Statistics say mobile payments may soon replace credit cards and cash. Will government ride the mobile payment wave?
Mobile technology has changed how we work and play. Adoption rates grow each year as smartphones, tablets and other mobile devices are used to fetch directions, view weather information, peruse the news, and perform a wide range of other tasks. More and more, those tasks include financial transactions. Studies show that consumers have grown increasingly comfortable using mobile technologies to transfer money, purchase goods and engage in other types of financial dealings.
According to a study released in April by the Pew Research Center’s Internet and American Life Project and Elon University’s Imagining the Internet Center, swiping mobile phones could replace cash and credit cards both online and in stores within the next decade. The study reports that more than one-third of smartphone owners have already used their devices for online banking services like paying bills, checking a balance or making a payment.
In May, Gartner released a report predicting that worldwide mobile payment transaction values will surpass $171.5 billion in 2012, an increase of nearly 62 percent from 2011. The report also predicted that the number of mobile payment users will reach 212.2 million in 2012, up from 160.5 million in 2011.
That’s great news for the private sector, but what about government? International governments have adopted mobile payment capabilities much faster than the U.S. But things may be about to change. In May, President Barack Obama issued a memo titled Digital Government: Building a 21st Century Platform to Better Serve the American People. Among other things, the memo requires federal government agencies to make at least two public services available on mobile devices within 12 months. Some of those services may include mobile payments.
Meanwhile, the U.S. Consumer Financial Protection Bureau convened a panel in July to evaluate how government should regulate mobile payments, including transactions conducted via smartphones and other mobile devices. The panel agreed to reconsider how existing regulations apply to a mobile environment and develop rules to keep pace with the rising use of mobile payment systems. If new rules and regulations are adopted, government agencies may become more open to adopting mobile payment systems themselves.
Arkansas isn’t waiting around to see what happens. In 2010, it became the first state to offer secure mobile payment processing specifically for smartphone users of e-government services, according to CIO Claire Bailey. Today people can use their smartphones for three high-volume online government services: inmate trust account deposits; probation and parole supervision and restitution payments; and property tax payments.
According to Bailey, the decision to offer mobile payments was based on the growing popularity of mobile phones in the state. A Centers for Disease Control and Prevention study found that Arkansas has the highest concentration of cellphone-only households, at 35 percent. Nationally that number is 27 percent.
“Statistics show Arkansans are bigger users of cellphones and smartphones, and that they are increasingly using them for Internet access, conducting personal business and making payments,” Bailey said. “When we saw that data, we wanted to make sure we used it strategically, so we came up with a plan to aggressively introduce new mobile-friendly online services that would work on a range of smartphone operating platforms. It was important that we offer not just mobile information and apps, but payments as well. This is a consumer-driven game changer for services in our state.”
Bailey said the state’s early adoption of mobile payments can be attributed, at least partly, to its approach to information technology. The Information Network of Arkansas is a board-led, public-private collaboration between the state and the Arkansas Information Consortium, a subsidiary of e-government firm NIC. Part of the Information Network of Arkansas’ mission is to help state government entities Web-enable information services. And because the state had already set up a secure back-end payment system for use with its new portal, enabling mobile payments was fairly smooth.
“The fact that we did so much work on our portal made it easier to move to mobile apps and payments,” Bailey said. “Then it was just a matter of which service to implement first.”
Thus far, the most utilized mobile payment system is the inmate deposit service, which allows friends and family to make secure deposits to an inmate’s Department of Correction-managed trust or prepaid phone account in real time. Meanwhile, the Probation and Parole Supervision and Restitution Payments system makes payment of monthly supervision, drug court or restitution fees quick and easy for offenders supervised by the Department of Community Correction. Finally, the Pulaski County property tax payments system permits users in Arkansas’ largest county to pay personal property and real estate taxes via mobile devices.
Statistics indicate that the number of mobile payments for e-government services made in the state has doubled each year since 2010. “We see this as a growing model in government,” Bailey said, “and we are encouraging agencies to move to the mobile device and payment environment as a way to increase efficiencies.”
Bailey said there has been little resistance from agencies so far. Rare objections most often involve the fee structure. Because Arkansas uses a self-funded model to offer mobile payments, a small fee is passed to end users. “Some agencies don’t want to pass the fee on to their constituents,” she said. “But we work hard to ensure we are supplying the most cost-effective service, that we negotiate reasonable fees and high security, and that the fees we collect are put to good use.”
Bailey said the state is already looking into other ways to use mobile apps and payments, including mobile restaurant, cosmetology and school bus inspections.
Cities may have an easier time moving to mobile payment systems than states or the federal government. Several innovative companies have developed mobile services that let cities improve efficiencies, as well as offer convenience to residents and visitors, often with little or no IT implementation or cost to the city.
In October 2011, Houston deployed a service from Parkmobile USA that allows the city’s residents, workers and visitors to pay for parking at all of its approximately 7,000 on-street metered spaces using cellphones. Drivers sign up for the service online, complete a free one-time registration, and use a mobile app, the Internet or a phone call to make their payment.
