Just the ticket: the growth of smart ticketing in the transport industry

The evolution of payment

The UK is in the midst of a payment revolution. In 2006, 62% of all payments were still made using cash. By July 2017, this had dropped to less than half, with the proportion of cash to digital payments in continual decline¹. According to a recent report by social money transfer app Moneymailme, as many as eight in ten young adults don’t carry cash, with 62% claiming they feel frustrated if they are forced to make non-digital purchases².

At the forefront of the digital payment revolution is the rise of contactless spending, which has grown at a staggering rate in recent years (325% in 2016, 97% in 2017), with the UK the leading market in Europe in terms of transaction volumes³. Furthermore, just over a quarter (26%) of the population has now used a mobile device to pay⁴, with mobile or watch payments increasing by 336% in the first six months of 2017⁵. Whilst the grocery sector leads the way in smart payments, the transport sector is experiencing some of the highest growth rates.

Transactions in transport

The transport industry is particularly suited to smart payments due to the frequency of transactions and passenger demand for efficiency and convenience. London is the obvious example: in 2014 contactless payments were rolled out on underground and rail services. Four years later, half of all pay as you go journeys are now paid for using contactless⁷.

The success of contactless in London is prompting other cities to introduce the technology as a convenient method of paying for travel. In 2016 TfL signed a deal worth up to £15m with Cubic Transportation Systems, a leading provider of payment solutions and related services for intelligent travel applications, allowing Cubic to adapt London's contactless ticketing system worldwide. Since then, New York, Sydney, Miami and Boston have all announced that they plan to introduce contactless payments in the coming years.

Investing in smart technology is an opportunity for providers

The contactless revolution in transport may be driven by time-pressed passengers, but it holds significant benefits for providers. The transport sector is itself also currently undergoing significant change. Urbanisation, technological advances and environmental concerns are amongst the drivers of demand for multimodal and readily-available public transport. App-based technology and the increasing availability of real-time information also necessitate the provision of better, more responsive services.

Smart ticketing platforms can unlock a depth of data for use by transport operators and manufacturers alike as they seek to stay at the forefront of innovation. Using analytics, operators and manufacturers can collect and evaluate information to improve service, optimise delivery, assess route profitability and analyse passenger behaviour, equipping them with the information required to respond to the increasing demand and changing requirements of travelers.

For example, France-based Parkeon offers on-board ticketing solutions that are fully integrated with managed platforms, providing real-time information on fleet performance, passenger trends and revenue collection. Likewise, UK-based Ticketer uses cloud software linked to POS terminals to remotely collect, store and analyse payment and journey data. This data can be used to adjust routes and timetables, assess driver shifts and monitor passenger requirements and fleet reliability.

Furthermore, companies are increasingly combining real time transport planning apps with ticketing services. Finland-based MaaS Global has developed the Whim app, which allows passengers to plan journeys and buy tickets directly on their mobile device using real-time information provided by the app. Axon Vibe, based in Switzerland, uses location tracking to detect where a passenger gets on and off the train and charges accordingly, making a passenger’s journey truly ticketless.

M&A providing access to key technologies

Much of the new technology in this sector has been developed by start-ups and specialist tech companies. M&A is a key tool that can be deployed by transport companies to gain access to these innovative technologies, enabling them to enhance their service offerings, improve performance and stay ahead of the competition. Recent examples include Rambus’s acquisition of Smart Card Software, Transdev’s investment in MaaS Global, Expedia’s acquisition of Silverrail Technologies and Fujitsu’s acquisition of Applied Card Technologies.

Furthermore, the high levels of innovation and growth potential of the sector make it attractive to private equity and financial buyers. Recent examples include Astorg Partners’s acquisition of Parkeon and KKR’s acquisition of trainline.

Given the growth potential of the market (in the North West and South West of England, 41% of consumers are yet to make a contactless purchase)⁸ and rapidly changing technological landscape, we expect a great deal more M&A activity in this area over the coming years as transport providers look to keep pace with innovation. The relative immaturity and fragmentation of the industry and complexity of the technology can make it a difficult market to navigate.
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¹ ‘Cash eclipsed as Britain turns to digital payments’ The Guardian, 19 February 2018
² ‘10 years of contactless payments in the UK’ Payment Eye, 04 September 2017
³ According to data provided by the UK Cards Association (2016) and Visa Europe (2017)
⁴ ‘Cashless payments: the pros and cons of going digital’ Moneywise, 30 April 2018
⁵ ‘Mobile ‘tap and pay’ hits £370 million spend in first half of 2017’ Worldpay, 17 August 2017
⁶ Based on data provided by UK Finance
⁷ Tfl, 24 Apr 2018
⁸ ‘The contactless revolution 10 years on’ Visa, 1 September 2017