Select Committee on Transport Fifth Report

3  Smartcard technologies

New technologies, new opportunities

30. The era of the paper ticket may be drawing to a close. Technologies now exist that enable more sophisticated and integrated ticketing arrangements. "Virtual" tickets can now be included in smartcards or in mobile phones or other electronic items, which are read automatically (or semi-automatically) at some point on the journey.[32] The most intensively-used system is the London Oyster. Launched in 2002, there are now 15 million Oyster cards in circulation, used for some 7 million journeys each day. The Oyster card allows users to mix a fixed period Travelcard with Pay-as-you-Go credits that can automatically charge for extensions beyond the Travelcard's validity. They are also significantly quicker to read than magnetic paper tickets and this has increased passenger throughput at busy Underground stations, and, along with other changes, has helped to reduce bus boarding times.

31. TfL told us that

    Overall, TfL considers that the introduction of the Oyster smartcard has been unambiguously positive. It has improved the customer experience in many ways. Certainly customers can proceed through TfL stations and board TfL buses much more quickly than used to be the case, and they are unanimously positive about this. […] Customers now have a wider choice of travel products including the Oyster Pay-as-you-Go stored value product which was impossible to deliver using paper tickets.[33]

32. TfL pointed out, however, that such a scheme does not come cheap: TfL pays its PFI contractor substantial service charges to provide and operate the Oyster system. These costs are deemed justified because of the benefits that the system provides.

33. Outside London, the take-up by the transport industry of smartcard technologies has been limited. It is mainly restricted to the metropolitan areas and some other cities, mostly those which have been part-funded by the local transport authorities. Smartcard systems can be complex and expensive and may not be appropriate in all situations, particularly for infrequent travellers or less intensively used transport systems.

34. Smartcards present new challenges to transport operators and public authorities. They offer the potential for a new level of passenger convenience, flexibility and choice in ticketing. The technology and economics are advancing fast and smartcards are likely to be commercially viable for a wider range of transport uses in future. In the right circumstances, they can also provide the transport operators with major benefits, including reduced costs of ticket sales, better monitoring, and more accurate allocation of costs and revenues. However, they are not appropriate for all people on all journeys. For example, long-distance rail passengers may not wish to have a high-value ticket included in a smartcard, which they cannot visually check. The Association of Train Operating Companies has been involved with ITSO from the outset but it is not convinced that smartcards are what the public wants for many journeys on National Rail.[34]

35. A ticket that can be easily bought, at an acceptable price, and widely used has to be backed by robust customer service arrangements and contractual agreements between multiple parties. The initial investment in the smartcard equipment can be costly but the greater challenge tends to be the ongoing operation of the system and maintaining it to a standard that retains the customer's confidence.

    Smartcard ticketing is inherently very, very different from paper ticketing. It is an invisible medium where people are unable to see the content of what lies inside their smartcards and it raises its own customer service challenge. The biggest customer service challenge around smartcards is that the customer needs to have absolute confidence that they will always be charged the right fare and that money is not going to disappear from their cards.[35]

36. A single national transport smartcard may seem an attractive proposition but it is currently impractical.[36] The challenge is therefore to find the right combination of scale, functionality and sophistication at a price that is attractive to the passenger and which provides a worthwhile return on investment (in either commercial or social cost-benefit terms). An advanced system such as Oyster may be appropriate for London but it would be unnecessary and prohibitively expensive for, say, all buses in rural areas. London shows that the benefit of smartcards can be significant. But London is a special case, with an extensive, integrated public transport system, low car-ownership, measures to restrain car use, a large and growing population and a strong economy.

37. There are examples of smaller-scale smartcard systems that have been in operation for several years and proven themselves to be viable. Cheshire County Council's Chester Travelcard for buses was established using the powers in the Transport Act 2000 and the Public Transport Schemes Block Exemption Order 2001.[37] Three popular yet incompatible smartcard schemes also operate in Nottingham.[38]
Smartcards: lessons learned

Lessons can be learned from the experience of London, Scotland and elsewhere with smartcard technology. Some of these are:

  • Much of the challenge associated with the introduction of smartcards lies not so much in the technology itself as in the business processes and with the agreements necessary to allocate costs, payments and liabilities.
  • Smartcards are not a simple solution. The London Oyster has proved complex and expensive but successful; the ambitious Scottish Entitlement Card has proven to be a more difficult project and is still being rolled out.
  • It is important to keep in step with commercial operators and the technology industry. Some witnesses have suggested that Holland offers a good model for industry-government partnership.
  • Passengers' expectations rise and dissatisfaction can result from those parts of the system aspects that are not integrated, such as the parts of the London rail network that do not accept Oyster, despite the increase in some fares as a result of zoning.
  • A single overall customer or "systems integrator" is crucial to drive progress as in London and Scotland.

