In 'smart cities,' consumer data replaces money
As the concept of "smart cities" — urban settings undergoing a digital transformation through "internet of things" technology and connected platforms — evolves, so too will the concept of making a payment.
This is especially relevant to trains, subways and taxis — and to competing systems from Uber and Lyft. Passengers in many of these environments are already subjected to advertising in some form; as technology advances, those ads will become interactive and transactional.
But those transactions won't always involve money changing hands.
The data economy
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 this week's 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.
"Because I have given that information, there was no money involved," Quandt added. "You are bartering information, and that is the interesting place where [internet of things] and payments is going."
With internet of things data in hand, companies will be more focused on the value of the information that data will produce.
A citywide initiative
When discussions about smart cities began in earnest six years ago, the starting point was how a city could transform into a digital ecosystem by sharing data — from eliminating cash payments to more closely monitoring surveillance cameras and upgrading transportation systems.
Various companies have sprouted with these goals in mind, finding ways for cities to more efficiently pay their bills and for consumers to pay for their city services through digital platforms.
Cities can also play a role in the Federal Reserve's initiative to deliver a faster payments system in the U.S.
"The comptroller's office in a city government functions essentially the same way as a bank, with the same regulations, so any innovations that the finance sector develops, the city as a payment processor would adopt those," said Brenna Berman, executive director of the City Tech Collaborative in Chicago. "They would have to adopt in the same time frame as any other payment processors because they are governed by all of the same protocols as everyone else."
The internet of things could, for example, make it easier for consumers to use multiple modes of transportation over the course of a day, Brennan said.
"A single payment mode for transportation would be important," she added. "To get from point A to point B in a city may mean using three different transportation systems across public, private and quasi-private modes."
Different factors may occur during a trip as well, with the person maybe taking other family members on a certain day, or skipping one transportation step.
"You want to process a credit card once to make that kind of trip," Berman said. "The technology has to be in place to take that payment once and distribute the revenue to the proper service provider entities."
That core technology exists today, but linking it to the analytics driving mobility as a service is "not there yet," she added. "But I think there will be a cross-fertilization between fintech and mobility that will make that happen."
Collaboration is the key
Smart cities development can't happen without numerous organizations, businesses and government entities collaborating on how to best turn ideas into reality.
"There has to be a greater openness to try to collaborate and establish an understanding that the artificial separations we have, whether geographical or otherwise, don't account for how we operate as communities or separate entities," said Bob Mazer, founder of Smart City Works, a Washington, D.C.-based company building and launching internet of things infrastructure startups.
A movement to think more regionally on these types of major projects is likely to unfold and break down some barriers, Mazer added. "The services are needed across an entire area, and there are a lot of common needs."
Like any other new technology, the promises of internet of things or faster payments makes some uneasy about what will happen to legacy systems and past operations. It's a natural part of the process of change, though one that takes time.
"Companies do anything they can to preserve the status quo, and technology does everything it can to disrupt the status quo," said Chuck Byers, senior technical leader for software engineering at Cisco. "Technology is going to win eventually because it brings efficiencies and value, and that is why people invest in it."