CEPAS: EZ-Link and NETS E-Payment Integration - Case Preparation

Introduction:

Prior to 2009, Singapore had different e-payments system dominated by two major card issuers with non-interoperable cards. The Land Transport Authority (LTA) with its EZ-link fare card & Network for Electronic Transfers Singapore (NETS) with its contact cash card. Together, they accounted for 95% of the country’s micropayments market.

EZ-link was formed by the Land Transport Authority (LTA) on January 8 2002, to manage Singapore's single largest contactless stored value smart card system mainly used for payments on public buses, taxi fare collection and Mass Rapid Transit (MRT) ticketing. Due to its appeal, the EZ-link card had been expanding its range of services beyond local transit into the food and beverage, retail, and entertainment markets. The next generation of ez-link cards is Contactless e-Purse Application (CEPAS)-compliant which can be used to make payments in Electronic Road Pricing (ERP) and Electronic Parking Systems (EPS) facilities. The card is combined with an ETC transponder in vehicle to enable tolling fee collection.

NETS contact card system pioneered Singapore’s first cashless payment platform through its EFT at Point of Sale (EFTPOS) network, a debit payment servicing using the banks automatic teller machine cards for consumers purchases and bill payment. In the retail sector, NETS faced significant competition from credit and debit cards even though the Cash Card was accepted by 12,500 merchants including self-service kiosks, libraries, public payphones and vending machines. Building on its first-mover advantage in merchant acquisition through the EFTPOS network and the largest terminal base installed island-wide, the Cash Card demonstrated strong growth in retail transaction volumes. NETS could take advantage of its extensive network of top-up points deployed by bank sector. NETS tried to urge Infocomm Development Authority of Singapore (IDA) for a unified national platform.

IDA saw the potential to boost the local micropayments industry and to promote the opening up of services for consumers to use one card seamlessly. The integration needed to make NETS contact card system and LTA’s contactless system work together faced significant barriers including the differing commercial interests of parties involved. LTA’s priority was to have access to a suitable card that was faster, more cost-effective and compatible with existing readers and new IUs. The challenge was to find a common ground and approach to address the commercial, operational and technical aspect of such a large-scale implementation nationwide.

Competition & Impact on Consumers, card issuers and society:

Public transport ticketing in Singapore has evolved over the past 20 years from manual cash collection to an advanced e-payment system using smart cards. This case traces its development from the automatic fare collection system introduced in 1987 for the first metro system in Singapore, to the current contactless smart card system used for travel across the entire public transport network. The introduction of Symphony for e-Payment—an enhanced ticketing system based on open standards allows multiple card managers—marked a milestone in the evolution of e-payments in public transport. The use of a national e-purse standard CEPAS (Common E-Purse Application Specification) further enabled the development of a single transport card which can be used on both public transport and private transport i.e. road pricing and parking.

The CEPAS provides the command sets and data bytes that can be used for contactless e-purse applications, and focuses on the debit and credit areas. The most recent version of the standard is CEPAS 2.0 allows the interoperability of multi-purpose stored value (MPSV) card payment schemes from different card issuers and system operators. The CEPAS standard provides an interoperable platform that all MPSVC issuers will eventually migrate to. Therefore, the launch of CEPAS is a significant step closer towards giving consumers the convenience of having a single card for making transit, motoring and retail payments instead of having multiple cards for different purposes.

Beyond just convenience to consumers, merchants and public service providers will be able to deploy a single reader for their transaction processing, as opposed to having multiple readers. In today's age and lifestyle, there was a need to move towards contactless payment system for micropayments.  CEPAS will also level the playing field allowing more card issuers such as banks and financial institutions to participate in this micro-payment space. Hence, CEPAS results in a win-win situation for consumers, merchants, as well as card issuers.

A single standard had offered CEPAS cardholders access to expanded range of payment application and service offering. As standardization lowered the reader and card costs due to multi-vendor support, there were positive effects into the non-transit sector. More payments options available to users who enjoyed marketing promotions from card issuers competing for higher market share. A study by VISA showed that every 10% increase in the share of e-payments in the economy could stimulate GDP growth by as much as 0.5%.

