Why Oyster's e-money plans hit the buffers

Plans to add electronic wallet functionality to the Oyster smartcard ticketing system have suffered a major setback.

Back in 2005, Transport for London (TfL) announced it had shortlisted seven potential suppliers to transform Oyster from a ticketing system into a means of paying for goods such as coffee and newspapers.

Trials were scheduled to start before the end of the year but didn't materialise. And, at the end of April, TfL announced that none of the shortlisted suppliers had been able to meet their criteria and the rollout had been put on hold for the time being.

According to a TfL spokeswoman, the transport authority remains committed to the rollout of an e-money scheme and is still interested in expanding the functionality of the Oyster card.

She told silicon.com: "We're still interested and we certainly know there's interest from our customer base. No one's ever procured e-money before so we didn't know the negotiations would be so long and we didn't know what the outcome would be."

So what went wrong? It seems that the technology behind the scheme was not at fault.

Dave Birch, director of consultancy Consult Hyperion and organiser of the Digital Money Forum, told silicon.com: "What's become clear is that it's more complicated to sort out commercial arrangements than to sort out the technical arrangements [with e-money]."

It appears that issues with the payment processing side of the project - division of revenues and payment processing costs, for example - were the main reason the e-money scheme was hobbled before it left the starting gates.

The question of who would pay for the cost of deploying the necessary infrastructure was a sticking point. For example, without financial support from the banks, retailers were unlikely to agree to cover the equipment costs themselves.

Sandwich shop chain Pret A Manger is one of the retailers that expressed interest in working with TfL to accept Oyster card payments.

Simon Hargraves, commercial director at Pret, told silicon.com that the chain is still interested in accepting e-money either with TfL or another provider. The company is starting to introduce chip and PIN across its 50 UK sandwich shops but would welcome a switch to contactless payments to trim the queues that can result from typical credit card payments.

Hargraves said: "We're becoming more and more cashless. We're investigating [contactless payments] and we would still be interested in talking to Transport for London if they change their mind."

But the company wouldn't want to swallow the cost of any infrastructure rollout: "We're only very small and it would be difficult for us to support that on our own."

According to Graham Taylor, distinguished analyst at Gartner, only the banks could afford to stump up the necessary readies to put Oyster e-money readers into newsagents and retailers - but are reluctant to as e-money could hurt their existing business.

Taylor said: "With merchants, when everyone's got [an e-money Oyster card], they'll pay to accept them but essentially the merchants don't want to pay for it and TfL doesn't want to subsidise it. The banks could potentially do it but they don't want to affect their debit card business."

And without the banks, the Oyster card is temporarily in the sidings: Taylor predicted that it will be extremely difficult for Transport for London to deliver the scheme without support from external partners.

And while a number of payment processors expressed their interest in partnering with TfL for the scheme - Barclays, PayPal and the Royal Bank of Scotland among them - TfL said none were able to meet its financial criteria.

While Transport for London won't be actively putting out another tender to search out new partners for the e-money scheme, it remains open to approaches from would-be partners. One option that would be considered by TfL is adding Oyster card functionality to a store card or bank card.

And while there may be no e-wallet function in the Oyster just yet, not all of the planned updates to the Oyster card have been shelved.

For example, a handful of local councils, including Croydon and Lewisham, are using the smart card functionality of the Oyster to give local residents access to council services.