Payments, mobility, and AFC – a smart approach to creating smart cities

Payments is the engine behind smart city success

Smart cities exist to make life better for citizens – payments, mobility and automated fare collection are ideal launch pads for smart city success. And the best smart city projects are those that start with incremental steps.

In early 2019, BPC, together with the Young Advisory Group, carried out research into the ways in which smart city ecosystems improve the everyday lives of citizens. The result, ‘Smart City Survey’, isn’t just another list of the ‘smartest cities’. Instead, it’s a guide to how joined up digital initiatives can solve real life problems for citizens, removing friction from their lives and making daily living easier.

One of the clearest messages is that payments technology plays an implicit yet crucial role in smart city ecosystems. In fact, payments is one of the main engines that helps all the smart city elements cohere and succeed.

Start with mobility

I’d like to argue that an ideal starting point for smart cities, one that provides a clear bridge between the world of payments and the world of smart cities, is mobility and automated fare collection. Efficient mobility provision is undoubtedly the service that makes one of the biggest differences to urban dwellers. It is therefore an obvious way of getting citizens to engage with smart city development.

This is a trajectory that was highly successful for one of the best established systems highlighted in the report, Octopus in Hong Kong. Octopus started out as a transit pass in 1997. Today it’s a passport to daily life for 7.4 million users, also offering small value retail payments, tunnel tolls, parking, physical access to residential and commercial buildings and support for facilities in schools and kiosks.

The report also features other smart city initiatives with a mobility component such as Smart Nation Singapore, Songdo (South Korea) and many others where mobility is a major planned aspect.

In the experience of BPC, the type of AFC approach which makes the biggest difference in convenience terms today to users and to transit providers is open loop or account based ticketing. Best value fares are calculated automatically and aggregated by the backend system and there is no requirement for the user to waste time in determining the best fare or purchasing or topping up separate tickets.

Using open standards provides an ideal stepping stone towards a broader service offering, providing access to other civic goods and facilities. Because people are already using the AFC solution as part of their daily lives, it’s a small and convenient step for them to use it more broadly on a daily basis.

The role of the bank

It’s this open loop approach that is being used in over 70 cities in Russia today, using BPC automated fare collection technology. The system is interoperable across all cities and while some are still using it only for AFC, others are already extending it to other services, in particular access to student and pupil facilities and services. We’re currently seeing at least 30 million transactions monthly and we expect that to grow.

What is particularly interesting is that the service is being provided, not by individual transit operators, but by a major Russian bank, working in partnership with BPC. Service users use their bank cards to access the transit network.

For the bank, one of the biggest benefits is that their reach into the area of low value payments grows considerably, driving the move away from cash and increasing the use of bank accounts on a daily basis. It also helps drive financial inclusion, providing an excellent reason for bank account adoption and hence growing the number of bank customers.

There is a considerable cost and effort saving for the transit operators too, both in terms of initial investment in smart ticketing and in daily running of ticketing provision. They also benefit from the efficiencies that come from an increase in data that allows for more accurate service planning and provision. And for the cities, there is now the potential for expansion into a broader smart city ecosystem approach.

An incremental approach

Of course, mobility is just one potential first step into smart cities - the report contains many other examples with a fundamental payments plus added value component such as the Rotterdam Pas and U-pass programmes in the Netherlands, which allow participants to spend funds on defined services.

What all of these successful projects have in common is that they avoid the trap that some early smart city initiatives fell into. Rather than attempting to define a grand vision and doing it all at once, these projects start incrementally with a MVP based approach.

Payments and mobility are the ideal candidates for this type of quick win. Change is difficult for many people. So starting with services that provide immediate benefits or that people already use on a daily basis surely makes sense.

About Tokhir Abdukadyrov

Tokhir, Senior Vice President at BPC, has worked in the payments industry for over 20 years, of which more than 10 years with BPC where he leads the digital social and infrastructure business unit. Over 30 nationwide payments projects for BPC clients were implemented under his supervision. Before joining BPC, Tokhir was leading the retail payments department at Asaka Bank. He holds a master’s degree in Electronics and master’s in Banking and Finance.

About BPC

BPC was founded 20 years ago and as true ‘globetrotters in fintech’ it is now active in 78 countries. For more than 200 clients, BPC powers payments across the globe by supplying software and creating ecosystems in which banks, processors, merchants and other ecosystem players, such as governments, can thrive. BPC is bridging real life to digital. Banking, Payments: Context – this is what and who we are about at BPC. It’s all about creating relevant services for the customers of our clients, fitting in the context of their business or daily life.