“The system gives residents more options,” said Maria Irshad, deputy assistant director of Houston’s Parking Management Division. “Citizens don’t have to go near a meter if they don’t want to.”
Irshad said the system has improved efficiency in the city by reducing the amount of cash city employees must handle and count each day. The bills and coins used to feed meters could previously add up to $40,000 or more per day. “There is less risk involved when you don’t have to handle and count such a large sum each day, and it saves us a great deal of time,” she said. “We are finding that once someone tries it, they tend to continue to use it. The parker doesn’t have to worry about finding coins to feed the meter. They also get a text when the meter is about to run out of time. They can then add more time using their phone and avoid getting a ticket without having to leave their meeting.”
Houston took the concept even further by integrating it with a parking permit and enforcement management solution from T2 Systems Inc., which the city implemented in 2009. The Parkmobile system is therefore fully integrated into the handheld devices the city’s parking enforcement staff use. All transactions initiated by phone are communicated in real time to enforcement officers, enabling them to see that a parker has paid by phone. The integration also lets officers move more easily from the information provided in Parkmobile’s pay-by-phone application to citation issuance. All lookups populate directly into the T2 handheld application, reducing errors and improving the efficiency of the city’s enforcement officers, according to T2 Systems.
In addition to improving efficiency and lowering the operational maintenance costs, the system may help the city generate additional revenue. “Cities that use the system tend to see higher average payments, though we haven’t quite figured out why,” said Tim Maginn, chief operating officer of T2 Systems. “We are guessing that when a citizen gets a text that says they need to re-up, they do so. The traditional model might see the citizen’s meter just expire and enforcement not arrive in time to issue them a ticket.”
T2 Systems and Parkmobile set up the system for Houston and required no upfront payment from the city. Parkmobile collects a 35-cent convenience fee from users to fund the system.
“It was very easy for us — we just had to make sure Parkmobile had the right data on our meters,” said Irshad. “We love it when vendors work together to bring us a solution and we don’t have to spend time figuring out how to make it work.”
The system also offers back-end reporting that can help a city evaluate parking patterns and usage. “They can see what the turnover rate is on spaces, what time of day an area gets the most traffic, etc.,” Maginn said. “It can also improve enforcement. If there is a violation, an enforcement officer can be pinged on their handheld and can go directly to the vehicle in violation rather than wandering down the street looking for violations. It improves compliance, allows officers to make better use of their time, and could potentially reduce the number of officers needed.”
Irshad said the adoption rate for the service has been growing each month, and the city is continuing to look at opportunities to employ additional mobile apps and payments in the future. “For many people, their phone has become their life and their mobile wallet,” she said. “Cities and governments overall need to be looking at mobile payments seriously to increase customer service and do things more efficiently and effectively.”
Oakland, Calif., implemented a similar system from Parkmobile in May 2012. There, customers can not only pay for parking with their smartphones from anywhere in the city, but can also can pay with cellphones equipped with near field communication (NFC) by waving or tapping their phone on any of Parkmobile’s NFC-enabled stickers.
The program is offered at all on-street parking meters in Oakland.
“Motorists can now pay for parking at a meter by utilizing their cellphone and seamlessly buying time to park at a metered space,” said Noel Pinto, director of Oakland’s Parking Operations. “No more digging for coins, no more frustrations and no more stress. Parking in Oakland is no longer an adventure, but rather as easy as parking at a meter, making a phone call and walking away.”
Other cities are implementing mobile payment apps to manage taxi services. Hailo is a UK-based company that soon will offer U.S. residents the ability to download an app to request rides from taxi drivers and pay them automatically by credit card.
Jay Bregman, founder and CEO of Hailo, said he launched the company a year and a half ago because he recognized that the transportation industry was “fundamentally inefficient.”
“Taxi drivers commonly have 30 to 50 percent downtime,” Bregman said. “Every day in major cities around the world, people waste millions of hours hunting for taxis, and drivers leave tens of millions of dollars on the table due to inefficiency in the market. We created Hailo as both a toolkit and network for drivers to improve their efficiency and profitability, and as a consumer convenience application.”
The toolkit portion of the application is designed to give taxi drivers a way to connect with one another and to help make shifts more profitable and efficient. Meanwhile, the consumer application uses GPS to allow users to see the real-time location of the closest cabbies, including how many minutes away they are. The user can then beckon the closest one, pay for the service using a preauthorized credit card, and be emailed a receipt.
Hailo launched in London in August 2011. By the end of this year it will launch in several large U.S. cities, including Chicago and Boston. Like the Parkmobile system used in Houston and Oakland, Hailo requires little effort from the city in which it has launched, and it costs nothing. Instead, taxi drivers and consumers sign up for the service independently.
“We do engage with city government and try to understand what their needs are,” Bregman said. “But other than that, it doesn’t require much city involvement because it’s a market-based solution.”
So, at least for cities, mobile apps and payments may be just a matter of letting technology take its course. “Mobile technology is inevitable and can truly enhance urban life,” said Bregman. “But cities may want to let the marketplace decide what solution is best rather than try to invent these things themselves. Instead of going through a lengthy RFP process, a city can let capitalism do its work. I believe that’s the best way to maximize the value of new technology in their respective markets.”