By Camilo Tellez-Merchan and Daniel Waldron | 6 November 2018
Congestion is strangling mobility throughout low and middle-income countries. In Manila, road gridlock costs the city $70 million every day. If traffic were eliminated in Cairo, it could raise Egypt’s GDP by as much as 3.5%. And a Nigerian transport firm calculated that for every ten years a person lives in Lagos, they will spend three of them in traffic.
By making tolls faster and dynamic, digital payments can help policy-makers reduce congestion and unlock productivity in urban economies.
Electronic tolling – simpler, easier, faster
Tolls – fees paid for the privilege of using various pieces of infrastructure – have been around for thousands of years. Travelers had to pay to use the road connecting Susa and Babylon in 7th century BC. Building roads is time and capital-intensive. By collecting money from users, overseers can repay project financiers and fund scheduled maintenance. And unlike other mechanisms, like indirect taxes, tolls recoup infrastructure costs directly from users, i.e. the drivers.
For these reasons, tolls are on the rise. It is estimated that 60 billion euros were paid in tolls globally in 2015, and that this could triple in just ten years, with digital payment systems playing an increasingly important role.
Electronic tolling systems make driving easier: no stop, no slow, just go. They eliminate leakages, cut costs, and facilitate open-road, no-stop tolling. Toll plazas are dangerous places; implementing electronic tolls cut accidents by 76% in Florida. Electronic tolling is faster and safer, and reduces the cost of collections. But the larger impact of electronic payments on traffic congestion may actually be through managing the price of driving.
Congestion pricing – the cost of one more car
Most people have experienced the painful costs of having too many cars on the road: pre-dawn wakeups, missed connections, impotent rage at unmoving lines. But just speeding up tolling will not solve congestion. Cities’ real struggle with traffic is how to accurately price the use of their streets, and in doing so to incentivize more efficient means of travel. One extra car on the road at midnight imposes little societal cost, but every additional car at midday tightens the vice of gridlock. City planners might prefer that driver either use public transit, or pay a higher price that corresponds with their marginal impact.
Congestion pricing is an old idea, and not without its detractors. But in most countries road usage remains underpriced, partly because policy-makers have lacked the tools to modulate the cost of congestion for different times or conditions. However, electronic payments are taking congestion pricing from theory to reality, allowing cities to finally get ahead of their traffic.
For instance, Singapore upgraded to their Electronic Road Pricing program in 1998; tolls are now collected automatically, and the price for driving a given stretch of road can vary from S$2 to S$15 throughout the day. The switch to all-electronic tolling resulted in a 24% reduction in the number of trips taken into the city, and a corresponding 25% increase in the speed of travel. The US Federal Highway Administration has put together a useful review of this and other examples of congestion pricing, from which this data is drawn.
The Better Than Cash Alliance is a global partnership of over 60 countries, companies, and organizations, dedicated to catalyzing the shift from cash to electronic payments. The Alliance has documented the cost savings and efficiency of electronic payments, and we are glad to see our member countries pushing the boundaries in cashless tolling and congestion pricing.
The first phase of Bank Indonesia’s National Payment Gateway prioritized cashless payment of road tolls, with an eye towards open-road tolling in the near future. India is experimenting with a variety of payment modalities that would leverage its unique payments infrastructure, including a national tolling system called FasTag. Nandan Nilekani, one of the fathers of Aadhaar, argued that FasTag could help transform Delhi’s roads through congestion pricing and other transportation-related payments.
And in Colombia, ASOBANCARIA, the domestic banking association, is leading the development of an interoperable electronic tolling platform that would allow drivers to pay all tolls in the country using the same technology. The payment technology will be installed on the car itself and can be linked with existing cards or be recharged at top-up points. But the project is not limited to tolls; ASOBANCARIA hopes that this can facilitate the electronic payment of all sorts of transportation expenses: gasoline, parking, food, etc. ASOBANCARIA’s Lorena Garcia Simbaqueva told the Alliance,
“It is a great opportunity to reduce cash throughout the transport ecosystem, generating greater traceability of payments. Banks are designing products to make that a reality, and these initiatives help to incorporate electronic payments in the daily life of Colombians.”
Encouraging tolling innovation
Simbaqueva puts her finger on the opportunity that payment platforms and policymakers should see in this challenge: a way of integrating electronic payments into a critical, high-speed area of users’ lives. Developing single-use, closed-loop payment systems for tolls is expensive and inefficient, creating a new gridlock of supposed ‘smart cards’ in users’ wallets. By leveraging existing platforms, regional or municipal tolling authorities can defray setup costs and co-create more efficient payment solutions. Payment providers will be able to offer more high-value use cases, adding volume and active users to their platform.
The movement away from cash is an exercise in collaboration. Payments providers can build excellent platforms, but need tangible solutions to attract new users. Governments and road operators need frictionless tools for gathering data and billing for usage. Electronic payment providers have solutions. It’s time to loosen the vice of gridlock and allow transactions to flow.