As city governments seek out new payments technology, they may show less interest in standalone products.
More municipalities will become "smart cities" with payments systems fitting into a larger digital ecosystem, says Jesse Berst, chairman of the Washington, D.C.-based Smart Cities Council.
"The days are numbered in which cities want siloed, isolated functions," Berst says. "The real magic happens for cities when sharing data between these applications."
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 two-year-old council includes Cisco, General Electric, IBM, Microsoft, MasterCard and various energy specialists among its members, Berst says.
The council last week released its readiness guide, a document designed to introduce cities to the "smart" concept and provide a roadmap to help them convert to new technology.
"Cities are gradually waking up to the fact that these individual point solutions are not the way to go," Berst says. Isolated "islands of innovation" occur when a department manager gets a small budget and a good idea, but builds a system that doesn't share data easily with other systems, Berst adds.
"It's redundant and he's buying duplicate software licenses and establishing duplicate communications networks, and not taking advantage of the cloud," Berst says.
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.
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.
"Toronto saved $2 million a year by switching from cash and checks to debit cards for their social benefits payments," Berst says. "Those people get their money a lot faster and spend it at merchant locations in the city."
The council introduces a meaningful concept that can make a city operate its own services more efficiently, says industry analyst Russ Schoper of Atlanta-based Business Development International Inc.
"A lot of cities are very archaic about how they accept and make payments," Schoper says.
Smart technology would allow a city to control vendor relationships for issuing licenses and accepting payments during a city festival, Schoper says. "The city could partner with someone to offer a solution and that could help generate income in fees," he adds.
When merchants are tied into a smart payments system within a city, they can help the city monitor who is purchasing what and where. Ultimately, a city can help its merchants with promotions or special events to target shoppers by region.
The same type of concept can work citywide, Berst says, through what he calls the "ATM phenomenon."
"It costs a bank far less to fulfill a transaction with an ATM instead of a human, and the same can hold true with digital government services from making or accepting payments to the city or getting a new license for a restaurant," Berst says.
Such a futuristic approach to city systems can improve the speed and security of payments, Berst adds.
Consumers increasingly want to avoid "carrying 14 payment cards in their wallets," Berst says. Smart cities move merchants toward accepting mobile and contactless payments, while introducing a single debit card that works for transportation systems and merchants. Hong Kong's Octopus and Chicago's Ventra fare cards double as open payment cards.
BDI's Schoper points to global events as the perfect example of what businesses leading the smart technology sector are creating.
"Cities that host Olympic games with Visa develop a smart technology for payments and other services," Schoper says. "I think that is a part of the genesis of this smart cities concept, and it all takes payments another step further."
The Smart Cities Council advises the adoption of cloud-based security as part of this transition.
"Some smaller cities are not equipped to protect data properly and have limits on what they can do on their own," Berst says. As such, those cities depend on every city department to individually figure out cyber security.
"One of our founding principles is for cities to establish citywide security and privacy policies because you want those designed by experts, not the police department IT guy or a part-time guy hired by the water department," Berst says.
Members of the Smart Cities Council offer needed security services in the cloud, charging a monthly fee to have experts monitor the system remotely, Berst says.