Select Committee on Transport Written Evidence


Memorandum from Transport for London (TPT 29)

1.  SUMMARY

  1.1  The Oyster smartcard has provided substantial benefits to passengers on all TfL modes since it was introduced in 2002. Passengers can move faster around the city. TfL's losses from fraud have been reduced. And it has been the foundation for a transformation in TfL's relationship with its regular customers. But it is important to recognise that Oyster may no longer represent a state-of-the-art smartcard system, as developments in related industries open up attractive alternative models.

  1.2  TfL actively tackles fare evasion through the provision of dedicated revenue protection teams and believes that these teams generate net revenue. But it is still not satisfied with the rigour applied to revenue protection especially on buses. Further steps can be taken to make the law in this area more relevant to modern technologies.

2.  INTRODUCTION

  2.1  TfL welcomes the opportunity to respond to the Committee's inquiry into Ticketing on Public Transport. With four year's worth of experience in running the Oyster smartcard system alongside its older paper ticket system, TfL feels it has useful perspectives to offer on the subjects of smartcard technologies and revenue protection. TfL has also contributed to a separate submission by the Mayor of London that focuses on integrated ticketing and concessionary travel.

  2.2  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. But that is only the start. 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. They can also register their possession of a given Oyster card with TfL and thereby access an improved range of customer services and benefits. There is no interest within TfL in returning to paper tickets.

  2.3  The Transport Policing & Enforcement Directorate's (TPED's) Bus Enforcement section is responsible for operational and procedural bus enforcement, including managing TfL's approximately 295 Revenue Protection Inspectors[29] (RPIs), ticketing and policy input on revenue, and investigation and prosecution delivery for Surface Transport. Public transport providers have a duty to ensure that public and private monies are protected and paying customers are supported through effective revenue protection and prosecution activities.

  2.4  The pattern and methods of fare evasion have changed to adapt to new technology and ticketing requirements, particularly in the last two years. Fare evasion has also increased on the bus network over the same period. This has been driven by operational and ticketing changes which reinforce the need for appropriate legislation and effective sanctions delivery. Fare evaders are often involved in other forms of crime. Effective fare evasion detection provides judicial access to these offenders.

3.  THE USE OF SMARTCARD TECHNOLOGIES

  3.1  The Oyster contactless smartcard was launched by TfL in 2002 and since then has grown to be the largest transport smartcard scheme in the United Kingdom. To date, more than 11 million cards have been issued to TfL customers, and they use their cards for almost 7 million journeys on TfL and train operating company services every day. 82% of journeys on TfL services are now made using Oyster. But such a scheme does not come cheap: TfL pays its PFI contractor substantial service charges to provide and operate the Oyster system. There are broadly three lessons from London's experience with Oyster.

  3.2  First, Oyster has allowed passengers to move significantly faster around the city by reducing queues both for ticket purchase at ticket offices and retail outlets and for London Underground gate-lines and bus entrances (maximum throughput for gates was increased from 15 passengers per minute to 40 on the introduction of Oyster). In addition, at certain highly-congested Underground stations such as Bank, the reduction in congestion achieved with Oyster has meant that passenger volume growth has been accommodated without the need for sizable capital investment in expanding ticket halls. Oyster has also delivered real financial benefits by preventing and eliminating several types of fraud, such as the re-sale of discarded one-day tickets by touts which so blighted the environment of so many Underground stations in the 1990s and also the use of forged paper tickets. Other operators elsewhere in the UK may well be able to replicate the benefits from fraud reduction, but the non-financial passenger benefits and capital investment avoidance benefits may be harder to replicate except for operators in those urban centres where peak passenger flows result in queuing and over-crowding at levels similar to London.

  3.3  The second main lesson has been that smartcards can be the foundation for the transformation of transport operators' relationships with their customers. More than 1m Oyster card users have chosen to register their card details with TfL and constantly re-use a single registered Oyster card for their travel. Where the necessary customer consent has been given, TfL can proactively warn these customers by email or text message several days beforehand that the service that they normally use will not be available and suggest alternatives. Another benefit is the free replacement of products if a card is lost: where a customer has registered a card number with TfL, its number can be "hot-listed" if lost so that the card cannot be reused on the system. A new card with duplicate products is issued to the customer.

  3.4  The final lesson concerns the implementation challenge of a smartcard ticketing scheme. Oyster is a huge, complex system. To put it into context, where MasterCard processes about 40m payments every day worldwide, the Oyster system processes more than 10 million individual "taps" each day—it is at a comparable scale. Building, testing and commissioning such a system is detailed, demanding work and must be tackled in a step-by-step fashion with each incremental development to the scheme released one at a time after thorough testing and assurance. This is not just a consequence of the project complexity: account also needs to be taken of the pace at which customers can assimilate changes to the ticketing system. Smartcards change the fundamentals of ticketing systems and time must be allowed for customers to digest these changes and adapt to them.

