Oyster e-money shelved amid cost wrangling

Transport for London (TfL) last year 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. At the end of April TfL announced none of the candidates had met its criteria and the rollout was on hold.

A spokeswoman for the transport authority said it remains committed to an Oyster e-money scheme and still wants to expand the functionality of the card.

She told ZDNet UK's sister site silicon.com: "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 the technology behind the scheme was not at fault.

Dave Birch, director of 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 issues with the payment processing side of the project -- division of revenues and processing costs, for example -- have hobbled the scheme.

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

Pret A Manger is one of the retailers that expressed interest. Commercial director Oyster smartcard ticketing system told silicon.com that the chain of 50 UK shops is still interested in e-money, either with TfL or another provider, as a way of cutting the queues that result from chip and PIN.

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 infrastructure: "We're only very small and it would be difficult for us to support that on our own."

Graham Taylor, distinguished analyst at Gartner, said only the banks could afford to pay for Oyster e-money readers in newsagents and retailers, but are reluctant to as e-money could hurt their existing business.

"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."

Without the banks, Oyster is temporarily in the sidings: Taylor predicted it will be extremely difficult for TfL to deliver the scheme without support from external partners. Payment processors Barclays, PayPal and the Royal Bank of Scotland have expressed interested but TfL said none had met its financial criteria.

While TfL won't be putting out another tender, it remains open to approaches. One option that would be considered by TfL is adding Oyster functionality to a store or bank card.

Not all planned updates to Oyster have been shelved, though. For example, a handful of local councils, including Croydon and Lewisham, are using its smart card functionality to give local residents access to their services.