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Cash is no longer king when paying for the ticket to ride

Fewer and fewer people are using cash to pay for public transport. Beate Kubitz reviews the different payment methods now available and their attractions – and drawbacks – for operators and users alike

Beate Kubitz
22 June 2018
Today’s public transport users can choose from a variety of different payment methods
Today’s public transport users can choose from a variety of different payment methods
Stagecoach incentivises use of its app by offering users discounted fares
Stagecoach incentivises use of its app by offering users discounted fares


How we pay for public transport is in the spotlight. The rail industry has launched a review of fares and ticketing. Transport for London says contactless payments now account for around 50 per cent of transactions on its network, demonstrating passengers’ appetite for convenience along with trust in a ‘best fare’ promise. And cash is now no longer the most popular way to pay for bus travel in West Yorkshire either, with smartcards, apps and contactless now accounting for more sales. 

Fare revenues on bus and rail amount to over £12bn a year (not including concessionary fare reimbursement and other public support) and collecting this revenue has become complex as passengers expect to use similar payment methods for travel as they do for other goods and services. Collecting fare revenues is also potentially lucrative for companies offering payment processing facilities – a tiny percentage of this turnover represents a significant revenue stream.

The diversity of new payment methods is mind-boggling. Whilst cash is in decline, it is being replaced with contactless credit and debit cards, Apple Pay and Google Pay – and multiple pre-pay travelcards in many areas (which can be paid for with cash or cards). App-based payment systems are also in use on mobile phones for taxis, bike share, bus and rail. 

And no longer are paper tickets the only means of permission to travel on the block – we now have smart cards, credit or debit cards, wearables, mobile phones and even just ID (as on ArrivaClick). Of course it has long been possible to buy rail tickets online using credit or debit cards, but now that tickets that can be self-printed or displayed on mobile phones have become commonplace the process can be completely automated without involving any issuing infrastructure at stations.

The new multiple payment methods are part of wider changes in business models. They often require operators to make (sometimes expensive) technology upgrades, engage in new methods of doing business – and with new (and sometimes increased) costs.

Across the UK, national and regional bodies are getting directly involved in delivering new payment systems – from Scotland’s national smartcard to Transport for the North’s plan to develop an account-based ticketing and payment model for the region. In short, the picture – outside London – is a patchy mosaic of different business models in development.

Cash attractions

Cash is no longer king for Transport for London, where it cannot even be used on buses. But for buses in the rest of the country cash has been (until recently) the only way of buying pay-as-you-go journeys. The move to new ways of paying has seemed slow in some areas. One industry manager illustrates an attraction of cash fare payments in areas operating an exact fare regime: “If you specify the exact fare on a bus, when you come to reconcile the tickets at the end of the day, for £1,000 tickets sold you’ll find that you have maybe £1,020 in the fare box as people have overpaid because they didn’t have the correct money.”

For such operations, the adoption of contactless payments has two downsides. “If you suggest using contactless [payments], immediately you lose the £20 ‘bonus’ and the correct fare is rendered so only £1,000 is paid per £1,000 tickets sold. Then there is the cost of contactless – when you suggest that you’ll end up spending up to an additional 8 per cent of your gross income on fees etc, the board stop being so keen. Effectively you’re 10 per cent down without any guarantee of ways to replace that revenue.”

Not all operators present cash payments in such a positive light. Some cite the costs of taking revenue as cash as ranging between 1 per cent and 4 per cent. The costs include the risks associated with theft, the increased physical security measures required, cash counting machinery and handling, and banking charges. However, bearing in mind the slim margins on which bus services operate, their reluctance to increase costs is understandable.


Smartcards are the original attempt to shift payment away from cash, and have been successful in some instances. The general principle is that value is loaded onto the smartcard (so they act as electronic purses) and then deducted as it is used. However, their utility is increasingly questioned as contactless card payments are introduced.

That said, smartcards are successfully used for concessionary passes and also as the core of several regional travel schemes such as the MCard in West Yorkshire, the Robin Hood Card in Nottingham, Pop in the North East, Walrus in Merseyside, Travelmaster in South Yorkshire, Swift in the West Midlands, Bramble in Strathclyde, and Oyster in London.

West Yorkshire’s MCard is a multi-operator ticketing solution that comes in a number of ‘flavours’ – a monthly or weekly card for combined bus and rail travel, a bus-only card, and a pay-as-you-go bus card, plus student, young persons and other concessionary passes. There are different zone combinations and prices – with five zones covering the West Yorkshire Combined Authority (WYCA) area. Customers buy the cards via outlets (bus and rail stations and Payzone retailers) or order them online. They can be topped up at these outlets and also via an Android app. Once the ticket is loaded, passengers use it by tapping onto the smart reader on the bus and at rail barriers across the area. The pink weekly and monthly cards are not registered to individuals so they can be shared between friends and families.

