Smart cities: How finance can transform urban living

Today, approximately 50% of the world’s population lives in an urban setting. This figure is set to increase to 70% in 2050. As a monument to modern living and community, it’s clear that cities infused with digital technology (smart cities) will come to be shaped by the economic infrastructure that underpins every facet of it.

With tools and system architecture that have proven their value in the private sector now available for public sector roll-out, cities stand to gain significant boosts in efficiency, cost saving and overall service. Passing these savings and benefits to citizens across potentially every financial aspect of daily life, digital payment solutions in smart cities could represent an important evolution in human living spaces.

In a whistle-stop tour through an imaginary smart city of the future, we explore the topic’s transformative potential, guided by commentators from Fiserv and Rapyd, as well as resources from PwC and Mastercard.

A more inclusive city

One of the oft-cited benefits of a more thoroughly interconnected consumer-merchant dynamic is inclusivity. Mastercard estimates in its brochure ‘Smart cities are connected cities’ that two billion adults are ‘unbanked’ worldwide and rely exclusively on cash for most financial transactions. Although the shift away from cash was already underway prior to the 2020 COVID-19 pandemic, the events which followed have supercharged interest in and the development of digital payments. What started as a practical measure to avoid contact contamination for many consumers has become preference, as the simplicity, transparency and convenience of exemplary digital financial services was made apparent.

But how does this serve to foster financial inclusivity in cities? For Sarel Tal, VP EMEA at Rapyd, the answer lies in empowering ‘alternative payments’. “Addressing unserved markets is dependent on facilitating preferred local payment methods for specific communities,” he explains. ”Historically, only a small percentage of a population uses card payments.” As more merchants move online and target customers outside their region, the need to add local payment methods will increase and the number of channels in which people can financially participate will subsequently increase. This will be particularly important for cities in APAC, adds Tal, where the multiplicity of local payment methods is greater.

For its part, Mastercard has pledged to connect one billion people to the digital economy by 2025. Its plan will entail enabling contactless payments across cityscapes, with a particular emphasis on connecting small businesses to be able to accept payments from consumers’ smart devices and mobile wallets.

Streamlining the admin of city life

When considering the most fundamental change to city infrastructure that digital payments could bring, Peter O'Halloran, Vice President and General Manager of Global Digital Commerce at Fiserv, believes city transportation could become a wholly different experience. “We're seeing a huge move towards integrated payment solutions across multiple transport networks. A big driver for that is the need to consolidate data, make it easy to manage, and ultimately make it easier for citizens to pay,” he states. “So, instead of having to apply and register for specific cards for each transport network, it's now possible to pay through entirely contactless methods in a number of cities, such as London.”

O'Halloran also highlights the emergence of government-issued ID cards for citizens, which can subsequently be used for essential functions around a city, including social payments and access to grants and initiatives. PwC outlines a similar concept in ‘Creating smarter cities through digital payments’: based on a corporate case study in India, it describes “an open loop prepaid card which can be used for payments across multiple services such as transport, municipal taxes, government owned activities, etc.” In this example, citizens were able to ‘top-up’ this card at designated offices and bank branches. Reportedly, use of the card would also be used to transfer benefits directly to citizens. 

Concluding his thoughts on transport in a smart city, O’Halloran adds that the conversion of non-digital municipal systems like parking could be significant for consumers. “There's a huge body of work when it comes to managing traditional meters and infrastructure. Replacing it with app-based solutions that aren’t owned by urban councils could provide more choice and ease of use for citizens. Fiserv operates in a number of countries around the world in this regard and has enjoyed significant success.”

Payment structures

The American Society of Mechanical Engineers (ASME) ranks the following as the leading global smart cities:

1. Singapore
2. Dubai
3. Oslo
4. Copenhagen
5. Boston
6. Amsterdam
7. New York
8. London
9. Barcelona
10. Hong Kong

With several of these locations also ranking high on Findexable’s index of 2020’s leading fintech hubs, it is logical to conclude that their digital payment architecture is similarly advanced. For cities that have recently chosen to embark on a citywide digital transformation, PwC recommends the following:

• Create a unified payment instrument that can be used for transport, medical needs and the easy transference of benefits within city welfare schemes.
• Design mobile and web-based portals to increase financial inclusion and ease transactions.
• Take into consideration value-added services to generate revenue while addressing infrastructure limitations.

