To get 'smart,' cities foster digital payments
As much as any new trend in 2018, the advancement of the Smart Cities concept will have a lasting effect on payments.
In the past five years, discussions about Smart Cities, the Internet of Things, connected devices and digital payments have all been intertwined in some fashion. And it is becoming clear that one can't advance too far without the others.
The ultimate goal of a "cashless" city — or even country — is at the foundation of the governments' and technology providers' desire to develop a more digital world. Rather than the patchwork system of mailing checks and paying fees in person for utilities, schools and taxes, a smart city could handle all of those tasks digitally through a single hub.
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."
Still, as government-sponsored initiatives, Smart Cities won't happen quickly.
"Government entities do not move fast because representatives talk about a lot of stuff before anything happens," Oglesby said. "From that standpoint, this is not going to be an easy task."
But the incentives are there to do something. And 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, a payments consulting firm based in San Carlos, Calif. "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."
A perfect example is what started 25 years ago with paying highway tolls through radio frequency devices, Crone said. "But now computer vision and interpretive video has gotten so advanced, we don't really need RFID devices in our cars," he added.
It all ties in with having embedded payments in transportation services within a city, where all of the payments for any municipal service goes through one account, Crone said.
In that environment, the concept of Smart Cities is also creating a new generation of payments providers, some addressing specific needs in helping cities make and collect payments for everything from utilities, to transportation, taxes and fines.
It also speaks to the truth about connected devices — that if digital payments will play a key role in advancing smart cities, they will have to become part of the other technology in place, namely sensors and video cameras. All of this technology comes into play for monitoring utility use, infrastructure maintenance, parking and public transportation, monitoring crime and gathering important data.
Sensors are a key reason that location-based services on smartphones will be critical to smart city development.
"It's the sensor that can detect proximity, and it knows who the consumer is and what apps that consumer may have on the mobile phone," Steven Loving, vice president of sales for ThingLogix, said at a recent Internet of Things conference in Chicago. "This is the same technology that will work in so many other facets of Internet of Things developments, and it's an absolutely huge market."
Many cities have hundreds, if not thousands, of video cameras in place for security purposes, and that sort of technology may come into play for payments identification as well.
"Cameras, when combined for effective computing, facial recognition and other interpretive capabilities, would provide the data that would allow cities and merchants to offer promotions or reminders about payments," Crone said.
It would come into play far beyond transportation services, Crone added. "It would be for parks, museums, sports and music venues, and it would be mobile payments with facial recognition."
All sorts of payments services could thrive in a Smart Cities environment, especially those on social platforms such as Venmo, Messenger and others, Crone said.
In that regard, what will play out in Smart Cities development through 2018 and beyond may simply reflect what is happening in the overall payments ecosystem.
"Mastercard and Visa will be pushing their NFC solutions, but there is going to be a lot of different use cases and a lot of different ways that digital payments can work out," said AZ Payments' Oglesby. "It's really a subset of what we are doing in the greater digital environment."