The costs of MCard to operators comprise the retail/ Payzone costs plus an administrative charge to cover WYCA’s administration of the scheme and settlement between operators according to a formula agreed between the West Yorkshire Ticketing Company and WYCA.

Although contactless payment is growing in popularity, smartcards still have a number of strengths: they can be used by people without bank accounts as they can be loaded using cash payments. They can also be given to groups of people who might otherwise have difficulty accessing a particular transport system. For instance, bike hire firm NextBike in Glasgow gives prepaid smartcard access to its bikeshare scheme through a community project to broaden user demographics. These factors make it unlikely that smartcard payment systems will disappear completely.

Smartphone apps

Apps vary in the way they take payment and how they are linked to permission to travel. Newer mobility models tend to be ‘app native’ – the DriveNow car club is entirely based around booking, unlocking and paying by app. Similarly dockless bike hire can only be accessed using apps linked to credit or debit card accounts that both unlock bikes and pay for the hire – with the cost calculated at the end of the ride and subsequently deducted. 

Users of the flexible demand-driven minibus service run by ArrivaClick book a seat by app and then simply confirm their name to the driver when they board. Payment is deducted from the registered card after the journey.

Many train operators offer apps that mimic the functions of the ticket office. Northern’s app includes a journey planner and ticket booking facility, deducts payment from a registered card and stores the travel ticket in the app. The tickets include a QR code that can be used to open the barriers at (an increasing number of) stations. The downside is the time that the apps can take to load and open. Some e-tickets (for instance Grand Central) can be added to ApplePay wallets on iPhones, which are immediately accessible from the lock screen of the phone.

New mobile phone apps are one way of creating ‘post paid’ journeys linked to accounts. Trials of new mobile phone-based payments on TransDev buses in Keighley in West Yorkshire use the passenger’s mobile phone and Bluetooth tags on buses and bus stops along the route to detect individual mobile phones and calculate the length of a person’s bus journey. Passengers download the KPay Android app, register, and pay a deposit. Then, before starting each journey, they have to touch the button marked ‘ride’ in the app and show their mobile phone to the driver. Bluetooth tags calculate the length of the route travelled and the app caps the price of travel at the best value over the course of the day or week. Apps such as this have so far only been trialled for short periods, so it is not possible to evaluate their impact on travel patterns.

One potential drawback of app-based ticketing is that, as the number of apps on a phone increases, the phone can become overloaded. Mobility as a Service (MaaS) apps covering multiple operators may go some way to improving this situation.

Nevertheless, there are several practical reasons for operators to have ticketing apps. The biggest has to be the unparalleled data that apps allow operators to collect. For rail and bus, mobile apps enable new ways of selling tickets without needing to increase the numbers of ticket machines or staff in ticket offices. Whilst operators also need to invest in ticket validation software, this can be provided through standard smartphones, limiting the need for expensive readers.

Whilst apps might be light on infrastructure requirements, the costs per transaction are reportedly high, with operators admitting to paying up to 8 per cent of their mobile ticketing revenue in charges.

Arriva Trains Wales has used its mobile ticketing app to introduce a mobile multi-flex ticket, a carnet that provides 12 individual one-way tickets (six outbound and six inbound) for the price of ten. These are delivered exclusively as mobile tickets. The tickets are stored in the app’s ticket wallet, and can be activated immediately prior to travel. Once a ticket is purchased it is stored within the app and works offline, so passengers are never left without their ticket. The tickets can then be visually validated, scanned by on-board staff, or presented to barcode readers at ticket gates in stations. The system was provided by Masabi, which also provided a back-end hub. 

Contactless, Apple Pay, Google Pay

Contactless has become popular in London where contactless cards are tapped in and out without generating a physical ticket. Passengers can also use Apple Pay or Google Pay on their smartphones in the same way. If passengers want to see their journeys and costs they can register their card on the Transport for London website and view and audit all the journeys undertaken. In ticket inspections, the card or mobile is ‘read’ and the back office will either verify that the card has been used or deduct a penalty payment at the end of the day.

Outside London, in most cases passengers using contactless receive a paper ticket. For instance, on the Manchester Metrolink this means pre-purchasing a paper ticket on the tram platform, which is checked if there is an inspection but not otherwise validated. Similarly, passengers can use ApplePay and Google Pay on mobile phones to pay for paper tickets, for instance on First Bus and Reading Buses. 

