7 ways Smart Cities innovate payments

November 30, 2018 10:48 AM

The concept of Smart Cities — which use mobile payments, global positioning and related technology to streamline parking, transit, building access and traffic — is deeply intertwined with the development of payments technology and regulation.

Certain projects that are underway today seek to tap into consumer habits to reconsider the way they handle government payments, ranging from utility bills to transit fare. In many cases, these projects intersect efforts by retailers to update their stores with modern technology.

John Adams contributed reporting to this story.

The data economy

Data discs arranged for a photograph, Thursday, Jan. 3, 2008. The U.K. should introduce new criminal penalties for breaches of data privacy after the loss of personal records of almost half the population, a panel of lawmakers said. Photographer: Graham Barclay/Bloomberg News

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The internet of things will give access to massive amounts of new data, which in turn can produce new business models for everyday services.

"We talk about the value of a transaction being around a monetary value, but marketing is an entire business built around gathering your data and making the best use of it, and then serving it back up to you," said Jerry Quandt, executive director of the Illinois Autonomous Vehicle Association, a company working to advance smart automobiles technology.

Companies are increasingly looking at ways to use consumer data and place a value on it.

"If we start to implement the data you created and provide an understanding of the value of it, then all of the sudden we are transmitting something of value, but it's not dollars," Quandt said at the IoT Summit in Chicago. "Someone is willing to pay for that data and has established a value for it."

Quandt said his company has talked with taxi and ride-sharing providers about placing advertising in their vehicles to offset the cost of the drive to the rider. In short, the rider would allow use of his data in exchange for a free ride.

"When a person gets in the vehicle, a personalized message could come up through [the internet of things] saying, 'We see you are on your way to Joe's Bar for the evening,' and then provide a drink and menu listing," Quandt said. "The riders could choose the items and pay for them through the screen and those items would be waiting for them at the bar when the taxi drops them off."

In that scenario, the rider pays no fare because Joe's Bar has paid for it through advertising.

European Union (EU) flags fly outside the Berlaymont building, which houses the headquarters of the European Commission, in Brussels, Belgium. Photographer: Yuriko Nakao/Bloomberg

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Since Smart Cities rely so heavily on data, they may naturally have to comply with and understand how the General Data Protection Regulation in Europe is going to affect the overwhelming amount of data internet of things will produce.

At GDPR's core, companies that handle or store European consumers' data have to have consumer permission to do so. Without that permission, they cannot keep the data or move it to another entity. And if they do store the data, they have to keep it separated in different silos, so a person's name would never be in the same place as an address or other personal information.

"Who owns the data — and what are the privacy implications — is a question that has to be asked (in Smart Cities discussions) in the U.S.," said Chuck Byers, senior technical leader of software engineering at Cisco. "Do we say we like what Europe did with GDPR and just adopt that, or take it and Americanize it in some way?"

Essentially, Smart Cities view data as the most valuable element, one that consumers and businesses alike can monetize. With that focus, the mission is clearly to create solutions that establish a value on data.

Cities become like stadiums

Municipalities, like stadiums or festivals, have enough control over their own payment acceptance that they can reasonably implement new technologies without having to convince other participants.

"You have the opportunity to try a lot of new things that you don't necessarily have to sell to the large global market," said Richard Oglesby, president of AZ Payments Group and a senior analyst at Double Diamond Payments Research. "You don't have to try to sell Walmart on global acceptance of NFC when you are just trying the technology within a smart city."

Smart Cities represent a crucial future investment for most companies, because those corporations and payments providers expect participation to grow in the future.

Urban Development World Bank has said more than half of the world population lives in cities today, but by 2050 that will increase to two-thirds of the world population. More important, from the Smart Cities standpoint, more than 80% of global economic activity takes place in cities and the vast majority of future growth will take place there as well.

Visa research conducted through RoubiniThoughtLab in New York City last year estimated that increasing digital payments across 100 cities could result in total direct net benefits of $470 billion per year, in addition to spurring economic growth and improving wages and productivity. The study also takes into account the high cost of handling cash — processing and counting, and dealing with theft, shortages and counterfeit money — estimated at $200 billion a year in the U.S.

That, in a nutshell, is why Smart Cities initiatives are picking up steam, and payments providers continue to talk about "Uberizing" payments — making the payment an automated piece of a digital experience.

"Embedding payments into services can be a big part of reducing the friction of this societal change," said Richard Crone, chief executive of Crone Consulting LLC. "The smart part of this whole concept is payments, because payments make the city, or any entity, smart about how they serve people and provide an experience."

