Cashless is king? The shifting landscape of ticketing

Adoption of cashless payment methods since the pandemic and the steady rollout of tap on, tap off means cash may no longer be king for bus

Contactless payment uptake increased for many bus operators in 2020 when passengers began following government advice to reduce cash handling. Pursuit of tap on, tap off (TOTO) and the replacement of smart cards with digital apps has also followed.

Enthusiasm for contactless has, however, plateaued and in some cases ebbed back among many passengers. With cash handling infrastructure still a significant expense, is it time to push harder for cashless transactions?

Staying inclusive

Before the pandemic, approximately 40% of Trentbarton’s transactions were completed with cash. Group Commercial Director Tom Morgan reveals the operator saw a sharp change in the early days of the pandemic when retailers pushed for cashless transactions.

“We saw a 10% switch within the first year of the pandemic,” he reveals. “That continued to grow, but has now stabilised. Cash dropped from 40% to between 25-30% of farebox revenue, almost entirely pushed into contactless, which pre-pandemic made up 30% of transactions but is now close to 45%.

”That covers both TOTO payments as well as single pay-as-you-go contactless charges. Trends show that monthly and weekly users continue to favour contactless to top up travel cards. The other major payment method for the operator is the Mango app, which during the pandemic moved from being a travel card to a mobile platform and which now accounts for the last 25-30% of fare paying journeys.

No significant change is expected to the operator’s cash-handling facilities in the immediate term, but Tom admits there would be a significant cost saving to get rid of cash acceptance – both in the cost of labour where cash collection and counting is concerned, and the capital infrastructure that goes with it.

“There’s a huge advantage to removing cash, but we just don’t think our customer base is anywhere near that position,” he says. The operator has made cost savings where it can – a reduction in the number of cash collections, for example, but it’s not possible to remove completely the labour and infrastructure, which accounts for most of the cost, while cash is still handled. That cost only increases as time goes by, and users are encouraged to go cashless – both for the convenience of faster boarding times and for the data that it provides Trentbarton.

“Because the volume is reducing, the transaction cost of cash is ever increasing,” Tom says. “And it will continue to do so while the total amount of cash we accept falls until the point we can get rid of it.

“We’re in that weird position where we know it’s reducing, therefore to continue accepting means the cost to us continues to increase, making it commercially less attractive the longer we accept it. That’s a real challenge for us.

”But there are obvious advantages to incentivising contactless transactions. TOTO provides strong commercial data, similar to what Trentbarton draws from the Mango app. Boarding times are reduced. Owing to its convenience, contactless continues to be the preference for many passengers that would otherwise benefit from the lower fare prices of Mango, delivering higher revenue per journey. “That helped us realise what we probably thought for a long time – that people are still driven by convenience over price,” adds Tom.

While Trentbarton has long tried to incentivise people to pay via other means, be it smart card or Mango, Tom acknowledges that it has never tried to penalise cash users. “We know some people just aren’t in a position to use an alternative,” he says. “We have a number of unbanked users and with the cost-of-living crisis, people value the budgeting ability of cash. It’s such a large part of our demographic.

”The danger, of course, is that cash users continue to fall until they account for a tiny percentage of farebox revenue. Will that still justify the expense of cash handling infrastructure? “If cash reached 5% of our total farebox and we still have all the infrastructure, it would be very expensive to retain,” Tom says. “At that point in time we will have to make some challenging decisions – but we are a long way from that.”

Part of a package

Strongest among its student travellers in the past, Go South Coast has seen an increase in contactless across all bus operations and highlights spikes on rural routes as a point of interest. Head of Marketing Nikki Honer suggests a closure of banks might mean cash isn’t as easily available for many passengers, and with the prevalence of contactless facilities on bank cards, the choice to go contactless is becoming easier. She reports that the contactless percentage of total on bus retail is averaging out at 60-65%, with that figure “significantly higher” on some routes. It has consequently seen a decline in cash transaction costs.

The operator rolled out TOTO between 2020 and 2021, which it calls the “next phase” of contactless – though TOTO is only part of a package of contactless solutions, and uptake has been stayed by some limitations. For example, TOTO cannot differentiate between child and adult tickets, family bundles, or accommodate return journeys – the latter being one of the biggest sellers for Go South Coast’s casual users and something the operator would eventually like TOTO to provide.