  3.5  It rather misrepresents the situation to refer in the Committee's terms of reference for this inquiry to "the ITSO system". There is no single ITSO system. There is a technical specification, a number of suppliers of equipment that comply with this specification, and a number of distinct smartcard schemes that use this equipment. It is not entirely clear that this set of entities makes up a system in the fullest sense of the word.

  3.6  Because the PFI contract for the Oyster system was made in 1998, it pre-dates the establishment of the Integrated Transport Smartcard Organisation (ITSO) and the publication of the various parts of the ITSO specification. As a consequence, TfL has never formally analysed the ITSO specification nor compared it against Oyster. At no stage in the first nine years of the PFI contract could the benefits of ITSO conceivably have offset the financial penalties of terminating the contract early.

  3.7  At the DfT's request, an exercise is underway in which the PFI contractor is assessing what would be required to transform the Oyster smartcard system so that the various smartcard readers within it could also read and write to cards compliant with the ITSO specification. TfL believes that investment in such an upgrade project would be rather wasteful. The vast majority of TfL's customers are residents or regular commuters who already have an Oyster card. Visitors can get one from TfL in person or by post at any address in the UK or through Visit Britain's arrangements overseas. The beneficiaries of such an investment programme would be people travelling to or through London on an ITSO-compliant smartcard carrying travel products valid within London but purchased outside London. At present, there is no transport smartcard scheme in the UK that has these characteristics (although South West Trains has obligations to provide such a system from 2009). It is not clear what problem is to be solved through the investment of tens of millions of pounds in an upgrade that will benefit a small number of travellers who already have straightforward access to the benefits of smartcard ticketing in London with Oyster.

  3.8  This is proving to be a fertile period in the history of the smartcard technology industry. The past 12 months have seen a noticeable acceleration of technology trends in the industry that make assumptions made even as recently as 2004 seem dated. Prior to that date, the requirements of the public transportation industry were too demanding for the mainstream smartcard industry to meet. That industry focused on providing smartcards to the banking payments and mobile phone industries in the form of very secure cryptographic products for consumers using contact interfaces—the Chip & PIN cards in peoples' wallets or purses and the SIM card in their mobile phone handsets. The demands of the public transportation industry were very different. The very fast transaction speeds that they demanded to achieve high passenger throughputs made the use of contact smartcards infeasible, so the main producers ignored the transport sub-market and allowed a set of niche transport smartcard providers to appear. These providers thrived to varying degrees and their successes prompted some further entrants to compete, such as ITSO. For transport operators the market seemed relatively under-served and competition was difficult to create.

  3.9  That situation has recently changed dramatically. Some banks, notably in the United States, have decided to offer contactless payment functionality on their bank cards in the hope that in certain contexts customers will prefer to make a "tap and go" card purchase—without the need for a PIN—than to fumble with cash and change. This has been made possible by the steady improvement in the speed and power of the microprocessors embedded in the industry's standard smartcards which allows the whole interaction between card and reader to be compressed into less than a second. Already some transport operators have adopted this technology for their operations, albeit on a pilot basis, in Taiwan and New York City where on certain routes passengers can tap their bank cards to board buses or to pass through the subway gates. There is also a lot of activity in the mobile phone industry around a technology called Near Field Communications (NFC) which allows a suitably-adapted mobile phone handset to emulate a contactless smartcard. In Tokyo, Japan Rail East launched a commercial product of this type last year called Mobile Suica that allows customers to buy travel tickets using their mobile phone that are delivered in electronic form "over the air", and then use the handset as a smartcard to tap-in and tap-out of the transport system.

  3.10  What conclusions can be drawn from all this activity? Broadly, it seems as though the mainstream smartcard industry is close to reaching the point at which its standard payments and mobile telephony products can for the first time meet the needs of transport operators. Bank cards and mobile phone handsets that use open or widely-adopted industry standards and that can interact sufficiently fast with contactless smartcard readers will be available in only a handful of years time. Prices for contactless cards, readers and associated services are likely to fall. For transport operators, these changes should open up real opportunities to weave contactless smartcard technologies into their ticketing systems at prices that were unattainable even 3-4 years ago. Doing so may require them to learn to partner with large organisations in industries that are currently unfamiliar to them.

