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Smart Cities Payments and Finance


“More with less” is one of the promises of smart city technology and nowhere is this more true than in payments and finance. By leveraging the techniques explained in this chapter, city governments can spend less while offering citizens more benefits, more convenience and more inclusion.

Today cities are the hub of world economic growth, generating an estimated 80 percent of global GDP, according to the World Bank. Yet many cities are severely challenged by rising (or slowing) population growth, by aging or inadequate infrastructure, by increasing operational costs and by “do more with less” austerity pressures.

So how can they compete effectively? How can they pay for the smart infrastructure improvements that attract and keep new businesses, skilled workers, tourists and other accouterments of a robust economy?

They can start at city hall.

Cities bring in revenue – from the money drivers put in parking meters to the sales tax, shoppers pay to the fees developers shell out for building permits. Money flows the other way too, of course, from salaries paid to city employees to goods and services procured from vendors.

In fact, cities make huge volumes of payments to suppliers, to employees and to citizens receiving benefits. They also collect big amounts in taxes, fines and use payments. This makes payment systems an important target for modernization. Cash causes problems while increasing costs. By digitalizing both disbursements and collections, a city generates significant savings and increases operational efficiency.

But in many cities, that economic engine needs a tune-up. New digital tools – sometimes referred to as e-government or mobile government solutions – can drive more efficient service delivery. For example:

• City dashboards allow cities to measure progress toward stated goals against a set of key performance indicators (KPIs). With the help of KPIs, cities can continually monitor and improve their strategies.

• E-procurement moves the entire procurement process to an integrated electronic platform. This allows a city to get real-time access to a database of suppliers to make price comparisons. The Korean On-Line E-Procurement System (KONEPS) delivered an estimated $8 billion in savings in 2010. And the SmartPay program of the U.S. General Service Administration reports estimated savings of $70 per transaction ($1.7 billion annually) when electronic payments replaced written purchase orders.

• Electronic payment systems “digitalize” a city’s disparate payment mechanisms (licenses, social service payments, transit payments, parking meters) into an integrated whole, providing greater efficiency and better oversight. Electronic disbursement of salaries and benefits reduce costs to 60 percent, according to research by Council member MasterCard. Reducing the cash in a city’s ecosystem also reduces the grey economy, since digitalization provides more transparency and control while increasing collections.

• Advanced revenue collection and payment systems enable individuals and businesses to submit tax, application permits and the like online. These electronic forms and autofill features can save money and time while reducing errors. Cities can also strengthen compliance by integrating business analytics, big data, business rules and workflow. Some cities report revenue increases of 5 percent or more as a result.

Technology + transparency:
A win-win for cities

Another important reason for the financial tune is to enable greater transparency into city operations. When citizens have visibility into city finances they may be more inclined to vote yes on the next bond issue to pay for an infrastructure upgrade.

In early 2014, Edmonton, Alberta added data on its operating budget to the city’s open data catalog. Cities often post their budgets online, but the Edmonton approach will allow citizens to actually manipulate or reformat it. Mayor Don Iveson told the local media that it’s about freeing up the information the city has and that citizens have paid for. “Open government,” he said, “is about trusting that our public is going to add value to our decision making if they can see more of the information.”

Similarly, Los Angeles Mayor Eric Garcetti launched a new website to make it easier for people to review his city’s finances. It features interactive graphs of the current and past budget, including multi-year trends and departmental revenue and expenditure details. Increasing transparency also allows cities to get more visibility and control over civil servants’ spending as well as over the use of public benefits. For instance:

• Virtual payment cards can be generated on-the-fly and used only for a specific amount and with a specific supplier. This avoids loss of control over expenses when multiple people get corporate cards or access to payment instruments. Likewise, travel and expense (T&E) can be loaded and controlled remotely and given to city employees for specific purposes.

• Prepaid benefits cards give government agencies much greater control over the use of public funds. For instance, users can be limited by time of day, category of merchants, or geographical area. Prepaid cards can be used for all kinds of city programs, including student benefits, cafeteria cards, childcare subsidies, pensions, etc. The city of Toronto is saving roughly $2.5 million per year by eliminating checks in favor of prepaid benefits cards.

Numerous systems can help cities become more efficient and more transparent. In this chapter, we’ll introduce a smarter approach to financial management and payments. We’ll also step outside city hall to explore ways to promote smarter payment practices across the city.

