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Key Takeaway:

Apple and Google are positioned to take a significant share of the payments value chain, including fare payments, if they choose to do so, said the head of transit payments gateway and processor Littlepay

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Organizations Mentioned:

• Littlepay
• Visa
• Mastercard

(This premium article was originally published in July 2020. © Mobility Payments and Forthwrite Media.)

The head of transit payments gateway and processor Littlepay said he believes that Apple and Google are well-positioned to take a “big bite out of the payment chain,” which could change their relationship with payments networks Visa and Mastercard from one of collaboration to one of competition. 

Amin Shayan, CEO of UK- and Australia-based Littlepay, said he believes the Silicon Valley giants are developing the building blocks that would enable them to control some of the billions of contactless transactions consumers conduct each year, if they chose to do so.

“Watch for what Google and Apple are going to do in this space,” Shayan said on a recent episode of the Leaders in Payments podcast. “When you think about it, they’ve got the security modules, the hardware and communication networks all within their own ecosystems. So if they wanted to, they could really take a big bite out of the payment value chain.”

Smartphone-to-Smartphone Transactions
When asked for elaboration, Shayan later told Mobility Payments’ sister publication NFC Times through a company spokeswoman that Google and Apple would be able to capture transactions that now go through the major payments networks using smartphones. 

Littlepay’s Shayan

“If smartphones can become the acceptance mechanism (terminal) and also be the payment token issuing mechanism (card), then technically you don’t need Visa or Mastercard to complete a transaction,” he said, noting that Visa and Mastercard set the procedures for routing transactions between a secure card, or token, and the acquirer and issuer. “Apple and Google could route transactions directly from phone to phone with a funding source attached. That’s obviously a simplification and there would be regulatory hurdles to jump through, but technically it is possible.”

Speaking earlier on the Leaders in Payments podcast, which originally aired May 13, Shayan predicted that Apple and Google would eventually “move on into competition” more and more with the major payments networks. “At some point, we’ll probably see a little bit of tension at a place where they are currently collaborating.”

He didn’t say whether he was talking about both retail and transit transactions, but the tech giants could grab a share of both under this scenario.

Industry Veteran: No Immediate Plans by Apple to Control Txns
One payments industry veteran, who asked not to be named, told NFC Times that he believes Apple has no immediate plans to try to take a bigger share of transit revenue with Apple Pay. 

Apple’s main goal with Apple Pay has always been to encourage consumers to use its wallet and various devices, including smartwatches, in addition to the iPhone, to make transactions. That increases the utility of Apple Pay and Apple devices, and it doesn’t matter if the transactions are controlled by Apple or by the major payments networks. 

Transit is a key market segment, with most experts agreeing that getting consumers to tap their cards or NFC devices at the beginning and the end of their work day to ride transit leads to more use of their cards and devices to pay at retail. 

Apple already takes a slice of the merchant transaction fee from issuers every time their cards are used with Apple Pay. The fee is believed to be around 15 basis points for each credit card transaction in the U.S. and in a number of other countries, and a fixed fee for debit card transactions. But the transaction fees are not considered the main business case for Apple Pay.  

Apple, like Google, also supports closed-loop transit fare payments. For Apple Pay, that includes Suica in Japan, Octopus in Hong Kong, the closed-loop transit cards in Beijing, Shanghai and other T-Union-compliant cards in China. This could be another way Apple goes around the international payments schemes when it comes to transit payments, said the unidentified source.

Competition Versus Systems 
Meanwhile, Littlepay notes that it has an open architecture and APIs to connect with various EMV-compliant readers, making its system “agnostic” to the device, Shayan said. Although he didn’t mention it, the acceptance devices could include smartphones, along with traditional POS terminals and readers, for transit agencies.

Shayan said this more open approach has helped the company address smaller markets and transit agencies, including those serving regional markets. These agencies cannot afford to hire large systems integrators, which mainly implement customized fare-collection systems for major transit agencies, costing tens of millions of dollars or more. These systems use “tightly coupled proprietary hardware and software,” including the payments terminals, Shayan said. Among large systems integrators that have implemented open-loop payments for large agencies is Cubic Transportation Systems.

Demand for mobile and contactless fare payments is increasing, including among smaller agencies, following the Covid-19 lockdowns. That’s as transit agencies seek ways to encourage wary riders to return and also to protect drivers, conductors and other agency staff from too much contact with customers. 

“With transit volumes being down so significantly, a number of operators have actually said, ‘look,we no longer can accept cash,’ ” said Shayan.“We’ve seen contactless numbers as a share double in a month. That would have taken a number of years. And I think you’ll see that in the U.S., more generally. It’s been very slow, but it will probably accelerate.”

Starting with Private UK Bus Companies
Littlepay, founded in 2016, now handles contactless EMV payments on board most of the public transit buses in service in the UK outside of London, including the entire fleets from three of the country’s top five privately owned bus companies, Go-Ahead, First Group and Arriva, totaling more than 17,000 buses, Littlepay told NFC Times.

The company also handles contactless transactions for smaller regional bus companies, N.A.T. Group, Cardiff bus and McGills of Scotland and for a number of other small transit operators. 

Littlepay recently won the contract to serve as a payment gateway for an open-loop fare payments service planned by the Helsinki Regional Transport Authority in Finland. The authority will accept contactless EMV payments on its multimodal system, including its buses, metro, trams and ferries. The rollout, expected to be completed in 2023, will also support daily and weekly fare capping.   

It also has a project in Porto, Portugal, that will go to pilot this year, and one or more pilots in California. In addition, Shayan told NFC Times through the spokeswoman that Littlepay also has “upcoming projects” in Spain, France and Scandinavia.  

One of those European projects might use the “cEMV-in-a-Box” product that Littlepay announced last in June 2020

The partnership is with UK-based fare-payments-as-a-service vendor Masabi, which said it would be able to offer its validators and readers with connections to the Littlepay payments gateway. The gateway, in turn, would connect fare transactions with an acquirer when a rider taps to pay a fare. A Littlepay spokeswoman told NFC Times that it already has integrations with such acquirers as Elavon, Valitor and Global Payments/TSYS, as well as a gateway connection via Cybersource. All or most of these companies also process transactions, but the spokeswoman says Littlepay can process EMV transactions for fare payments, as well. 

Whether Littlepay will one day be handling fare payments controlled by Apple or Google remains to be seen. 

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