4.  REVENUE PROTECTION AND THE POWERS OF TICKET INSPECTORS

  4.1  Current legislation needs updating to take technological developments into account. It also needs a degree of flexibility to ensure relevance to future developments. The legislation governing the modes and their application varies greatly across the country. London Underground prosecute under Section 5 of the Regulation of Railways Act 1889 and also under byelaws made pursuant to section 67 of the Transport Act 1962 or schedule 11 of that Act. Bus Operators primarily prosecute under section 25 of the Public Passenger Vehicles Act 1981 and the related the Public Service Vehicles (Conduct of Drivers, Inspectors, Conductors and Passengers) Regulations 1990. In London penalty fares can be imposed instead of prosecutions under Schedule 17 to the Greater London Authority Act (1999) for both bus and rail modes. Bus operators apply the current legislation differently, varying from a standard fare being charged for fare evasion through to penalty fares and prosecutions. The current legal framework does not have set transport-industry wide criteria for proving fare evasion. On London's bus network, not having a valid travel product represents adequate proof of fare evasion as PSV legislation does not require the burden of intent to be proven. London Underground, however, does have to prove a passenger intended to evade their fare in order to successfully prosecute. These anomalies allow fare evaders to abuse the ticketing requirements and can lead to genuine customer confusion. Amendments to Schedule 17 of the Greater London Authority Act contained in the Transport for London Bill are currently progressing through Parliament to ensure its ongoing relevance to current operations and improve deterrence. Amendments to the Public Service Vehicle Regulations have been suggested to the Department for Transport.

  4.2  A three-stage penalty fare appeal process is in place within TfL for the Underground and buses. The first stage is administered by the issuing mode; second stages are heard by TfL Bus Enforcement's Investigation and Prosecution Section and the third stage is heard by the Independent Penalty Fare Appeals Panel. This panel was established in 2005 and consists of members nominated by London TravelWatch and agreed by TfL. It meets every six to eight weeks to consider appeals which have passed through the first and second stages of the appeals process. TfL currently believes that the appeal mechanisms in place (which have been agreed with London TravelWatch) are wholly adequate and robust. The appeals process also incorporates appeals against the withdrawal of youth and full time education concessionary travel.

  4.3  Current legislation places restrictions on revenue protection personnel. For example, personnel are required to interact with the alleged fare evader only on the vehicle on which the alleged offence has occurred, thereby potentially disrupting the bus service. They are also unable to charge an alleged fare evader with obstruction where they fail to provide correct details. As part of the name and address verification process, the right to obtain additional information, such as a date of birth, would reduce the significant number of evaders who manipulate the system and persistently evade payment. This hopefully will shortly be subject to change with the powers proposed within the TfL Bill. Passengers rights are maintained through, for example, the right to view official's photographic and authority identification, the Data Protection Act (1998), appeal rights and the Police and Criminal Evidence Act (1984).

  4.4  There is nationwide scope for improvement in the measures used by the public transport industry to protect fares revenue. The costs of revenue protection can, however, appear commercially prohibitive. In London, appearances are deceptive: TfL business case evaluation indicates a positive 2:1 cost benefit ratio ie the costs of providing a revenue protection function is outweighed by the benefits of prevented revenue loss. Revenue protection measures adopted in London include the complete gating of all London Underground stations and the provision of full-time revenue protection teams on the Underground and buses. But on buses drivers are the main point of control in protecting fares revenue. Current levels of driver ticket checking in London are unacceptably low. Increasingly, fares are paid via pre-purchased ticketing products which require accurate driver checking of ticket and pass validity rather than on-bus cash transactions. Operators need to be supported by the judicial processes which adequately consider financial impact assessments. This is enacted in London through the use of five regional courts resulting in the successful prosecution of around 3000 bus network fare evasion cases a month.

5.  CONCLUSION

  5.1  TfL's experience of Oyster suggests that contactless smartcards are the best way to handle ticketing in highly-congested urban centres like London. And encouragingly, the smartcard industry will soon be able to offer transport operators a range of contactless technologies derived from the payments and mobile phone industries that will be much cheaper than the transport-specific technologies that have been available to date.

  5.2  TfL is firmly of the view that proactive revenue protection is a value-creating activity, but is concerned that it has yet to achieve the levels of performance in this area to which it aspires. TfL requires support in its work to control the revenue lost to bus network fare evasion and fraud annually. Further legal rights would allow RPIs to better tackle to this issue to allow significantly increased revenue for reinvestment in London's public transport network. There are some characteristics of the legislation surrounding revenue protection that require updating and which currently mitigate against the most effective revenue protection at present. TfL would encourage the Committee to consider how these might be re-visited and made wholly relevant to both recent technological developments and varied operational requirements. Public transport service providers have a duty to ensure that public and private monies are protected and paying customers supported through effective revenue protection and prosecution activities. A consistent approach to the detection and deterrence of fare evasion and fraud by national operators together with a consistent approach by the judicial services is needed to adequately address these errant behaviours.

March 2007






29   The main aims of RPIs are to:
- Detect and minimise fare evasion on the London bus network.
- Develop and effectively use technology to ensure effective resource targeting and data analysis.
- Provide a visible, uniformed presence to deter fare evasion and other criminal behaviour.
- Provide staff and passenger safety and security reassurance and to assist and guide as needed. 
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