What this chapter won’t cover

Cities rely on a wide range of financial tools to pay for civic improvements – taxes, grants, bond issues, public-private partnerships and a host of emerging alternative funding mechanisms. Those tools are not covered in the Readiness Guide. In March 2014, the Council in collaboration with the Arizona State University Center for Urban Innovation published the Smart Cities Financing Guide. It offers detailed analysis and case studies of 28 of the most promising financing tools available to help cities and regional governments pay for smart city projects. You can download the current version of the Guide at the Council website. Frequent updates are anticipated as new financing opportunities and best practices emerge.

Trends shaping financial management systems

Major trends are affecting cities and raising challenges that argue against doing business as usual. These trends make a smarter approach to financial and payment systems even more critical, both as an economic enabler but also as a source of cost savings. These trends include digitalization, ubiquity, convergence, transparency and personalization. Each one has benefits… and dangers too.

Digitalization. Smartphones and other digital devices are everywhere. But digitalization can go far beyond what we see today. For instance, where pay-by-weight waste collection is in place, a simple chip can automate payment. Likewise, many cities have mobile apps that enable residents to pay water bills or pay for parking spaces with a mobile phone. We will see even more of that in the future. But the digitalization trend also triggers challenges for cities, such as the development of the required connectivity, interoperability and robust security.

Ubiquity. City employees are no longer constrained to stay in the office to communicate. Field workers – from public safety personnel to transit operators – typically carry smartphones, tablets or laptops on the job. As valuable as these tools can be, they raise security issues if privileged information on them gets in the wrong hands.

Convergence. Urban consumers now have much more than music and pictures on their smartphones – they may also have payment instruments and loyalty cards. Because they connect to the Internet from multiple devices, they cannot store and use local data. Instead, that data needs to follow them around. To allow that “follow me everywhere” capability, payment systems must provide secure and convenient solutions based on cloud computing.

Transparency and control. Many new services allow citizens to make better choices – for instance, by delivering price comparisons or nutrition tips. And this also applies to public institutions. Citizens increasingly expect full visibility into public expenditures and return on investment.

Personalization. People want applications, offers and services tailored to their individual needs and delivered at just the right time – for example at the point of sale while shopping. As they become accustomed to personalization, they will expect it from their city government too.

The inclusion challenges cities can’t ignore

In many parts of the world, smartphones, and tablets seem ubiquitous. But a large portion of the global population does not yet have access to digital technology.

Similarly, the World Bank reported in 2012 that 2.5 billion adults worldwide don’t have a formal bank account. Full three-quarters of the worlds poor do not have an account. “Providing financial services to the 2.5 billion people who are ‘unbanked’ could boost economic growth and opportunity for the world’s poor,” said World Bank Group President Robert B. Zoellick. “Harnessing the power of financial services can really help people to pay for schooling, save for a home, or start a small business that can provide jobs for others.”

Also, given the migratory nature of society today, many cities are seeing increasingly large segments of their populations who do not speak the native language.

All of these circumstances – lack of Internet access, digital technologies, banking services and language barriers – present challenges to cities, especially in financial services. Citizens without Internet access still need a way to take advantage of city services. Those who don’t use traditional banking still need a way to submit and receive payments. Those who don’t speak the native language still need a way to understand things like city tax and permitting requirements.

Thankfully, we are starting to see advanced technologies that promote inclusivity. Among them:

Virtual city halls and kiosks. In Nice, France, a “virtual city hall cabin” was set up in a shopping mall in 2013. The “cabin” is equipped with Cisco high-definition video equipment that allows residents to interact face-to-face with a remote agent who receives and processes requests. The point is to bring public services closer to places residents typically frequent (such as municipal libraries and shopping malls), with extended operating hours. Although convenience is one objective, this scenario also enables citizens without Internet access to connect to city services without making a trip to city hall.

Prepaid cards for unbanked citizens. Cities can provide their financially excluded citizens with prepaid products seamlessly collect and make payments. In 2013, Oakland, California became the first municipality in the U.S. to issue a city ID prepaid debit card to provide a government ID for residents lacking an official form of identification and to provide optional, secure financial services and products to those unbanked and under-banked. All city residents able to provide proof of identity and residency in Oakland are eligible for the card.

Mobile apps with translation capabilities. As cities create apps that give access to city services, they can overcome language barriers via translation technology. For example, the city of Costa Mesa, California launched its Costa Mesa Connect app in partnership with New York-based PublicStuff. The app features One Voice Translation to support over 17 languages. When a resident submits a request in another language, the request is automatically translated into English for city staff. Any subsequent updates on the request are automatically translated back into the resident’s preferred language.

