Snapper ruining integrated ticketing – surprise, surprise

Mike,
Your post on KB misses some very germaine points about EFTPOS and how/why it came into being and its not as simple as you make out.
The reasons for its success or widespread uptake are not so obvious either.

But I think your post (presumably from your thesis) has missed more than a few critical factors that drove the uptake of EFTPOS over a decade or more.

In the ’80s the Trading Banks introduced punitive cash handling fees to their banking customers.
This fee was quite high and was intended to discourage businesses who took lots of cash from their customers from depositing it with the banks.

The reason for them imposing this fee was that the banks were in turn being charged by the Reserve Bank for the “use” of this cash which was held in the banks own vaults over night – the rules introduced said they could not use this “float” and put it on the overnight wholesale market and so was effectively not earning interest for the bank. And these rules were imposed by the Reserve Bank as they wanted/needed to control the size of the money supply.

These fees weren’t a few cents a deposit/withdrawl, they could be quite large %ages of the value of the cash being banked/withdrawn.
[Cheques and the like e.g. Credit card vouchers weren’t included in these fee calculation as they were not cash in the normal sense, more of a promise to pay/IOU which had to be cleared to be usable].

All the Trading banks would have notices on their counters saying that customers who needed to bank or withdraw large amounts of cash (say $500 to $1000 in cash in those days), would have to make advance arrangement or the bank would refuse to accept the deposit/withdrawl request.

How perverse – who has ever heard of a trading bank refusing to let customers bank pots of money – well it was very common in the ’80s

As a result, many of those businesses were given good active financial incentives to reduce the amount of cash they took, this was managed initially in two ways:

1. They encouraged people to use Cheques for payment (which earned money for the Government via Cheque duty at 5 cents a cheque so the Govt/Reserve Bank was ok with that), and clearance fees for the bank for the use of Databank clearing systems – ever wonder why the cheque business in NZ took so long to die? – well you could use them to buy just about anything at one stage, more useful to oyu as a customer was a chequebook than cash, even more ubiqituous were cheques than anything else including EFTPOS at one point.

2. Credit Card transactions were the other option – especially since the stores couldn’t charge customers more for paying with them (by law if I recall), yet banks got a cut via (hidden from customers) merchant fees, so credit cards and cheques were the de-riguer payment methods of the 80s/early 90s.
The can’t oncharge rules for credit card fees to customers is a restriction now relaxed.

And lastly, since the banks wanted to protect their investment in their own expensive ATM networks to bind their customers to them:

3. The banks also created “Debit” payment systems, tied to cheque accounts to let you pay “in store” using your ATM/Debit card, they’d take the money from your account immediately – but the bank then got to hang onto the money for the day, and pass it over to the merchant over night, (or sometimes longer, so as not to compete too much with lucrative cheque business which took even longer to clear) – thus earning a nice wedge of “float” they could get interest on.

The sell to the consumer was that you don’t have to carry cash around, just use your card to pay.

The sell to the retailer was, less cash to handle and bank = less fees – of course, these debit transaction carried some hefty fees, at least in the early days until EFTPOS nearly died.

EFTPOS today is the great great great grand child of this. But it took about 4 rounds of mergers over many years to come up with what we have today.

There were quite a few such debit payment systems around, many were unique to a single retailer (bit like store loyalty cards really), some were multi-retailer, but not many. Some where even basically EFTPOS card in drag.

The upshot of this lot of malarky was that businesses and customers in the 80s and 90s got to, in effect, pay for the expensive build out of EFTPOS, as it was encouraged as it was cheaper to use these payments than the alternative of being charged cash handling fees by the banks.

In fact, once small businesses learned that they would not pay cash handling fees for these debit transactions, and that by allowing cash out at the till in the form of “cash out” EFTPOS transactions – businesses could rid themselves of even more of that expensive to store, reconcille and transport – cash – is when EFTPOS finally took off with the masses of retailers. Until then EFTPOS was a quirky payment option that some retailers had, nothing more or less.

EFTPOS nearly died a long slow death as a result of this mismanagement. It came pretty close to being turned off by the banks (presumably in favour of cheques).

So, back to Snapper.
Since Infratil is not – last I checked – the Reserve Bank and NZ Bus is not a trading bank – why should we as consumers want to prop up these guys attempt to build their own “proprietary” payment system using our PT transport systems and in doing so holding up the rollout of the agreed by everyone else but NZ Bus, payment system in the meantime?

And when such Snapper system is inferior to the alternatives in just about every way you can name, except that it is better for NZ Bus/Infratil on the basis that with Snapper they control and earn interest on all the unspent balances (and gather PT travel data they can only dream of), it certainly does rub salt into a very raw wound, especially round here.

And further to that, when you look back and see that its really basically all a lot of repeat behaviour of exactly what the banks did in the 80s with the cheque and debit card transactions. you can see why there so many angry, doubting Thomases.

So, if Snapper et al want to build a proprietary payment system, well and good, but just don’t expect me or anyone else who use PT in Auckland to pay for that build. If the folks in Wellington chose to, thats well and good for them.

Payment systems will come and go. Cheques were king, then credit cards, now EFTPOS, Snapper may be in that mix too – for a while – for some cities.

But in essence Snapper has always been and still is a proprietary payment system from a single retailer (NZ Bus), which is looking for someone elses parade to get in front of. Its no different than all those various payment products around in the 80s, except its gussied up with the gilt edging and colours of “contactless payments” and “more convenience”.

But to argue – as you do – that “Snapper is the future” – is to take the same position as someone who argued that “QuickSmart” or “Cashline” is the future did in the mid 80s.

History shows that neither was the future, and the path from them to the current EFTPOS system was a very long and tortuous one.
Likewise history will show that Snapper will I am sure be a still born outside Wellington.

Maybe once Snapper becomes as easy to use and convenient as cash, and when the fees charged and ease/cost of topping it back up are improved, and when all the places that take Snapper are, to steal a phrase from Visa – “everywhere I want to be” – then and only then – will I consider “coming aboard” with Snapper. Unless of course, there are even better options around by that time.

Personally, I don’t want yet another “wallet” in my phone or elsewhere to store my money in, I already have that – its called my bank account, and my EFTPOS card is the current token that gets me access to it.

So the next question needs to be asked – why do I need a Snapper or HOP card to act as intermediary for my PT payments – what value do either add? And what does having a phone based NFC app actually give me – other than as a convenient way to transfer money from my bank account into someone elses control in the guise of payment convenience masquerading as a PT payment card?

The answer to those question are: you don’t, they don’t add value and phone based NFC systems only allow you to cede your money to someone elses control nothing else. I will admit that HOP can act as “proof of payment” when you don’t have paper receipts. But thats the only advantage I see over paper tickets.

Who knows once phone based NFC payment applications come of age, that technology may well replace your EFTPOS card for the small transactions – that is if hand waving your hand with embedded microchip past the reader hasn’t caught on as the new alternative by then, or worse, depositing with the driver round metal objects that represent the value of the fare comes back in as the preferred way due to excessive payment system fragmentation so that cash is the only “gold standard” accepted everywhere.

Meanwhile, regardless, Snapper need to get with the program in Auckland and HOP aboard with the Thales system now – not in November – that will be too late.
I can assure you that from my view, and which I am sure is also shared with many folks around here, that NZ Bus’ future as a PT operator in Auckland depends on them doing so “QuickSmart”.