Making Transit a subscription business (read: Account Based Ticketing)

Netflix, with a sign up of $7.99(Basic), $10.99(Standard), & $13.99 (Premium) and a signing page that says ‘watch anywhere, cancel anytime’, has basically transformed the big box video rental business which was characterized by asset heavy investment on the rental properties, the video content renderings in the video cassettes (and later CDs, DVDs, Blu Ray), and the video (&DVD/Blu Ray) players that playback the content.

Simple translation to transit industries’ automated fare collection:

• the rental properties are the equivalent channels, i.e. POS (point of sales), TVM (Ticket vending machines), etc. … that vend a fare media, usually a transit card, with a certain value on it
• the video content rendered in cassettes and Discs is equivalent to the fare (the monetary value that is going to be loaded on the transit card), and
• the video players are equivalent to the transit card readers (both onboard devices on buses and light rail) as well as station based readers that read and validate the fare on the fare media.

Other Industries in the world of subscription

The Media industry is one that is innovating fast. Some are even going up the value chain with a huge production spree in the Billions of U.S. Dollars.  Amazon (for its Prime video), Google (Youtube Red) and Hulu come in this category. Others have been long in the content space, and now creating and advancing their subscription direct to consumer. HBO which has already such a service and Disney with announcement to launch over 2018 come to mind.

The Telecom industry is a pioneer in this with its postpaid (and prepaid) model of subscribing to a contract for a service… the service being the phone call, the unlimited text, media access, etc.

The Software industry, is rapidly evolving to a hosted software business service – where the software is provisioned as a service to be consumed online from a hosted environment, and the user pays for software consumption by various matrix – such as number of users using the software, or number of transactions accruing in system, number of reports generated, etc.

The Automotive industry, first starting with rentals and over recent years – leasing options, and awaiting the advent of autonomous vehicles where by a subscription service will be the ideal modality for the business that it renders also comes to the front when we think of subscription businesses.

Almost any industry that we can think of – can have a subscription model attached to it.

The Transit industry:

The transit industry has seen its share of advances to such a subscription service. A very close manifestation in the industry is what we call Account based ticketing (or backend centric ticketing system – in some regions). The core idea behind such an account based ticketing system is to enable the provisioning of the fare management centrally and enable the fare media to act, depending on the card types in circulation, as a collector of tap in/out information.

In a truly subscription based approach, the rendering of the service (operational part of the transit), should be able to deliver the service of transit and provide data points (events of on/off, tap in/tap out,…) in a real time fashion whenever a service of transit is being rendered. AND the transaction part of processing the services monetary aspect, i.e. the subscription, billing, customer services, etc.….  should be centralized and managed as a pure accounting and billing scenario.

Unfortunately, the industry has pretty much embedded the monetary aspect of managing the service right into the operations. Meaning – the fare (a monetary value) is embedded in a fare media (a card). What this entails – is significant. The vending machines, the card readers, the turnstiles, the onboard devices – all should participate in this monetary value management by incrementing and decrementing value from the fare media, at the peripheries of the system.

This has been the state of industry and as one can imagine – a large capital cost is associated with such (mostly propriety) systems for managing automated fare collection.

Imagine a truly subscription driven account based ticketing system for an automated fare collection system. In such a scenario:

• The fare media is relegated to an event capturing sensor (could be a phone, a transit card, or any sensor which is IP enabled to send a state of change) with customer identification and a time stamp
• The TVMs, Readers, turnstiles… as these essentially can be replaced by IoT enabled devices that would communicate with the sensors, will be made unnecessary which leads to a huge reduction in overhead for management. And focus will be to identify the right sensor / receiver devices that will enable tap capture
• The validation and decrements at the point of contact were fare used to be calculated will now be done at a centralized software layer (huge reduction in costs – as we don’t need all readers to be smart), and top-up and payments can be linked to open payments thru the ‘back-office’, the customer providing payment details when subscribing to the service
• Fare evasion – can be controlled by providing minute amount of data at the IoT enabled deices to control for ‘deny lists’ – cards or phones or sensors that are identified as having not paid the required fare
• The Provision of the service and the subscription service are managed independently, and one can be upgraded to the latest versions independent of each other.
• A bonus, the subscription enabling applications (the back office) are a reuse of standard applications being used in industries as varied as media and telco – which provide a huge advantage in leveraging cross industry innovations in the subscription world and be ready for the brave new world – of not only autonomous cars, but also autonomous transit systems of the future.

SAP has been in the business of providing the component modules that enable the subscription services of various industries – and transit is no exception. Over the recent years, the uptake of this subscription service has been great with several transit customers’ transitioning to their new account based ticketing (back office centric) fare collection system, and leveraging SAP’s deep cross-industry expertise in the subscription industry.

Additionally, as the modularity of these systems do extend to the world of the contracts accounts and financials systems in SAP ERP, there is a seamless cost accounting element where each and every ride on the transit system can be identified with controlling and the real-time reporting abilities enable each revenue and fare manager at a transit company to know exactly when their rides have been accessed, how much of fare was allocated to those rides and a holistic accumulated view of all the routes and fares – which not only helps the fare management colleagues – but also the operations team in terms of understanding how the individual routes are being utilized at a detailed level, including the fare revenue generated by sector, zone, route, or individual bus/train level.

To learn more about how this subscription can be applied to transit as well as other industries, keep a tab on the SAP Hybris Revenue solutions.