Benefits of smart payments and finance

Before we give you specific guidance for improving financial management and payment, let’s examine how those improvements enhance a city’s livability, workability and sustainability.


Making convenience a priority with smart payments. Long lines at the counter, long hold times on the phone and slow response to emails don’t cut it in today’s fast-paced world. Smart payments offer faster, more convenient solutions. A few examples:

• The New Delhi (India) Municipal Council introduced smart cards that residents can use to pay their utility bills.

• In London, services such as PaybyPhone enable consumers to pay for parking from their mobile phone; no need to carry change. They can even top up the meter remotely, saving a trip back to the parking spot.

• Instead of standing in line to buy tickets, public transit riders in Sydney, Australia use their prepaid Opal cards to tap on a card reader at the start of a trip and again at the end. And not only do Opal cards offer convenience for bus, ferry and train riders, they also offer fare incentives, including free travel after eight paid journeys in a week.

Offering one-stop city services. By modernizing IT infrastructure with e-government solutions, cities can transform service delivery in exciting ways. No longer do constituents have to work their way through a maze of city departments when they are trying to take care of city business. By securely integrating previously siloed information from multiple departments into a single system view, city staff and constituents alike can be more efficient. A couple wanting to get married, for instance, can log on and apply for a marriage license, reserve a city facility for their reception and pay required fees in a single transaction. With every interaction, they build an identity with the city which allows them to consume a wide range of services through a single, secure portal.

Providing financial peace of mind. Connected, mobile citizens will benefit from emerging digital form factors – digital wallets, for example – that provide a single interface for all of their payment mechanisms, loyalty programs, transportation tokens and more. Using technologies such as near-field communications (NFC), contactless wallets of the future will be the repositories for ID cards, social and health programs, transportation cards – enhancing livability by having everything at hand and recognized in a second.

Using consumer data to unearth trends. Once cities use data analytics to understand citizen behaviors and preferences, they can modify systems to better meet their needs. For instance, public transit operators can analyze payment data to adjust transportation capacity in real time. Or city public health officials might take a cue from disease detectives in British Columbia. They tracked and ended an outbreak of hepatitis A by analyzing food purchase histories on grocery store loyalty cards.


Nurturing a business-friendly environment. A smart city creates the best possible economic environment. One way is through the use of smart payment systems for city government. Another is by integrating a city’s own systems with payment networks to make it easier for consumers and local businesses to conduct commerce globally.

Attracting new businesses. Cities that offer a welcome climate for companies and highly skilled workers build wealth through the creation of jobs and tax income. Streamlining permitting and licensing processes, leaving out unnecessary steps and reducing paperwork are all ways cities can make it clear they are open for business.

Increasing the velocity of money. By enabling quick payroll and benefits disbursements through the types of e-government and smart payment solutions mentioned earlier, individuals get quick access to their money so they can spend it at city merchants. M-Pesa, a successful payment innovation in Kenya, has made it quick and easy for employers to pay workers through mobile remittances, even for people who do not have banking accounts.

Enhancing security and reducing fraud. The migration to smarter payment and financial systems is a tremendous protection for business, consumers and the city itself. With the right acceptance tools and payment instruments, merchants know if customers are trustworthy. And they can be paid quickly to reduce working capital requirements.

Creating a welcoming environment for visitors. Travelers have different needs than residents. Coming from afar, they need convenient and interoperable payment solutions. They also need helpful information in an unknown environment. To attract travelers and tourists, cities need citywide payment systems that can interoperate with those from other parts of the world. For instance, by using their mobile commerce wallets, visitors can be recognized as such, contacted in their native language, and provided with relevant information, since the system will know the hotel they are staying at, their plane departure times, etc. Integrating their hometown payment instrument into smart city systems enables them to navigate as seamlessly as if they were at home.


Improving planning. Payments are an incomparable source of insight on residents’ ways of living, commuting and consuming. Through analysis of payment data, city governments can adapt city infrastructures and services to citizens’ preferences while decreasing inefficient spending. For instance: Putting a new post office at the best location possible to maximize its use, based on insights gained from shopping patterns. Similarly, cities can tailor transportation and other public services based on shopping data.

Supporting public policies. Environmental challenges increase the need for innovative solutions to reduce waste, reduce emissions, save energy and foster green transportation. Payment is central to making solutions accessible. Here are a few examples: NFC-enabled public charging stations that enable electric vehicle users to easily pay and recharge; freeway and bridge tolling payment solutions with automatic detection of car registration plates;

city parking payment solutions; smart payment devices connected to household energy consumption to help citizens make the most of their solar panels.

