expect reduced costs for processing transit payments. Visa’s report showed that for every physical dollar collected, transit agencies spent 14.5 cents on processing, while just 4.2 percent of each digital payment goes towards processing fees.

 

Visa’s report showed that for every physical dollar collected, transit agencies spent 14.5 cents on processing, while just 4.2 percent of each digital payment goes towards processing fees.

 

Hong Kong’s Octopus System

 

City leaders should also study Hong Kong’s Octopus system as a success story for cashless initiatives, born from transit payment improvements.

 

Figures show that 99 per cent of Hong Kong’s residents have an Octopus smart card (which can also be digitised and used via Samsung Pay) and can tap-to-pay not just for the city’s transit system, but also at retail locations, for e-commerce transactions, at vending machines and more.



Taking cashless payments mainstream


As transit systems and other government services, like parking, move towards cashless payment acceptance, consumers who are exposed to more digital payment options through government may then seek out businesses that accept these payments too.

 

Familiarity with contactless payments seems to be what helped Hong Kong’s Octopus card expand from a transit payment system in 1997 to acceptance at some 22,000 private businesses today.

 

Hopefully, as US cities increase cashless payment options, businesses will recognise an opportunity to attract new customers familiar and comfortable with cashless payments.

 

As it turns out, processing less cash could be good for business. Visa’s study found that businesses stand to save on labour costs as cashless transactions are easier to process, and they could even increase revenues. Across the 100 cities Visa studied, businesses that started accepting digital payments saw revenues increase 17 per cent, on average.

 

For city leaders, the more important finding is that widespread acceptance of cashless payments throughout government and business “could have a catalytic effect on the city’s overall economic performance, including GDP, employment, wage and productivity growth.”

 

Widespread acceptance of cashless payments throughout government and business could have a catalytic effect on the city’s overall economic performance.

 

Those are benefits worth fighting for, and cities should consider incentive programmes to help businesses and consumers alike embrace cashless initiatives. Changing land-use restrictions or even offering temporary tax credits to businesses that build support for cashless payments could help attract newer, more digital businesses or help existing businesses.

Furthermore, incentivising businesses to join cashless initiatives will help reduce the ‘informal economy’ and increase tax revenue for cities. Simultaneously, cities will spend less on law enforcement as cash-motivated crime falls.



Joining forces for cashless payments


Cities can commit to becoming cashless, but they’ll need technology partners to help initiatives take hold quickly and effectively.

 

To start, payments brands will need to be involved in upgrading points-of-sale for transit, both at stations like subway turnstiles and on vehicles like buses or even bicycles. They’ll also be integral in creating mobile forms of government payments, like Hong Kong’s digital Octopus card.

 

The push to being cash-free also presents new challenges in data storage and security, so cities should expect to review their data collection policies and restrict the amount of information they collect through new payment schemes – both to limit their risk of cyber-attack and reduce overall costs of cloud data storage.

 

As cashless initiatives take hold, cities may explore new ways to digitise identity documents for greater security against fraud. Increasing ID security will be important as the Internet of Things grows, but before smart cities can flourish, today’s cities simply need to become more efficient and economically robust.

 

Pursuing cashless initiatives and including citizens and local businesses in their city’s modernisation is an excellent first step.

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