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By: Elena Ivanova

Pre-bought passes in public transport are a thing of the past. At least they should be.

A commute can turn out to be exhausting when you have to deal with multiple payment points and ticketing options. Aren’t seamless and cashless transactions a better way to travel around? 

You know what we are talking about, especially in the summer season when everyone is out and about. These long queues in front of the boat ticketing office, the bus driver who only takes local currency coins, the taxi driver who doesn’t have change to give you back. The list goes on and on. 

With so many various types of tickets at different modes of transport and with complex and unclear pricing structures, one’s dream summer vacation trip may turn into their worst nightmare. However, these pain points are not only characteristic of the long-haul tourist, they are experienced by millions of people every day. 

Did you know that globally 44% of urban residents use public transport as a way to get to work, school, or university every day? The longer public transport journeys, which are a result of overpopulated cities, currently take the average citizen around 3 hours and 35 minutes weekly or around 20 minutes more, compared to private ways of transport.

A lot of this has to do with the balance of commerce, namely where and how purchases of tickets are made. Considering that people make around 6 journeys to work every week, the extra minute that it takes them to purchase a physical ticket or wait in line every time, takes its toll. The inconvenience associated with payments in public transport is a big turn-off for many commuters. 

It has actually been proven that every additional minute of our commute causes a decrease in our personal well-being, satisfaction, and happiness. Despite that, the mass usage of public transport would lead to greener urban areas. Not to mention that with the global increases in the price of gas, public transport is becoming a priority alternative to cars. 

The goal is clear: payments in the future mobility ecosystem should be seamless, integrated, transparent, and convenient. Let’s now see how we get there.

What’s wrong with cash in public transport payments?

Overcrowding, reliability, and convenience appear to be the biggest barrier to public transport use. To improve their future prospects, public transport service providers would have to get the basics right and provide commuters with what they want. A big part of that is connected to more convenient payments. When it comes to paying for public transport, the most frustrating factor for commuters seems to be the long queues, with around 52% of citizens complaining about it, according to a Visa study conducted with 19,384 consumers from 19 countries. However, this is far from the only complaint about public transport payments. Some 47% of the people surveyed reported that the need for different tickets for different modes of travel is an issue, while an additional 44% pointed out the issue of not knowing how much to pay. Moreover, another 41% of the surveyed cited as a problem that the public transport payments are cash-only. 

Explore The Deep Dive

The Value of Digital Payments in Public Transportation

And now let’s see what commuters actually want. It is no surprise that younger generations are keen supporters of digital-only public transport payments. Even though the sentiments are not so one-sided when it comes to the older less tech-savvy generations, one thing is clear. The use of public transport services would increase if it was easier for people to pay for their commutes. More specifically, it would increase by almost 30% according to studies. 

Going digital in public transport would bring value not only to the commuters, but also to the mobility service providers and transit authorities. First, digital payments mean significant cost savings. According to the “Cashless Cities” report of Visa, public transit authorities spend 3.5 times more on the physical collection of fares compared to using digital payment systems and solutions. 

Here are the benefits of cashless transit services to consumers, businesses, and governments alike. 




Why should mobility and fintech payments go hand in hand?

The mobility ecosystem is rapidly changing with new modes and options of transportation becoming available. This unlocks new revenue opportunities for fintech players that are facilitating the transactions. Understandably, the more exciting novelties in the mobility ecosystems such as self-driving cars and passenger drones have drawn more attention. However, payment providers have a fundamental role in enabling mobility innovation and commercialization. 

What is the underpinning element of their role, you may ask. Fintech payment providers can set up the infrastructure that enables the business models of mobility providers as well as ensure that the revenue pools and the data are shared across the ecosystem. In order to make this happen, fintech companies should develop strong connections with mobility companies. The winners will be these payment providers and payment enabling companies that manage to bring together multiple mobility players and encourage them to be open to sharing data with each other. 

The opportunity for fintech startups

Around 50% of commuters around the world would increase their public transport usage if there was a consolidated app that allows them to both plan and pay for their trips. This leaves a lot of room for innovations on the part of fintech startups, mobility service providers, and super apps. 

Current contactless payment applications in public transport use radio-frequency identification (RFID) and near field communication (NFC) technologies. This allows commuters to pay directly with their debit and credit cards, or mobile wallets. In addition, NFC technology enables users to store information on their devices in the cloud so that they can later collect loyalty points, and store their travel passes or payment credentials. Such contactless payments which are based on NFC provide users with speed as they take almost half of the time compared to traditional card payments or cash. In numbers, this means that if a line of 10 commuters makes an NFC-based payment, the 10th person would get 2.5 minutes in waiting time.  