38. The limited take-up by the transport industry of smartcard technologies is the result of two major factors:

a)  The structure of the transport industry, particularly the bus sector, is competitive and fragmented.[39] This makes long-term planning more difficult and investment more risky. Countries that have implemented smartcards on a large scale, such as The Netherlands, tend to be those where the national or regional authorities have more direct control over transport operations.[40]

b)  The business case for the industry to adopt smartcard technologies on a large scale has, until recently, been weak.[41] The operators argue that integrated ticketing is not a high customer priority, and the returns do not justify the substantial investment, particularly in a declining market. The problem is greater for the bus industry.

39. However, the signs are that the industry is now more receptive as technical issues are being resolved and potential benefits recognised, although the structural difficulties remain.[42] The necessary infrastructure and economies of scale through shared back-office services have not been put in place. Outside London, the regulatory framework has not been sufficiently strong to require it to happen.

40. Conventional ticketing systems will still be needed to cater for those passengers for whom smartcards are unsuitable—at least, for the foreseeable future. This applies in London as well as elsewhere.[43] Differential pricing—discounts for Oyster users but fare increases for those buying conventional tickets—are one reason why the Oyster card is much preferred. A single Zone 1 Tube journey with a paper ticket costs £4.00, comparable to the cost of a short black cab journey, whereas using Oyster it costs only £1.50. It is reasonable to charge a modest differential to encourage uptake of smartcards and to reflect any additional costs of issuing paper tickets, but those passengers who cannot or choose not to opt for smartcards should not be heavily or unfairly penalised. The Government must ensure suitable guidelines on differential pricing are included in decisions on rail fares, rail franchises and other fare regulations.

The Integrated Transport Smartcard Organisation (ITSO) Standard

41. As smartcards become more common it is obviously desirable that the products are compatible, as far as possible. A common standard is a good thing because it provides a platform for a range of products and uses and should reduce costs. The UK has developed the ITSO standard which is intended to ensure that smartcards and smartcard equipment are interoperable.

ITSO (the Integrated Transport Smartcard Organisation) was founded in 1998 as a result of discussions between various UK passenger transport authorities on the lack of suitable standards for inter-operable smartcard ticketing. ITSO's initial role was to create a specification or industry standard to make interoperable smartcards a reality. It is supported by the Department for Transport and its members include bus operators, train companies, suppliers to the industry and local authorities. Originally a UK initiative, ITSO has been adopted as an international standard. The scope of the organisation's work has spread beyond smartcards and ITSO has therefore been adopted as the official name and not merely as an abbreviation.

42. The specification for interoperable, contactless smartcards that ITSO has developed is intended to cover the entire system, from the dimensions of the smartcard itself, to how the data are written to the smartcards and the communication protocols for cards and readers. ITSO is a set of technical specifications and not a product or system in its own right. Two different systems could be designed independently that were nonetheless both ITSO-compliant and therefore interoperable. Agreements between all the parties (transport operators, ticket sales outlets etc) covering customer service arrangements, charges, allocation of revenues, liability, etc still need to be made for each ITSO product.

43. There was a clear consensus among our witnesses that having a common standard, such as ITSO, was in principle the right approach. However, industry witnesses were critical of the ITSO organisation, the Government's project management and the speed at which the ITSO specification has developed.[44] Nonetheless, a significant amount of progress has already been made with ITSO: it is the standard for concessionary travel bus passes in England and Scotland[45] and it has been included in the conditions for new rail franchises. It now seems certain that ITSO will be the standard for transport smartcards on bus and rail networks outside London, for the near future.

44. The Government funding for ITSO-compliant concessionary travel cards is likely, in the long run, to give a boost to the introduction of ITSO equipment on buses. However, this is proceeding slowly and few of the 15 million concessionary travel passes will function as smartcards in the first instance. Of the 324 travel concession authorities, 253 are non-ITSO-compliant; and only 5 to 10% of the bus fleet will be ITSO equipped by the end of 2008.[46] Further take-up will depend on how well the Government and travel concession authorities encourage operators to equip their buses with ITSO smartcard readers. Given the potential of ITSO smartcards to provide passenger data, to allocate costs more accurately and to enable concessionary travel across the UK, it is important that ITSO continues to develop quickly.[47]

45. Transport authorities and operators have sought to ensure compatibility amongst these new technologies through a set of ITSO standards. The English national concessionary travel scheme passes that are now being issued are ITSO-compliant smartcards. A number of smaller ITSO-based smartcard schemes are also in operation or planned, such as Yorcard in South Yorkshire, which is to be piloted on three bus routes in Sheffield and on rail routes to Doncaster.

Oyster on rail services in London

Oyster is available on all London Overground services and on interavailable routes on other National Rail services. Oyster is available from around 100 stations served by National Rail.

The rules governing what journeys can be made from these stations are complicated as not all services accept Oyster Pay-as-you-Go. This causes a large degree of customer confusion. On the London Overground, which TfL took over in November 2007, Oyster Pay-as-you-Go is accepted at all stations and on all routes. Additionally Chiltern and c2c accept Oyster on all their routes within London; One Railway (now National Express East Anglia)accepts Oyster on all services in the Hackney area; and London Midland accepts Oyster between London Euston and Watford Junction.

