5 payment tricks retailers can learn from TfL

When Transport for London (TfL) began offering customers top-up Oyster cards, and later contactless debit cards as payment options, it began a revolution of public transport ticketing which would go on to set standards around the world.

Matthew Hudson, head of strategy, technology and data at TfL, describes that journey, which involved a considerable amount of customer data analysis and a stand-off with Apple. 

1. Understand your customer

Back in 1982, TfL had a serious congestion problem on its hands. It wasn’t signalling delays or too many people on the platform. In fact, it was congestion at the gateline, where customers slip their tickets into a machine that lets them pass. Back in the ‘80s TfL issued paper tickets to avoid employee fraud which, as Hudson explains, was inconvenient for customers who would have to buy them in advance, keep them safe and show them on demand.

With an increasing number of people using the London transport system the speed at which TfL could get customers through the barriers had slowed to 15 people per minute.

“There were two options, knock down half of London to build new stations or invest in a new way to take people’s fares," says Hudson.

The Oyster Card technology TfL wanted to deploy increased the speed to 25 people per minute, which was a convincing business case for investment, but it wasn’t just speed which gave TfL the green light to roll out Oyster in 2003, it was understanding of customer journeys.

“We in the transport sector had no idea who was taking single journeys with paper tickets – it could have been 100 people making single fares or one person making 100 journeys.”

Speaking at the Tech. event in London, Hudson says TfL estimated around 300,000 people were taking single journeys, but once the technology was rolled out and TfL could identify Oyster cards travelling on the network it worked out it was actually 5.2 million.

“Public transport is the lifeblood of the city, it’s no longer about Monday to Friday 9-5, but life patterns are changing and there have been a massive increase in take up of pay-as-you-go, rather than selling people long-dated tickets."

2. Make a truly great customer proposition

“Fundamentally, selling tickets is not our core business – I want to move people not sell them bits of paper.”

Hudson describes how, prior to Oyster, customers would have to go to a ticket office and request a travel card covering the zones in London they wished to travel through – there was a lot of information to learn, especially for tourists who wouldn’t know the zone boundaries.

Even with an Oyster card, customers would have to top-up enough money to cover their travel or work out whether they needed to buy a long-dated travel card.

“It was an insane customer proposition,” he says. “We needed to make it so convenient for customers they don’t have to interact with us at all.”

At the time, the payment industry had no product TfL could use, but contactless payments launched in the UK in 2007 and Hudson is convinced TfL actually helped the technology become a ubiquitous payment method.

“Tap your card and we’ll take the right fare – it’s a simple proposition, but we had to try and deliver it,” he says.

“I had immense pleasure playing hardball with Apple”Matthew Hudson, head of strategy, technology and data, TfL

3. Stand up to the tech giants

TfL spoke to Visa, Mastercard and American Express about how the technology worked, but found there were a number of rules around capping that had to be followed.

“But slowly they realised it would be in their interest to change how contactless worked on transport – they’re after the low-value transactions and a third of those are in transport.”

The payment companies ended up creating a new ruleset to make transport work, which have since been used in NYC, Sydney and Singapore to change public transport networks.

Fuelled with success after talking to the big payment companies, Hudson then had to approach significant mobile players which were touting NFC smartphone payments as the next big trend.

The biggest standoff was with Apple. At the time, the security system on Apple handsets took 4.5 seconds to read a user’s fingerprint in order to authorise a payment. It was simply not quick enough to get users moving through a station.

But Hudson stood firm. “If [Apple] wanted to compete with plastic cards, that’s their proposition, and they knew it couldn’t launch a mobile wallet [in London] if TfL said to customers ‘don’t use that on our system or it will cause queues.’”

The next Apple software update, iOS9, fixed that problem and now 10% of contactless transactions on the transport network are on mobile.

“I had immense pleasure playing hardball with Apple,” recalls Hudson, who says the technology giant wanted to take a TfL reader back to the States to test, which he refused. They then offered to come to the UK offices to work on the proposition instead.

“In our mind-set they’re a large player, but they realised they needed to work with us.”

4. Make your bespoke tech pay

Having had 300 software developers work on a world-class transport payment system, costing £23 million, TfL has taken an Ocado-approach to its bespoke technology and has already sold this software-as-a-service model to another city for £15 million.

5. Assess further savings

Along with hardware costs, the entire project took £30 million to deliver, but it delivered £90 million worth of savings in the first year.

Since then, TfL has been able to close ticket offices and move staff from behind windows to the gates and machines, which saves £70 million a year; removing cash collection from TfL buses saves the organisation an additional £30 million a year.

“This is particularly important to us in these chasm times. That’s massive savings to us to invest more money in public transport, but we needed vision and drive to achieve it.”