Another payment technology that is currently being used by public transport providers is carrier billing, which charges the mobile account of the commuters. It uses some form of two-factor authentication and does not require the user to preregister or to provide their debit/credit card information. A similar payment method is the SMS payment, which requires the user to send a text message that then translates to a certain charge on their monthly phone bill. 

By using mobile ticketing, passengers can buy and display their tickets on their mobile phones or connected devices. With digital transport cards, commuters are able to take advantage of an effortless ticker purchase. On the other hand, operators benefit from reduced costs and more simple distribution and delivery, especially when it comes to the sale of single tickets. According to a report by Jupiter Research, card digitization is a key trend in payments and the volume of mobile ticketing transactions is doubling on a yearly basis.

Even back in 2019, the global ticket purchases made from desktop and mobile devices accounted for around $32B with mobile being the go-to purchasing choice for passengers. It seems like digital ticketing has upgraded its function from simply being a physical paper ticket replacement to a provider of richer and more interactive experiences for users. 

Who are the players right now?


Even though mobility innovations and mobility-as-a-service startups are booming across Europe, fintech in mobility continues to be less of an explored field. By and large, only a couple of markets across Europe, mainly in the West and Northern parts, have already implemented consolidated payment and trip-planning solutions. A point in case is the capital of Finland, Helsinki, where commuters use the Whim app, a product of the local startup MaaS Global. The app allows passengers in Helsinki to plan and pay for trips across public transportation, bikeshare, taxis, and carshare. 

Companies such as TripGo develop similar solutions and enable their users to compare and combine different modes of transport – public, private, and commercial. However, instead of developing native patent solutions, they use API payment integrations. Find out who are the other startups developing payment mobility innovations. 

Company on focus: Skipit

To get the first perspective of a founder who is developing a fintech startup for public transport payments, The Recursive team reached out to Conor Clancy, co-founder and CEO of Skipit, a Danish mobile app that has developed a cross border digital public transport card.  Skipit helps commuters “skip the hassle” of moving around the city by not only enabling them to pay digitally, but also to plan their trips. Mobility startups such as Skipit provide a payment service. Therefore they define themselves as fintechs. The startup is part of the Visa Innovation Program, managed by one of the leading early-stage venture capital funds in the SEE, Eleven Ventures. Here is what Conor Clancy shared about his experience building Skipit and scaling the solution as part of the Visa Innovation Program cohort.

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The Recursive: What problems in public transport does Skipit solve?


Conor Clancy: When it comes to paying for mobility, especially in public transport, across different cities across Europe, there are many different rules, regulations, price points, and currencies. Each city has their own sort of public transport card. For example, there is the Oyster card in London, the Navigo card in Paris, and the Rejsekort in Denmark.

We believe that it shouldn’t be so difficult to simply pay for public transport in another city. That is why we took the concept of a public transport card and digitized it. 

What we see is that when travelers go to another city, they often end up taking a taxi or private motor transport because they can’t be bothered to deal with the issues, the challenges, and the headaches that come with trying to understand the local public transport network. And a big part of that is payment. Questions range from do I have the right ticket, am I being charged too much, or will I get a fine going this way? 

To solve this in the most meaningful way, we built a network of all that ecosystem of public transport partners. They have limited time and budget to deal with this target group. We have also teamed up with hotels, who also see the need for this product. They usually get two questions from their guests: How do I get around and what should I go see? Therefore, we saw a use case for Skipit. Other stakeholders are also local businesses because we help tourists to experience local areas. 


How was the idea of Skipit born? 


One day I was walking down the stairs of the central station in my home city, Copenhagen, and I saw a big line of travelers and tourists queuing up at the ticket machine. They were trying to figure out the zone system, Danish language, and the direction they have to head. And at the same time, I just saw Danish people walking past, tapping in and tapping out with their public transport card, and I thought to myself what happens is that they could work in multiple cities, and those people queuing up, no longer had to do so. 

My co-founders and I worked together at the Danish Institute for Sustainable Innovation and Entrepreneurship. And at the start of 2020, we were ready to get our hands dirty and decided to leave our job. Then the Coronavirus came along and he gave us a few challenges. But it allowed us to have the breathing space to be able to create a network. 


What is your business model? 


At the moment Skipit is working on a deposit model. In order to activate your card, you have to put a small deposit on that card. And secondly, we are also working on commission as well.


How does the digital public transport card of the Skipit work? 


First, the users plan a journey via our mobile application and then top up their card with your balance that they like. Then the app recommends the cheapest and quickest route and ticket. Users then purchase their tickets using two factor authentication – their face ID or fingerprint, or password, and then they are good to go.