Importantly, PwC also stresses the responsibility of regulatory bodies to incentivise key community players to adopt digital payments (i.e. the Post Office). “Providing clear guidelines and process standards for an interoperable and secure payment system that takes into account different form factors, products and channels is a crucial step towards the development of a digital payments ecosystem.”

PwC’s checklist for a city’s receptivity to digital payments

Can citizens in your city…

• Make payments using phone-based and online channels?
• Use digital technology to pay for public transport?
• Pay using digital means without incurring additional surcharges for doing so?
• Schedule payments remotely or via an agent?
• Use bank branches and other ‘touch points’ for assisted payments services?

Living in a cashless society

Keeping up with modern consumer expectations arguably forms the crux of why smart cities must integrate digital payments in the post-COVID-19 new normal. In the digital age convenience is a difficult thing to give up as a consumer, and often one form of it can ultimately inform expectations across every aspect of life. “People have come to expect next day delivery services, click and collect, and access to a wide geography of markets,” says O’Halloran. “A lot of these things existed before COVID, but now they’ve been pushed into the limelight.” Fiserv is taking this trend into exciting new directions; its partnership with Amazon and ExxonMobil in 2020 is allowing Alexa-enabled vehicles to pay for fuel with a simple voice-activated command, ‘Alexa, pay for gas.’ The device will then confirm the station’s location, identify the nearest pump number, and then activate the pump for use. Afterwards, all the customer needs to do is select their fuel type, fill up and drive away.

Although this single example is impressive in itself, the possibilities that it opens up are even more exciting. “Voice-activated commerce has applications that go beyond the petrosphere and into retail, groceries, and so many other verticals,” continues O’Halloran. This will only become more true as IoT (internet of things) devices continue to proliferate and 5G makes connecting between them faster. The possibility of a truly cashless society driven by the rising popularity of cryptocurrencies and digital wallets would seem almost inevitable in such an interlinked society. Digital wallet spend itself is estimated to reach $10trn by 2025, an 83% rise on 2020’s figure. Further consumer integration with platforms like Google Pay and Apple Pay could see digital payments transcend their current position of relative ‘novelty’ as the same ease and convenience is brought to household essentials, such as bill payments.

Fundamentally, companies like Mastercard regard this shift away from physical cash as fundamentally a good thing, not just in terms of inclusivity but also societal wellbeing. “In cities with a high circulation of cash, residents and visitors are more vulnerable to crime or simply losing their hard-earned money. In countries like Sweden, lower crime rates have been linked to the reduction of cash.” While not dismissing the utility of physical cash at this time, O’Halloran believes that cybersecurity will be an important topic for increasingly digital cities, and highlights EU initiatives that are making sense of this new world. “In 2015, the European Union set out PSD2 (payment services directive) to create strong customer authentication regulations and promote more cross-border ecommerce in Europe. We know that there has been an uptick in cyber attacks since COVID happened; if it was adopted worldwide, PSD2 could help reduce that fraud, encourage more customers to do business, and make our cities more seamless and secure.”

Quotes makers

Sarel Tal, VP EMEA, Rapyd

Tal joined Rapyd in October 2019. Prior to his appointment, he was involved in the payment industry for over 15 years, including payment processing and card acquisition. 

Peter O'Halloran, Vice President and General Manager of Global Digital Commerce, Fiserv

Joining Fiserv in 2013, O’Halloran has distinguished himself with a number of executive roles at leading companies in the payments space. He holds a BA and MSc from Dublin City University in International Business & Languages (1996 to 2000) and Electronic Commerce (2000 to 2001) respectively.