Saving resources. The flow of out-bound and in-bound paper checks, paper invoices, envelopes, etc. alone can add up quickly – especially when you consider how many city agencies around the world are still paper-based. Automating processes to enable electronic invoicing and pay-by-phone, pay-by-portal and related technologies can make a huge dent in the number of trees lost to old-fashioned practices.

Smart finance systems and payment targets

The best practices and targets listed below will help cities foster smarter approaches to financial management. Several targets are specifically related to smart finance and payment systems and this next section will focus on them. We will also address several targets from the Universal chapter and how they apply here as well. If we fail to mention a Universal target below, it does not mean that it does not apply to city finance and payments. Rather, we simply felt it did not require additional explanation.

Instrumentation and control

Ensure access to robust banking services. Cities in the developed world may take convenient, ubiquitous banking as a given. In other parts of the world, however, it is a significant issue. Access to banking services is the key underlying prerequisite to smart payments. It has various implications, from the need for a network of capable ATMs (automated teller machines) to a sufficient number of bank offices.

City leaders must encourage a widespread, safe banking system. If cash and credit cards are currently the basic form factors, the city should encourage smarter versions such as NFC-enabled cards and mobile phones linked to banking. Electronic payments are also key, as more and more transactions are done remotely. As an illustration, the city of Nice, France massively communicated the benefits of contactless cards. By pioneering that technology, the city created a favorable climate for adoption and the benefits that followed.

Implement optimal instrumentation. There are at least two payment areas where cities need to ensure that the right devices are deployed: such as contactless cards and phones, as well as electronic wallets.

• Payment form factors. Smart payment devices do more than paying. For instance, digital wallets gather all customers’ existing payment cards in a single device and also combine them with rewards and loyalty cards. They also enrich their functionalities with innovative features to facilitate day-to-day life. In Hong Kong and London for instance, the mass transit systems rolled out contactless electronic cards that people can use to pay for transit, but can also use in shops.


Connectivity and telecommunications are crucial for the development of smarter financial systems and payments. The smart cities model relies heavily on a fast, secure, real-time transfer of information.

Connect devices with citywide, multi-service communications. Smart cities need connectivity throughout to allow stakeholders to carry out transactions anywhere, anytime. Access to high-speed wireless Internet is a prerequisite. So is good coverage, including areas such as subways and mass transit systems where people spend significant time. Everyone also benefits from a fast and secure network, as it decreases the risk of fraud and reduces processing time to create a seamless experience.

Connect all financial systems with a citywide, data platform. Cities need to collect and use data in real time to have complete situational awareness into financial flow. A holistic view that integrates financial data from all city departments is key to understanding trends and making informed projections about future investments. It is also essential in providing transparency to citizens.


Interoperability maximizes the value of smart financial systems and payments.

Adhere to open standards (including across all finance and payment infrastructures). Adopting open standards has significant advantages. It ensures fast and broad participation, minimizes risk (through investment in tested standards) and drives procurement efficiency (by offering access to greater choice and lower prices). It also facilitates participation by foreign consumers, tourists and business travelers.

Open standards must be used at multiple levels including 1) the communications technology, 2) the interaction between payment devices and 3) the data exchanged between the devices. NFC is the perfect example. This contactless communications standard has been broadly adopted by leading merchants, issuers and city leaders around the world. Cities should give preference to global standards to make it easier to do business globally and to attract tourists from other countries.

Use open integration architectures and loosely coupled interfaces. Companies are increasingly adopting open integration architectures and exposing their APIs so that third parties can integrate with their systems. In the payments industry, companies such as MasterCard are adopting this approach. Cities should also adopt a similar strategy when developing their payment infrastructure to rapidly “bulk up” their payment ecosystem and provide more value for all participants.

Prioritize legacy investments. Most cities simply cannot afford to replace all of their financial systems overnight, which means priority must go to making the most of existing investments while formulating a roadmap for prudently moving forward with upgrades. Often cities can continue using old software by sending data to new software modules that add value on top.

Enable multi-channel access to an integrated customer and business service platform. Cities can’t assume that every citizen and every business has a smartphone, computer or reliable Internet access to avail themselves of city resources, sign up for benefits, pay their bills, etc. Public kiosks in downtown centers and libraries are one way to bridge the digital divide. Integrated customer and business service platforms also must accommodate people with special needs – different languages and disabilities, for example.

