A recent presentation to banks given by
Transport for London (TfL), which operates public transport in the
UK capital, has put a question mark over the future of its
electronic ticketing scheme, Oyster.

TfL has implied it could be eventually phased out in favour of a
contactless payment card-based system – something which would
represent a huge kick-start for contactless technology in the UK.
It may also have a dramatic effect on the take-up globally of
contactless cards with the London Olympics in 2012 and the huge
numbers of international visitors expected, who would be able to
use generic contactless cards to pay for travel.

Oyster was developed by technology consortium TranSys, which was
contracted to run ticketing services by TfL until 2015 as part of a
public finance initiative, but two recent technical hiccups
affecting Oyster card readers on the London Underground meant that
hundreds of thousands of Oyster-using London commuters were able to
travel for free.

It is thought that these two incidents cost TfL millions of pounds
in lost revenue, and with negotiations about the existing TranSys
contract having been underway for some time, TfL decided to invoke
an early contract termination clause in August 2008.

A ‘future-proof’ system

In a presentation given by Will Judge, head of future ticketing at
TfL, in late September in London, he stated that TfL is also
looking at ways to ‘future-proof’ its ticketing operations.

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By GlobalData

Critically, TfL seems to have opted to embrace contactless payment
applications such as Visa’s payWave and MasterCard’s PayPass
propositions, as opposed to pure ticketing contactless applications
that can be widened for usage in non-ticketing locations. Judge
said that TfL was currently considering payment industry standards,
in order to “exploit fast network technologies to get complexity
off the cards”.

Following on from the launch of the contactless-enabled Barclaycard
OnePulse card in September 2007, Judge said that TfL had used the
lessons from that product to inform its current thinking, and was
now willing to work further with network schemes and card issuers
to explore how contactless payment cards could be used for fare
collection on TfL services. Most notably, Judge said that TfL would
be looking to reduce its role as a card issuer, and to reduce the
cost of revenue collection.

TfL’s stated desire is for any new contactless fare payment system
to be introduced gradually alongside Oyster in late 2010. Judge
stated that Oyster would be phased out “if/when demand has fallen
away and all customers are equipped to use payment cards”.

But there are also challenges to overcome. TfL said it is looking
to reduce contactless transaction times to much less than the
standard 500 milliseconds currently, and that there are issues
around risk management, verifying whether customers have tapped in
and out, and standards harmonisation.

Also, the question of how to offer cards to those excluded from
having debit and credit cards, such as those aged under 18 or those
newly arrived in the UK, would need to be addressed. However, TfL
stated that it would be willing to support issuers who could offer
contactless cards to these groups.

Potential transaction volumes

The sweetener for issuers is the extra volume of daily transactions
they could reap – there are £3.4 million ($6.03 million) Oyster
pay-as-you-go top-ups and daily travel card sales each day, of
which £2.5 million is cash. These cash sales would shift onto a
contactless ‘pay-by-ride’ pricing system, bringing £930 million in
extra transactions each year.

Also, the ‘top-of-wallet’ effect created by consumers using their
payment cards as their transport card would boost wider contactless
usage in London and elsewhere, bringing uplift in spend.

TfL is now inviting issuers and acquirers to come up with plans for
expanding the reach of contactless payments and to consider
participating in TfL’s contract re-tender, which it says is due
soon.