Processing payments

The key feature of TfL’s ticketing system is that it has multiple types of payment method (Oyster card, contactless cards and mobile phones) but all are linked to the same back office, enabling settlement at the end of the day or week – effectively a single income channel. The multitude of payment methods outside the capital do not benefit from this facility. 

Whilst it’s possible to calculate Oyster’s transaction fees and infrastructure costs from publicly available documents, other operators only provided ‘off the record’ illustrative costs. However, the compelling narrative from these briefings is that dividing revenue into multiple channels increases the costs per ticket transaction.

In London, Barclaycard recently won a renewed contract for credit and debit card acquisition and processing from Transport for London worth £38m per year. This consists of interchange and card scheme fees (95 per cent) and processing fees (5 per cent). Additionally, TfL pays Cubic £66m per year to manage the infrastructure and architecture (including ticketing and gates). On the gross fare turnover of £6bn, this represents 1.1 per cent of turnover for infrastructure and 0.63 per cent of turnover for contactless payment processing. In other words, a total of less than 2 per cent of fares is spent on ticketing infrastructure, back office architecture and processing costs. 

These figures are in marked contrast to operators outside London, who admit to paying upwards of 5 per cent in payment costs on their contactless and app-based transactions (although there is some blurring of direct and end-to-end costs). 

In some respects, the contactless model used is the issue. UK Cards identifies three models of contactless transport payments (contactless includes other devices including wearables and smartphones – which are linked to cards and (bank) accounts in most cases – so these models also power the purchases via apps). They are:

• Model 1: Single Pay As You Go (PAYG). In use outside London and is similar to any standard retail purchase via contactless – it is a PAYG model for known or flat fares, provided by single-mode operators e.g. First Bus, Manchester Metrolink

• Model 2: Aggregated Pay As You Go (PAYG). This provides for an aggregated fare to be charged at the end of the day or after a recognisable journey with a published fare has been completed, for single and multi-mode operators e.g. Transdev KPay app in Keighley 

• Model 3: Pre-Purchase. As in London where the contactless cards are associated with the ticket in advance of the travel and then used as a form of authority to travel. 

To allow ‘Model 1’ retail-style card payments on boarding requires reasonably costly infrastructure – a card reader with mobile signal as well as a payment service provider to authorise the transaction. Tom Quay from Passenger Technology Group, a transport-specialist software company that links contactless bank cards with travel apps, explains some of the issues: “Mobile payments have to be processed on the go – so there are technology requirements for systems to ensure payments can be processed reliably with poor network connections. 

“Unfortunately the best in class app-based payment system isn’t the same company as the best in class contactless payment system.” Operators will therefore run their app separately from contactless. Inevitably, an operator looking for the best passenger experience with both app-based tickets and contactless will require more than one payment service provider – splitting their revenue streams. Throw in further agreements for smartcards – possibly with additional administration to split revenue fairly between operators in multi-operator transport zones and each operator’s revenue is further divided. Each stream will have different costs and by splitting the streams the economies of scale will be reduced.

The solutions are not (yet) obvious. To get deals anywhere near TfL’s costs the industry needs to start re-combining income streams. The ‘obvious’ solution is to link payment systems to single transport accounts with daily settlement rather than per journey fees. However, across areas with multiple operators this is anything but simple.

There are various trials across the country, with new suppliers springing up offering products that might provide ways of improving the situation. App builder and mobile ticketing provider UrbanThings is trialling a system that takes infrastructure off the bus and onto the phone so that card readers are not required. For chief executive Carl Partridge, apps that can then be linked to accounts in the back office are the way to go: “Moving to Mobility as a Service can help to lower transaction costs. A single platform provider can handle acquisition costs on behalf of multiple operators, allowing them to benefit from economies of scale.”

Other apps that combine contactless and mobile into a single account-based travel service could also offer solutions. Software company Passenger describes itself as the ‘Monzo’ for buses.  It uses existing contactless infrastructure to record journeys, whilst an app shows customers their journeys and purchases with the back office taking the strain of administering payments to operators.

Moving to account-based ticketing isn’t impossible – some exist already, as do hybrids. The MCard and the Whim Mobility as a Service product recently launched in the West Midlands both combine pre-payment of some modes (public transport) with post payment of others. The MCard links car club use (paid after hire) with prepaid public transport, whilst Whim offers car hire bookings (with capped daily rates) alongside its public transport offer.

Whilst operators are bound by the Competition and Markets Authority (CMA) not to discuss services, the detail can be worked out by public transport ticketing companies such as West Yorkshire Ticketing Co, Greater Manchester Travelcards, Travelmaster in South Yorkshire, which are able to discuss tickets, products, and set fares. 

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