Big tech firms come to smart cities

An employee waits to greet customers at a Microsoft Corp. store in Bellevue, Washington, U.S., on Thursday, Jan. 26, 2017. Microsoft Corp.'s second-quarter sales and profit exceeded analysts' projections, bolstered by rising customer sign-ups for Azure and Office cloud-computing services. Photographer: David Ryder/Bloomberg

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Microsoft and Mastercard are collaborating on projects to further smart cities, while finding new markets for their respective technology and payment businesses.

The two companies announced in May that they would share payment, data and cloud technology to build a global exchange of innovation for cities—with mayors, policy makers and urban planners among the target users—with a particular focus on open-loop ticketing for transport. Microsoft also joined City Possible, a Mastercard-driven global initiative to lobby private industry to create and scale urban technology.

In a separate move, Miguel Gamino, the former chief technology officer of New York, joined Mastercard as executive vice president of global cities.

"From access to basic services such as transport and affordable housing to engaging arts and culture – locals and tourists expect that cities make good use of resources that already exist and harness emerging technologies," said Gamino in a release. "That’s why today we invite public and private sector leaders to join us in making tech truly work for people."

A team effort

The IBM logo is displayed on a sign at the entrance to the IBM Research - Almaden facilities in San Jose, California, U.S., on Friday, Oct. 28, 2011. Photographer: David Paul Morris/Bloomberg

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The concept of a smart city takes into account all aspects of a city operation, from smart meters to gauge gas, electricity and water use to smart traffic sensors and geo-location to keep track of bus fleets and city emergency crews.

The Smart Cities Council, a coalition for the smart cities movement, has been helping cities adapt to new technology in all facets of operations, including payments. The six-year-old council includes Cisco, General Electric, IBM, Microsoft, MasterCard and various energy specialists among its members,

Payments come into play both within the city government and with local merchants. As such, the council says payments are at the core of a city's economic activity and success. Smart payments play a crucial role for cities looking to improve livability, workability and sustainability, the council guide states.

Breaking down old systems in government payments

Johan Opperman /Marietjie Opperman - Fotolia

CityBase would like to eliminate the significant difficulties consumers face when paying bills to government entities — and in doing so, lay the foundation of a more digital form of conducting business.

Even those agencies that accept payments online are often disconnected and have some manual elements to their processes, but all of this can be streamlined in a way that allows residents to more easily address their business and residential obligations.

"At a high level, we are working to make government more personal and responsive, which is creating a differentiated service to individuals and businesses based on their needs," said Mike Duffy, CEO of Chicago-based CityBase.

Payments are at the core of such a vision for CityBase, as it works with government entities to streamline their incoming revenue processes in a way that introduces mobile or digital payment acceptance at kiosks, the point of sale or online.

It's a trend not lost on investors who see the move to digital payments and Internet of Things as the gateways for cities to better serve their residents through connected devices.

"We've been seeing more on the venture capital side of our business the last three or four years on the digitization of payment," said Larry Berlin, vice president with Chicago-based First Analysis Securities. "Cities are trying real hard to collect revenue faster and save money at the same time, because they are on tight budgets."

Smartphones create new infrastructure

Close-up Of Businesspeople's Hand Using Smart Phone

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"Our cities today don't operate much differently than they did in the 1940s," said Shaina Doar, senior policy director at Sidewalk Labs in Chicago. "But the integration of digital data and connectivity of the Internet of Things will create a new urban experience."

A major part of the digital revolution is the connectivity already in place with consumers carrying smartphones with applications to do many tasks, including making payments, Doar said.

"Much of this is enabling constant digital networks, creating a 'distributed trust' between parties," Doar added. "Location services operating in real time are enabling a wide variety of uses, as a third of mobile apps today have location services."

As cities move toward Smart Cities projects, the digital networks will come into play in monitoring utilities use and payments, traffic, crime, infrastructure maintenance, and parking and public transportation availability and payments.

All of the major factors that drive payment innovation — speed, security and privacy — come into play when major city departments and services advance with digital networks. Sensors, a key component of any IoT project, play a major role in all of these advancements.

An estimated 50 billion sensors are already in place throughout the world, many placed strategically throughout a city as a way to gather data and monitor everything from traffic to infrastructure erosion.

But those sensors are also a part of beacon technology that plays a key role in location-based marketing and communication with consumers in order to offer deals or initiate payments in retail settings.