At what stage of development is Skipit?


We are already making revenue, which is a success point, given that we have built this company in bootstrapping mode for the past two years. In total, we invested around €65K in the company. We are looking to close our first investment round within the coming months and use that money to be able to scale out into new cities. 

Additionally, as we have done agreements with public transport entities, we already have the infrastructure to be able to include these different public transport ticketing systems. 

In the future, we will aim to optimize the customer experience, but for now, our main focus is to get the Skipit card up and running in multiple cities. Skipit is currently working in Helsinki and in Zurich, and we have agreements with around 12 other cities to begin operating in the next 12 months. So far we have spent literally nothing on advertising. All of our users have come from our partnerships with hotels. Therefore, we are looking forward to using part of our budget to push our product forward. 


How did the Visa Innovation Program help you grow? 


We wanted to reach out to Visa for a long time and ironically, we were actually approached by them before the Innovation Program. And the scope within the project is to work with them to leverage NFC technology so we can open up more markets. 

And what we’ve got out of it is we’ve really understood how exactly we can work now, together with Visa. They help us build a strong network both within Sofia, but also within Athens and Turkey as well. So we can start leveraging that network in terms of our expansion plans, and we also got a better understanding of where Visa is, as an organization when it comes to urban mobility. 

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What hinders financial innovation in mobility?

Fintech startups can hold the key to the future of transport data financial processing. There is one dilemma. Compared to Open Banking and Open Finance, the mobility sector falls behind in the understanding and adoption of smart data practices. This is because most public sector authorities do not have a senior person responsible for data usage, a.k.a Chief Data Officer. 

What is more, the supplier landscape in the transport sector is mainly dominated by legacy system vendors which means that there is an increasing interest to protect incumbent positions. At the expense of opening up the legacy systems and data to more innovative companies. 

What if the mobility and public transport sector continue to delay the implementation of smart data, the use of various financial APIs, and embedded solutions? Well, it might turn out that creating a bank account in an online banking app would be much easier than reserving and buying an online ticket for your next bus fare. 

Luckily, public transport providers don’t have to reinvent the wheel to solve this issue. They simply have to find a way to share each customer’s data from each provider in one ecosystem. By doing so, the transport providers would assure consistency and security. 

The future of public transportation innovation

Payments are and will continue to be an integral part of every form of travel. What is more, as cities are transitioning into smart, connected, and digital-first environments, digital payments for public mobility services will stay on the top of the agenda.

“When looking across the technology landscape, there already exist many products that could easily address people’s daily frustrations with travel. However, none of these solutions should be developed in isolation. A major challenge therefore lies in first identifying relevant technologies that provide suitable products for the market then managing implementation in conjunction with a broad set of stakeholder including mobility providers, technology companies, infrastructure owners and public transport agencies,” Herman Donner, PhD and Postdoctoral Researcher from Stanford University summarizes in the “The Future of Transportation: Mobility in the Age of the Megacity” report of Visa. 

While going contactless in public transport brings great benefits for both passengers and public transit operators, we need to also look at the next generation technologies. The integration of third-party providers opens many more doors for the provision of additional services.

AI and Big Data can be used to draw actionable advice from huge amounts of data about commuters’ behavior and trends – both historical and real-time. This would allow public authorities to anticipate demand and make sure that buses, trains, and cars are where they are needed at a particular time of the day. By creating a  system that works in a predictive manner to ensure that assets are in a place where they will be needed as well as directing users to where there is less congestion, cities, transit operators and private companies can create a vastly improved consumer experience. 

Besides financial innovations, there are many more ways to reach new frontiers in the public mobility sector. Take, for example, faster updates on rail and bus delays, or better quality information about roadside emissions. 

Just imagine what a relief it could be if we didn’t just know the price and the departure time of our journey, but also knew all the alternatives available, how busy the selected routes are, or what CO2 impact we would leave on the environment. 

Fintech mobility innovations should not be confined to public transport only. There are plenty of use cases in personal mobility especially when it comes to refueling and parking. Surveys show that almost 50% of car drivers would like to see the emergence of applications that advise them on the cheapest fuel. While another 35% would be interested in using a solution that recognizes the location where they will be refueling and pays through the app. Moreover, it is reported that the worst aspect of driving is trying to find a parking space, followed by the risk of getting a fine if you park longer than expected. 

No matter the use case, or the mode of transportation, payment innovations are not only confined to digital cards. Just as with any kind of digital payments, the sky’s the limit. Providers have opportunities to experiment with facial recognition payments, buy-now-pay later tickets, or even cryptocurrency payments.