If Mobility-as-a-Service (MaaS) solutions are to continue their upward trajectory, businesses must ensure that the payment process is as frictionless as possible. Fortunately, the mobile payments space has developed rapidly over the last few years. When PayPal revolutionized the payments space in the early 2000s, it had few competitors in the nascent digital market. Today, every bank has its own mobile app to facilitate payments and a host of fintech firms have been founded as payment processors or gateways to create a highly competitive ecosystem.
When choosing from a wide variety of vendors to facilitate their payments, MaaS providers must consider a few different factors - perhaps the most important of which is ease-of-use. Looking at e-commerce, the current average online shopping cart abandonment rate stands at around 70%. The payments process is often cited as a key reason why many carts are abandoned - either due to it being too complicated, untrustworthy or lacking in options. If users of MaaS solutions encounter similar hurdles, they are very likely to go back to using their existing transport services.
One of the first choices that MaaS providers will have to grapple with when implementing a payments process is whether to employ a closed-loop or open-loop payment system.
While both have their advantages, only an open-loop approach provides the flexibility and integration that truly fulfills the potential of MaaS.
Closed-loop payment cards describe any type of electronic payment card that is issued by a single organization and which can only be used to pay for services provided by that same organization. Closed-loop payment cards can be used in one of two ways: as a debit card (which has been pre-paid) or as a credit card, where payment is taken after the transaction occurs.
Examples of closed-loop cards used in a MaaS context include
One of the reasons why closed-loop payment solutions have achieved some level of popularity is that they are simple to implement and use.
Due to the fact that a single organization sets all the rules, making policy adjustments is quick and easy when compared to more distributed open-loop systems. A closed-loop system also allows businesses to increase loyalty through incentive programs and collect useful data about customer behavior. The lack of data sharing also provides additional privacy safeguards.
An open-loop mobile payment solution allows users to pay at many different locations from one centralized digital wallet. Open platforms are connected to a personal account – a credit card for example – and don’t require a prepaid amount to exist in the system that needs topping up when the balance runs out. An easier way to understand the difference between the two payment types is to think of closed payments as a gift card and open payments as a credit card.
The advantages of open-loop cards in Mobility-as-a-service
Perhaps the most significant advantage of open-loop payments is that they are extremely user-friendly. They can be used on a variety of different transactions, which means that they can rapidly scale in terms of functionality and value for the end-user. Whether you prefer to pay with your smartphone or bank card, take the bus or rent a bicycle, open-loop payments can facilitate it. What’s more, the market for open-loop payments is only likely to increase in scope. For example, EMV cards are already used to pay for public transport and parking in many parts of the world, and conversations are underway to make them a key part of the electric vehicle segment as it matures.
Although closed-loop payments offer greater protection as they do not involve data sharing with such a large number of entities, they are also very restrictive. For MaaS providers, therefore, closed-loop payments are simply not sustainable long-term.
'Closed-loop payments are simply not sustainable long-term'
As new transport services are launched, the rigidity of a closed-loop approach will add unnecessary processes for businesses to manage. More worryingly, closed-loop payments will require travelers to carry a larger number of payment cards.
There is another option, however. Hybrid-loop payments support both open-loop EMV cards and all their benefits as well as closed-loop applications. This enables companies to shift their business model rapidly. For example, a fuel card issuer could add revenue streams from transactions that occur outside the closed-loop of fuel purchases.
Whether businesses decide to go with an open or hybrid-loop approach to payments, they must prioritize flexibility and ease-of-use. If not, individuals are likely to reject their initial travel route just as readily as they abandon their online shopping cart.
PaymentGenes can help companies progress to an open-loop payments system by advising them on regulatory challenges and vendor selection. An open approach is needed to facilitate the interconnectedness of all the transport methods that exist within a given city - and that, after all, is the main aim of MaaS.
Interested in learning more about how PaymentGenes Consultancy can help your company integrate payment functionality?
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