Takeup of TOTO therefore accounts for approximately 10% of transactions. Customer-facing apps on Go South Coast’s subsidiaries are meanwhile an area of large growth. Introduced with Passenger, they prove of particular interest through their ability to provide intelligent tools for users, such as live tracking and journey planning, but equally give the operator the chance to incentivise ticket purchases for period passes.

Nikki says half of all users are aware of the app and use it to some extent. But the operator is always trying to educate more to use it. “We’re very aware that some people aren’t perhaps as app savvy as others,” she says. “So we have events at travel shops or town centres to encourage people to see us if they need help and support – we download the app with them, set up their accounts, and help grow their confidence.”

Contactless also removes barriers. “A lot of people do not carry cash anymore and if they’re not a regular user and the bus comes along, they can now board,” she says. ”It’s our intention to reduce cash usage, but we also understand that we don’t want to exclude anyone from our services, so we will continue to have cash as a way to pay.”

Cashless inevitable?

When asked about the future of onboard transactions, First Bus Head of Revenue Martin Hirst says cashless feels “inevitable” – though the operator is conscious of not leaving any customers behind. “To go fully cashless it will require good alternatives,” he says. “For example, a strong network of machines to top up pre-paid cards.”

First has seen a “steady decline” in cash payments for a number of years, which according to Martin began with the introduction of its app-based tickets in 2014 and accelerated with the introduction of contactless and capping. It took measures to discourage cash during the pandemic which it maintained even coming out of COVID-19, stabilising at “just over 20% of First purchases” but the operator says that may change as people move back to cash to keep an eye on finances as the cost of living increases.

The entire First fleet is set to be fitted with tap out readers by March 2023, and Martin says First is committed to pursuing that path. A number of TOTO schemes have been available on its fleet for some time, and the most popular ones are those that have been around the longest and have allowed users to change habits. “Areas like Essex that border on the London system have the highest take-ups, probably due to the familiarity of tapping in London,” Martin says. “We have had an accelerated roll out of TOTO this year with relatively low take up in the early days.”

Teething issues have of course been around customers forgetting to tap off, or in understanding the way the charges build up or are displayed on bank statements. As with Go South Coast, a lack of account-based ticketing means only adult tickets can be provided. “Where people don’t tap off, they are charged the maximum fare which creates an increase in calls to our customer services,” says Martin. “But this reduces quite quickly after launch. We have also introduced the ability for customers to request a correction through our website to reduce the need for them to contact us.”

TOTO does, however, allow innovation. That includes agility in pricing, and the ability to move away from annual “always upwards” price changes towards what Martin calls a “granular, fairer system”. In Bridgend, First is about to trial TOTO where customers are charged based on distance. Customers will be able to benefit from discounts on further trips without having to pay up front. “We will also be able to charge people for their journey,” adds Martin. “For example, if they have to get two buses to get from A to B (via C) because of our network, we can charge them a journey price from A to B as if they make the journey in one go. This can help us make fares that charge people for the journeys they make, rather than how we make them travel. The system would also make it easier to charge different rates for peak and off-peak times or encourage travel at quieter times. The accurate boarding and alighting data is also hugely beneficial for network design.”

The result is that First is encouraging customers to use TOTO for ease and speed and, where the technology allows, the best value. “Technical limitations mean that we can’t replicate all on bus options just yet,” adds Martin, “but we’re nearly there. Price was the main factor we used to deliver significant adoption of the M-ticket app, and expect this will be the main, but not the only lever, to drive up adoption of TOTO.”

Dangers of digital transactions?

Contactless doesn’t come without its risks, as operator Ensignbus learned this year.

In July, Finance Manager Louise Pirie was running reports on the operator’s Littlepay system and saw several historic declined transactions. One passenger had travelled some 10 or 11 times with declined transactions on a single account. Declined cards are sent to a deny list, preventing multiple declined transactions, highlighting that something was wrong.

The customer in question had assigned a card to a digital wallet, bought their ticket, and removed the card again from the wallet before the system recognised what account the payment was assigned to.

The passenger then repeated the process – with the identity protected behind a new account number – to avoid the card being flagged on a deny list.

In the subsequent investigation Ensignbus took advantage of issuer liability, where card transactions under £10 fall liable to the card’s issuing bank. Most UK banks are part of the scheme.

It means that monthly tickets can only be paid with cash and that weekly tickets now must be paid in two transactions. But Louise says most passengers have been understanding. The move has drastically reduced outstanding transactions and highlights the need for operators to be vigilant with technology.