The Smart Cities Playbook

The concept of creating “smart cities” has really developed into somewhat of a buzzword in the industry today. While the idea of transforming the urban hubs we know today into smarter, better and more inclusive places to live sounds great, the work to make that transformation a reality isn’t so simple.

Research shows that cities, and the number of people flocking to them everyday, are growing at an exponential rate that current designs and infrastructures simply cannot effectively support. The concept of smarter cities may not just be a nice idea, with such an increase in growth, it may become a necessity for both developed and emerging countries.

“We all know that more than half of the people in the world [3.5 billion] live in cities, and that number is going to increase to 70 percent over the next 40 years. There isn’t a city in the world that is going to deal with that level of explosive growth in its infrastructure, in anything,” Hany Fam, President of MasterCard Enterprise Partnerships, explained.

Fam pointed out that urban transportation costs alone in most larger cities across the globe are costing nearly 15 percent of the face value of fares just to support the system and collect fares in the first place.

MasterCard’s approach to building smart cities that deliver value focuses on three things: embedding digital payments directly into a city’s DNA, reducing the overall reliance on cash to make environments both safer and more inclusive and sustaining growth through the power of data.

MAKING URBAN MOBILITY SMARTER

The threefold approach to developing and sustaining smart cities globally starts with a foundation that directly impacts profits and losses. Fam describes this as the bottom layer of a pyramid, setting the foundation for costs savings through open-loop acceptance of contactless cards. The architecture allows a transit system to move away from maintaining proprietary hardware and instead spreads that cost more broadly across the whole payment network.

The best (and most significant) place to start seeing this impact? Public transportation.

The infrastructure surrounding how people move throughout a city is critical, and having the ability to cut the 15 percent that cities typically spend in just collecting fares for pubic transport in half is what Fam says MasterCard can deliver.

“That cuts through the crowd of smart city noise right off the bat because we take a very quantitative and disciplined approach,” he added.

The idea is to essentially support a customer as they move throughout the city — no matter the mode of transportation they choose. Fam describes it as truly end-to-end support, including payments and providing technology that is intuitive enough to know what kind of payment environment a consumer is in and what payment method is needed to get them from point A to point B.

If a customer is on a train that calls for the ticket to be purchased via a QR code, then the technology will serve one up on the screen, and when they hop on a bus that accepts contactless payments, the technology will just as quickly turn on the device antenna and provision a token for the payment.

GETTING EVERYONE ON BOARD

“That’s the consumer proposition: to get you from A to B without friction and without the hassle of having to buy multiple tickets,” Fam said.

This second layer in the pyramid, which centers around consumers’ experiences and ensuring they are enrolling in the environment, also focuses on ensuring mobility is as efficient as possible.

The approach not only leverages the MasterCard Digital Enablement Service (MDES) and tokenization but also location services in a way that acts as a predictor for fraud or false positive fraud, which today happens very extensively.

By integrating with strategic partners that specialize in the technologies surrounding specific modes and aspects of transportation, such as Cubic Systems (automated fare collection), Masabi (mobile ticketing) and Parkeon (on-street smart parking technology), MasterCard is able to utilize location services to know what kind of intelligent token to serve up when, based on the transportation choices made.

Fam identified the top piece of the smart cities pyramid as the “holy grail for cities” — the balance sheet.

This is where the power of data is used, through active demand management, to drill down to the individual commuter level and provide incentives or motivations that can actually drive value for the city.

“We’ve done research that shows if you can nudge 5 to 10 percent off the peak times of travel, at the end of the day and the beginning of the day, through individual interventions, it has the affect of pushing the city’s capital expenditure curve out by two years,” Fam explained.

What he describes as a two-year nudge can actually end up saving big cities, like London, New York and Paris, roughly $150 million a year in interest savings.

By understanding the commuter and how they travel, the environment can provide guidance that falls in line with reducing the number of riders that use public transportation during peak hours. For example, by letting a rider know the difference between taking an earlier or later train than they normally would, that could mean they have a seat to themselves or can redeem an offer for a free cup of coffee at a nearby coffee shop.

“Our expectation is that, by nudging that traffic to those partners around the transit hubs, that they will see a benefit from that and will provide the cup of coffee or whatever it is,” Fam stated, adding that “everybody wins in this.”

BUILDING A FUTURE FOR SMART CITIES

The same structure and approach MasterCard is using to change urban mobility will also be used, through the open architecture platform, to address other aspects of city living, such as energy management.

This repeatable architecture sets the stage for creating what Fam calls the “playbook for smart cities globally,” which will allow cities to systematically work through those areas like transportation that weigh heavily on the infrastructure and budget.

As MPD CEO Karen Webster pointed out, having the network infrastructure to support this type of model can take use cases in a variety of directions — delivering a change to something like transportation that is both impactful but also can be done at scale.

“What we talked about today makes the case, cut and dry, for persistent authentication — i.e., you are who you say you are all the time and that can be verified in real time. That’s critical to fulfilling these types of promises of a global application that adapts and morphs and goes with you,” Fam explained.

“We can do that today with partners and technology, but the thing that will take such an open concept the last mile is persistent authentication and permissions. Our belief is that the registries of those two things will inevitably be in the cloud, be ubiquitous and will be accessed, or tokens of those things will be accessed, by parties with the right permissions.”