The Digital Transformation of Train Operating Companies

OPINION / 16th November 2017

Train Operating Companies (TOCs) are facing tough challenges in a bid to digitise their businesses. Hopes of increasing sales, reducing operating costs and improving customer services may be driving their digital transformation programs, yet complex ticket pricing structures, fragmented data and the imminent introduction of the mandated smartcard, are just some of the many hurdles they are contending with in order to make it happen.

Increasing sales

TOCs are facing stiff competition from the Trainline.com, which takes a proportion of revenue from their online ticket sales. Trainline has 11 million people visiting its website or app each month, and sells 100,000 tickets online every day, grossing £2.3bn in ticket sales each year. It has aims to be the ‘Uber’ of the rail, so for TOCs this is a hard act to compete with.

Historically, TOCs have introduced a variety of ticket options to drive ticket sales, yet these are no longer fit for purpose, with passengers complaining that they are too complex. Passengers have said they want simple ticket prices, that are easy to purchase online and on mobile.

However, simplifying this system is easier said than done. Product development teams have to contend with legacy back end systems, the presentation of complex fare information, and data lags when retrieving information from the National Reservation System. Marrying up each of these data sets in real-time for passengers on the go is a challenging task. We’ve worked to overcome these issues for our clients using forward thinking partners such as SilverRail and its SilverCore ticket search and booking API.

Smartcard 2018

The Government’s Minister for Transport, Chris Grayling, has said that TOCs must introduce a smartcard, which is compatible across the UK rail network, by the end of 2018. For this to happen, there’s a huge infrastructure investment in gatelines and validators, in addition to updating ticket retailing systems to support the new ITSO smartcard standard.

This is a huge ask for TOCs. To put this demand into perspective, just three years ago around 7 per cent of tickets were available as e-tickets. Today that figure currently stands at 50 per cent. Yet, according to Clare Gilmartin, chief executive of Trainline, Grayling has stipulated that by next year 100 per cent of tickets must be available in this form.

The ITSO smartcard system, where smartcards are embedded with a microchip that electronically stores travel tickets on them, will operate in a similar way to London’s Oyster card. Passengers will be able to load a variety of tickets on to them (E.g. singles, returns, seasons) depending on the issuer, or be able use it as a pay-as-you-go service; eventually the paper orange mag-striped ticket will become redundant.

The next natural step for TOCs will be to emulate the physical smartcard on mobile. It will be interesting to see how this develops once the smartcard becomes a fully adopted standard in the next year and technology progresses.

Multi-modal, account based ticketing

Rail companies are also moving towards account based ticketing with either pre or post-payment. Instead of passengers having to carry a paper ticket or plastic smartcard in their wallet, they can get on and off a train without a ticket and use an app to track the journey they’ve made, and be billed accordingly. This will simplify the process for corporate travellers, streamlining billing, etc; yet it may not work for everyone, as it might not initially be the best way to get the lowest price. That said, one TOC, according to Andrew Steele of SilverRail, is trialling a system that can, in the same way Oyster does in London, automatically calculate the best value fare for a national rail journey, in addition to giving travellers real time information while they are on that journey.

Experiments with multi-modal ticketing are already underway in other countries. As of March this year, Singapore has been piloting a multi-modal and account based ticketing solution, in conjunction with Mastercard. More than 100,000 commuters on the pilot can now travel on buses and trains using a contactless payment solution. Singapore’s Land Transport Authority says that digital payment technology will enhance the commuter’s mobility experience, and that it is a key component in the country’s vision to become a ‘Smart Nation’.

Ultimately, this is the future for transport groups in the UK, many of whom not only run rail franchises, but also bus networks too. These operators will need to embrace the multi-modal approach to ticketing and become customer-centric, in order to keep pace with the digital demands of the next generation of commuters.

ORM’s view

Increasing sales, reducing operating costs and improving customer satisfaction are the three main driving forces behind the RailTech revolution in Britain. Yet, despite many proof-of-concepts being worked on, we are lagging behind our European and Asian counterparts. The adoption of digital and technological solutions is slow, due to legacy systems and inconsistent direction from central government.

Although many RailTech solutions are being developed, some of which are game changers, such as account based ticketing, rolling them out and making them compatible between all the networks is going to be a major problem for the industry.

We hope the latest HackTrain Hackathon 4.0, which we are proud sponsors of and are part of the innovation teams riding on the trains, will further provide impetus for collaboration and change. As a mentor, I am looking forward to meeting some of the best and aspiring developers, entrepreneurs, designers and policy makers in the business to work towards solving some of the UK’s rail industry’s problems; knowledge that I hope to pass on and share with our clients.

Keith Nation Keith Nation Managing Director & CTO Keith Nation