Diverse Stakeholders Interest:

There were several stakeholders involved in the convergence of the two major card issuers, such as IDA, consumers & companies using e-payment systems, banks, and the Singapore government, all of whom had different interests who saw a potential in the implementation of CEPAS compliant cards. IDA saw the potential to boost the local micropayments industry and to promote the opening up of services for consumers to use one card seamlessly. Government played an important role as it demonstrated that contactless payments could be safe, reliable and convenient experience for commuters. LTA’s priority was to have access to a suitable card that was faster, more cost-effective and compatible with existing readers and new IUs.  However, since integration of systems takes ample time, LTA and NETS card issuers wanted to complete the process soon. Consumers and companies using e-payment systems wanted a single e-payment system so as to make transactions more convenient and easy to use as it would increase their revenue. 

Innovations Needed for CEPAS standard to be useful:

In the past, EZ-link and NETS each competed through continuing innovations; NETS planned to introduce Combi card that could be used for public transport and EZ-Link wanted to grow and manage its non-transit service offerings. After the deployment of CEPAS driven by government who played an important role, there was an increasing level of adoption of new technologies by consumers and businesses which paved way for continuing innovations and adoption of  emerging technologies in the e-payment arena. In early 2012, Mc Donald’s Singapore installed NFP readers at over 100 restaurants although it had earlier stopped using an older payment system which accepted ez-link cards.

The CEPAS platform was being leveraged for the next generation of e-payment innovation such as payments via Near Field Communication (NFC) - enabled mobile phones. Merchants with contactless credit card or CEPAS terminals were already able to accept payment via NFC phones. Industry players could leverage the existing platform instead of having to invest in their own infrastructure. IDA noted that a fully interoperable NFC ecosystem could generate a market eight times that of a non-interoperable environment. The nationwide ‘tap-and-pay’ service using NFC technology was rolled out in August 2012. The new payment mode could be accepted at about 30,000 retail points equipped with contactless reader terminals, which worked with NFC-enabled mobile phones as well as contactless cards, including CEPAS-compliant cards.

 

Success from CEPAS initiative:

CEPAS was designed to meet the security and integrity requirements of an open e-purse system.  Some of the features are as follows:

• Atomicity – updates completed in total to ensure information was in whole
• Signed Certificates– After each debit, credit and ReadPurse, the card would return cryptographically signed certificates
• Autoload – automatic add value services when transaction amount exceeded balance, provided the card was linked to bank account
• Partial Refund – Limited to most recent amount debited which was useful for retail and bus fare transaction that required ‘at start, deduct maximum, upon end, and refund unused amount’
• Cumulative debit (or Slicing) – to minimize transaction processing overheads, debit operations for one card were accumulated into a final amount

Singapore had planned to spend up to $30 million in 2012 on building NFC infrastructure allowing citizens to use NFC for a wide range of NFC services such as payments, transport, loyalty etc. The government through Infcomm Development Authority (IDA) hired a consortium of 7 members to help with the development and roll-out of this NFC infrastructure across Singapore.

Research conducted by an independent IT consulting firm mentions that a fully interoperable NFC environment creates a market size that is eight times larger than that of a non-interoperable environment. Based on this research, one can safely conclude that based on the approach followed by IDA, the country will see a strong growth in the roll-out of NFC services as compared to other countries (today no other country besides Singapore has a government led NFC infrastructure roll-out program in place). The open access infrastructure has several advantages such as:

 

• Ability to offer secured services to all mobile subscribers through a single TTP connection
• Faster time-to-market, shorter development and deployment cycle with standardised interfaces and processes
• Standard mobile payment services can be deployed within 6 months upon agreement
• Cost efficient – reduce duplicated infrastructure and capital investment.

Some of the initial services that have been rolled out in Singapore are mobile wallets being offered by all 3 mobile operators in collaboration with payment service providers. Currently, e-wallet applications based on 3 different type of cards are being offered to consumers in Singapore: CEPAS card (national e-purse application), MasterCard (Paypass) credit and pre-paid cards.

 

Key Risks:  

Some of the key risks of the integration revolve around the differing commercial interest of the parties involved. This was addressed by government driven mass market deployment of CEPAS as it demonstrated that contactless payments could be safe, reliant and convenient experience which helped overcome the initial resistance by the stakeholders. Another barrier to retail adoption was not having a common terminal network across all card managers in the retail arena. To encourage the merchants to support CEPAS smart cards, IDA offered S$ 16 million in a CFC to jointly fund the cost of local merchants who switched their POS terminal to contactless CEPAS-compliant readers.