Have access to comprehensive device management. Implementing smart payments will explode the number of devices and the volume of data on a city’s network. Comprehensive device and network management will improve security, resilience and reliability of the payment system, deliver cost savings and enforce compliance with city data management, security and privacy policies.

Security and privacy

A key goal of a payment system – smart or otherwise – is to enforce trust between participants. Similarly, a city gathers significant amounts of financial data from citizens and businesses when they apply for permits, licenses and other services. A security or privacy breach, therefore, threatens a city’s overall integrity.

Publish privacy rules (and apply them to the city’s financial and payment systems). Cities should publish and enforce clear rules on privacy that apply equally to financial data. From a privacy perspective this includes:

• The respect of anonymity – data should not be “personified” when analyzed
• The type of information that can be captured from the client
• What can be shared
• Who has access to it
• How the information is stored and used
• How participants can access it and edit or delete it

However, cities need to recognize that overly stringent rules can discourage participation – they must strike the right balance. Remember as well that security specifics may already be defined by law or by commercial terms.

Implement cybersecurity. As we’ve noted, smart cities generate mountains of financial data. They also connect critical infrastructure to the Internet. Those actions create many benefits, but they also create new threats. It’s best not to leave it to each individual department to come up with a security plan. Instead, implement and enforce best practices citywide.

Data management

Create a citywide data management, transparency and sharing policy. Given the sensitivity of financial data, we want to emphasize the importance of a citywide policy for how data is governed, stored and made accessible. Best practices call for a clear governance directive that establishes the chain of authority and control over data assets and spells out who makes access decisions and who determines accountability. This citywide policy should cover both private and public data and ensure that data from each department is made available to others. It must also align with the policies in the security and privacy targets discussed previously. A citywide data management plan will increase the city’s agility (ability to quickly build new applications as needed) and accuracy (by ensuring everyone is working with correct data). It can also lower costs by reducing errors and eliminating unnecessary duplication.

Computing Resources

With close to three trillion payment transactions globally every year, payments involve large volumes of data. True value can be derived from payment systems if that data
can be analyzed.

Consider a cloud computing framework. Cloud computing is a valid consideration for every city responsibility, but it is virtually a requirement for smart payments. To be usable, the payment solution has to allow information to be securely stored yet accessible anytime, from any place and any device. Only a cloud computing framework can meet these stringent requirements. Cities may want to consider a hybrid approach – the public cloud for storage and processing, but a local or private cloud for elements with higher-level security and privacy requirements. Either way, cities should ensure that the cloud service they choose includes data encryption, effective data anonymization and mobile location privacy.


Analytics based on payments data can have a significant positive impact on local commerce. It can also inform and improve government policies.

Achieve full situational awareness (including local commerce trends). Develop a deep understanding of local commerce trends by analyzing payment data. Insights can include macro indicators like retail sales that help decipher the state of the economy and set policy direction. Micro indicators such as tourist spending behavior by the city of origin can help identify places to target for marketing and promotional activities.

Achieve operational optimization. Capture and analyze transactional data to get useful insights – for example, citizen usage of public services. Insights such as the number of people using the city’s mass transit system (from ticket purchase/validation) versus driving into the city (from toll fees or parking payments) can help cities set policies to reduce congestion. Likewise, accurate monitoring of spending in post offices or licensing offices can allow a better allocation of staff and improved management of opening hours.

Implement a KPI dashboard. Use a city dashboard to measure progress toward stated goals against a set of key performance indicators (KPIs). With a dashboard city officials can continually monitor and improve their management strategies when new data suggests a course change. A city and its dashboard is one key to ensuring efficient management of a city’s services across multiple sectors – transportation, energy and water for example. Comparing performance on standardized KPIs with other municipalities can be an effective way to promote best practices.

Pursue predictive analytics. Payments data can predict people’s preferences and significantly improve the city’s ability to plan for the future. Cities should develop and leverage this capability. For example, a city might adapt its development plan after learning that people are shifting their spending from neighborhood convenience stores to larger stores on the city outskirts. Predictive models can also be set up to determine the most appropriate locations for commercial or public services.

Three essential assets to achieve payment insights for cities

Councilmember MasterCard is a world leader in payments data and analysis. The company suggests the three assets shown in the chart are essential to achieving deep insights from payment data. You may find it useful to pass along to your ICT staff as they begin to evaluate options.

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