It’s undoubtedly the transport payment system of the moment – but is it too late for Australian transport cards to compete in the contactless payments arena?

In late 2016, the NSW Minister for Transport and Infrastructure, Andrew Constance, offered a glimpse of the evolution of government services in the 21st century. Announcing his plan in a meeting with business leaders, he explained that “the only road to success is putting the customer at the centre of the entire organisation”.

The NSW government’s transport card, Opal, is the means to drive this change. Transport for NSW is on a quest to extend this Opal smartcard to allow payments not only for Sydney’s buses, trains, trams and ferries but also for road tolls, taxi fares and private ride-sharing services. It’s framed as a boon to the state government but there’s one sticking point to Opal’s expansion: the rapid growth of contactless payment technology.

International innovators

Opal is arguably following two strong leaders in the space, London’s Oyster Card and Hong Kong’s groundbreaking Octopus card, which was introduced in 1997. Not only was the Octopus a train ticket, it also acted as a contactless prepaid payment card for use in retailers, particularly in outlets near transport hubs.

“Octopus was successful because, like with Opal, it has a captured market of public transport users who use their cards every day, so you automatically have a high transaction volume,” the Managing Director of industry specialist Payments Consulting Network, Mangala Martinus, says.

So while there’s a strong case to roll out the Opal card for payment of other government services such as tollways or as a payment option for merchants, is it entering the highly competitive field too late? Or could this slowness to market be a good thing?

The good news for NSW is that it’s well ahead of fellow smartcard states Queensland and Victoria. And as late adopters of contactless transport card technology, NSW’s system is better equipped to move to bankcard payments in the near future because the underlying technology is advancing at such a swift pace.

The trust factor

Along with technological leadership, becoming a payments provider could create a financial windfall for the NSW government as it would earn both merchant fees and interest on the pool of prepaid balances. “There are financial, branding, and convenience incentives for the government,” says Rob Livingstone, UTS fellow and principal of technology consultancy Livingstone Advisory.

Retailers will be attracted to a brand with a huge customer base, while the trust factor of an existing payment ecosystem with the backing of the state government will appeal to a niche segment of consumers, such as school students and others in the community who prefer the security of a prepaid card in the contactless environment, Martinus believes.

Has it missed the bus?

Somewhat counterintuitively, Constance also flagged a trial of contactless credit and debit cards in lieu of Opal cards at stations in 2017. “I’d question why they would invest in increased Opal functionality if they’re going down that other route,” says Martinus. “And then there’s mobile.”

As an example of potential take-up, Transport for London’s recent introduction of a contactless bankcard for public transport trips saw 180 million journeys in its first year out of about 1.3 billion journeys annually. Not only did bankcards capture considerable volume, revenue also increased because consumers simply appear to prefer the ease of using one less card. Meanwhile, Octopus has launched its own e-pay app to take on the growing mobile payments market.

And even if Opal does become its own payment system, it would be forced to deal with the problems that affect all payment companies. “The gorilla in the room is fraud, cybercrime and disputed transactions,” Livingstone says. “With a high volume of low-value transactions, fraud has the propensity to go under the radar.”
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