The roll out of Oyster to the remaining London stations depends on when the Train Operating Companies and TfL conclude the commercial agreements. TfL expects this to be in 2009.

Smartcards in London—Oyster and ITSO

46. A major dilemma is that the biggest smartcard system in the UK is not an ITSO system, but the London Oyster. Despite its success, Oyster cannot be developed into a national system. Oyster was developed before ITSO and they are currently incompatible.

47. An interoperability study is underway, funded by the Government, to assess the feasibility of adding ITSO readers to the Oyster system. It was suggested to us by TranSys that it would be possible to produce a single card containing both types of chip, but the arrangements required to support both systems would be complex. There are also potential problems with the longer time it takes to read and write to an ITSO card compared to Oyster. Although measured in milliseconds, the difference can be critical at busy stations or on buses in London.

48. Given London's status as the most heavily used public transport network in the UK, and its position as a major interchange point for National Rail journeys as well as several major airports, it would seem to be perverse if it were not compatible with the national smartcard standard. However, there are at least three major issues that need very careful consideration if compatibility is to be achieved.

a)  Firstly, doubts exist about value for money. According to TfL, to make London ITSO-compliant would cost in the region of £50 million,[48] yet demand to use ITSO products (as opposed to Oyster) on the London network is currently small and growth uncertain. Since most users of TfL services are London residents or regular commuters who already have an Oyster card it is not clear what problem is being solved.[49]

b)  Secondly, the complexity of the customer service arrangements could be formidable. For example, who would deal with a passenger who bought an ITSO-compliant smartcard in, say, Newcastle, took the train to London, and discovered that his ITSO-compliant smartcard did not work on the Underground?[50]

c)  Thirdly, as we have already noted, TfL has concerns about the processing speed of ITSO products compared with Oyster. This could result in a reduced capacity at peak hours and additional costs.[51] The problem is not merely the delay but also that a longer processing speed may result in more 'torn' transactions (i.e. those where the smartcard is not properly read by the reader and the passenger has to touch again or the transaction is simply not recorded). The Chair of ITSO described this as "a red herring", with ITSO's benchmark time of 0.6 seconds being perfectly adequate for use in London.[52]

49. Oyster is a proven large-scale system, used and trusted by millions of passengers. ITSO-compliant smartcards have shown themselves workable in smaller schemes but have yet to be tested on a large scale. The Government must not force ITSO onto the London Oyster system. It is imperative that any introduction of ITSO on the Oyster system be rigorously piloted to prevent any loss of operational efficiency or customer confidence in smartcards. Testing must include arrangements for supporting customers using ITSO products out-of-area. Given the uncertain level of demand for ITSO in London, the costs and benefits of the investment should also be robustly assessed. This must have regard to the need to avoid financially penalising TfL for having been at the vanguard of smartcard ticketing in the UK.

50. One of the clear lessons from Oyster is that, to make real progress, a strong customer or "systems integrator" is needed.[53] Some industry witnesses have suggested that the train operating companies, through the Rail Settlement Plan,[54] should take over ITSO as they have demonstrated their competence with running the Ticketing and Settlement Agreement. The Government's strategy of using ITSO as a way to promote integrated ticketing is a step in the right direction, but not enough. It is fine in theory but not producing results in practice. ITSO may be a useful technical specification but it is designed to facilitate integrated ticketing, rather than to make it happen. The Government needs also to articulate a clearer strategy for the development of integrated ticketing in general and smartcards in particular. The current laissez-faire approach is inadequate. The Government must listen carefully to the transport operators and the technology industry. The criticisms of ITSO need to be addressed and the Government must ensure it has adequate technical capacity to provide leadership in this area.

32   A related development is the contactless bank card, which can be used for low-value purchases in place of cash. Although Barclaycard already issue a card which combines Oyster, a credit card and a contactless payment, a contactless bank card could be used on its own for public transport, if the appropriate systems were installed. Back

33   Ev 159 Back

34   Ev 133 Back

35   Q 255 [Mr Verma] Back

36   Ev 125 Back

37   Ev 192 Back

38   Q 170 [Mr Jones] Back

39   Ev 85 Back

40   Ev 66 Back

41   Ev 68 Back

42   Qq 172-174 Back

43   Q 288 Back

44   Ev 65 Back

45   Although concessionary travel passes in Scotland have been ITSO-compliant for several years, the installation of smartcard machine readers on buses has taken longer than anticipated due to the need to conduct integrity testing on the ITSO equipment. Approximately 700 Stagecoach buses are now equipped.  Back

46   Ev 198 Back

47   Ev 65 Back

48   Q 310 but see also Ev 122 in which suggests that an ITSO-compliant smartcard could be used on the Oyster system without modifying existing gates and systems. Back

49   Ev 160 Back

50   Qq 255-256 Back

51   Q 264 Back

52   Ev 198 Back

53   Ev 126 Back

54   The Rail Settlement Plan is part of the Association of Train Operating Companies. It provides central retail support services to the UK train operating companies. This includes the distribution of fares and timetable data, the provision of other retail information to all National Rail retailers and the allocation and settlement of rail revenue to operators. Back

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