Public Funds and Programs Critical for Mobile Payments to Take Off

In a comprehensive paper (http://www.bostonfed.org/bankinfo/payment-strategies/publications/2015/transit-mobile-payments.pdf) released by the Payments Strategies department at the Federal Reserve Bank of Boston, Elisa Tavilla details the consumer experience and adoption in transit mobile payments. It’s fascinating to see the success of the dozen mobile payments and ticketing programs around the country. Even though TfL in London and Octopus in Hong Kong have much more traction, perhaps because they have been around for longer, the early success of the US systems is noteworthy.

From DART in Dallas to Ventra in Chicago, we now have a track record of implementations, where adoption is past critical mass. As noted in the paper, there are some clear success factors viz. consumer education, app design, and aligning product design with targeted consumer behavior.

The handful of transit agencies that have implemented mobile payments and ticketing systems have done so for various reasons ranging from the practical (need to replace aging infrastructure) to the economic (reduce cash handling expenses) to the aspirational (align with consumers’ increasingly mobile lifestyles).

In fact, the last point is especially significant. Consumer behavior in general, even outside of transit use cases, can actually be influenced by transit programs that invest in customer education and form habits by offering incentives that drive adoption. Theses not theoretical - it has been demonstrated in Dallas, Boston and Salt Lake City when new programs were launched with economic incentives to encourage use of the mobile options. Despite the billions of dollars of private sector investment in mobile payments over the past decade, these targeted marketing programs have generated the most tangible returns. Availability of infrastructure to actually use what is being pitched has obviously been critical to this adoption, but in addition to the specific transit use case, consumers also become familiar with the concept as they conduct a transaction several times a day.

As intuitive as the above sounds, this is exactly where some of the largest attempts in this space have flopped because of arrogant and disingenuous business models that had no validation in consumer behavior. The joint ventures that tried to achieve overnight success by overly controlling the ecosystem or over-engineering the solution became overnight failures. The initiatives, such as in transit, that have humbly offered simple point experiences, will end up contributing far more to the mobile payments ecosystem relative to the press that they get.

There are also parallels here with other major technological breakthroughs that have required at-scale consumer buy-in and massive initial investments and gotten us to this point. If it were not for DARPA and ARPANET trying to connect a few research centers in a sustained collaborative effort, we might not have had the Internet as we know it. If it were not for the sustained collaboration by the banks in the formative years of Visa and Mastercard, we would not have had ubiquitous card usage. Fast forward rot Apple Pay: even the best privately funded solution will probably benefit hugely from acceptance at federal entities nationwide.

The publicly funded transit mobile payment and ticketing systems are playing a similar role - slowly, yet surely, these pockets of consumer acceptance and adoption will drive a fundamental shift in consumer habits and help achieve critical mass faster than pure private sector investments will allow.


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