Abstract:
In an effort to modernise Wellington’s public transport system the Greater Wellington Regional Council (GWRC) has committed to improving the regions public transport Automated Fare Collection (AFC) systems. There are currently three AFC systems operating across the public transport network in Wellington. Each is based on proprietary software and uses proprietary AFC smartcards as the fare payment instrument.
Visa and MasterCard have introduced programs designed to make Europay, MasterCard and Visa (EMV) bankcards more attractive to the AFC industry. These improvements, when combined with contactless card technology, enable EMV transactions to meet the strict transaction performance required by the AFC industry. This means that passengers could use their EMV contactless bankcards as a substitute to their existing proprietary AFC smartcards if the AFC system was compatible with the EMV standard.
This review focuses on the underlying competitive forces that define the attractiveness of the AFC industry (where attractiveness is typically a measure of the ease by which the benefits sought can be realised, usually as profit) and the potential change to those forces should GWRC procure an EMV compliant AFC system that enables use of EMV contactless bankcards on all transport services.
The competitive forces that define the attractiveness of an industry are defined in Porter’s five forces model as being:
1. Threat of new entrants;
2. Threat of substitutes;
3. Rivalry between competitors;
4. Strength of supplier power; and
5. Strength of buyer power (Porter, 1985).
In order to use Porter’s five forces model to assess the attractiveness of the AFC industry, each force was expanded to expose a series of sub-forces. Lee, Kim, & Park’s (2012) network model was chosen as the conceptual framework for this expansion as they represent an appropriate perspective of industry attractiveness for the purpose of this review.
Empirical substantiation of the potential impact on each of Porter’s five forces was sought and eight individuals representing several fields within the EMV and AFC industries were invited to participate in semi-structured interviews. At the time of their interview the participants were in senior, executive, or company director level positions. The experience of the participants covered much of the EMV ecosystem in addition to the development and operation of AFC systems in more than 10 countries.
The review concludes that in some circumstances the degree of competition can be dramatically altered by an event outside the control of many industry participants, and that the procurement of an EMV contactless compliant AFC system is likely to reshape the attractiveness of Wellington’s AFC industry in GWRC’s favour.
