Government consults on travel innovation weeks before e-payments deluge

The Government wants to create a national payment network that, like London Underground's Oyster system, would allow for the use of quick prepayment systems on trains and buses.

The Government plans to enable the use of prepaid cards and of mobile phones to replace paper tickets in plans that it says could save £2 billion by cutting journey times and making ticket administration more efficient.

According to one expert, the consultation will also be important in setting a legal and regulatory framework in which new payment providers can operate.

"On 1st November the Payment Services Directive comes into force in the UK and that means that anyone will be able to offer payment services as long as they are regulated by the FSA [Financial Services Authority]," said Thomas Brown of Pinsent Masons, the law firm behind OUT-LAW.COM.

"This is an attempt by the Government to put in place some controls and a structure on that market before that happens," he said.

"The Government wants to offer a new infrastructure for making payments for travel services and to make sure that any system is run with suitable protections in place for consumers – for example, making sure that there's a credible disputes system in place that allows people to get their money back if they have problems," said Brown. "It wants to make sure that there is a structure for offering services, to regulate things like the terms and conditions for payment services."

"Ahead of the Payment Services Directive coming into force, this is an attempt to try to establish the big picture, so that you could do things like pay for parking or travel or other things using prepaid or mobile technology," said Brown.

The Department for Transport's consultation envisions nationwide systems of payment that it says will speed up travel and improve efficiency.

"Some of the more innovative proposals could see electronic tickets or pre-pay credit loaded straight onto a mobile phone enabling it to be used as a ticket; or 'contactless' payment which will allow ordinary bank cards to pay instantaneously for travel simply by being passed over a terminal, dispensing with the need for a ticket at all," said a Department statement.

"We know that passengers want quicker journeys and better reliability, and smart ticketing will help us do that," said Transport Minister Sadiq Khan. "We could see the end to waiting in line at ticket machines, while buses could spend half the amount of time sitting at the bus stop waiting for people to board and looking for the right change. In some cases, direct payments may even do away with the need for a ticket at all."

"The technology and the interest is already out there and I want to see it used to not only help passengers but also reduce congestion, pollution, improve the local environment, and help local authorities plan more effective local transport systems," he said.

The Department for Transport said that 78% of London Underground and bus journeys are now made using Oyster cards.

"We fully share the Government's ambition to see smart ticketing introduced across Britain's largest urban areas as soon as possible," said Jonathan Bray, director of the Passenger Transport Executive Group Support Unit. "Oystercard has become intrinsic to London life – passengers have a right to expect a similar deal in the next tier of major urban areas."

The Payment Services Regulations allow UK-based non-bank businesses to enter the payments industry. Licences will be issued by the FSA to companies which register with it and comply with money laundering requirements.