Acquiring: Lots of Opportunity

Elizabeth Whalen

Nobody likes to pay for parking, but mobile-payment technology is making it more convenient—and creating a potentially huge market for parking-lot companies and technology firms alike.

It was on a trip to Ireland in 1997 that David Douglas first discovered that consumers could pay for parking with a cell phone. In Cork, he found street parking that could be paid for using an interactive voice response (IVR) system that allowed consumers to call a number and enter a location-specific zone number, their license plate numbers, and their payment card information.

When Douglas, whose family has been in the parking business since 1930, returned home, he went looking for a company that could provide Douglas Parking’s 140 parking facilities with the same service.

The company still uses the IVR system, which is not dependent on either mobile Web or mobile-application technology. But since 2010 it has also offered customers the option to pay with a mobile app called QP QuickPay, which can utilize GPS technology to both initiate and complete parking transactions, Douglas says.

“When you pull into a Douglas Parking lot, the app already knows where you are. It uses GPS. And in that case, you pull in, it confirms that you’re on the particular lot that the GPS thinks you’re on, and it asks you whether you want to pay for parking. It already has your credit card information entered in,” he says.

The system also alerts the parking monitoring system when people drive their cars off of lots with incremental or hourly, rather than flat, rates, he says.

“The QP system knows when your car has left the lot, so it stops charging you. You don’t do anything. It knows how long you’ve been there, and then when you leave, the satellite knows that you’ve left the lot and stops charging you.”

Douglas Parking currently offers the option to pay with QP QuickPay in its lots in Denver, the San Francisco Bay Area, and Las Vegas. In some of those locations, Douglas Parking has recently begun reserving desirable spaces just for QP QuickPay customers, Douglas says, as an introductory promotion to encourage QP QuickPay usage. It’s also piloting two small lots, one in Oakland and one in Denver, that are pay-by-phone only. Douglas says he was concerned that customers might avoid the lots but that both are still full.

Getting Rid of Meters

In addition to QuickPay Corp. of San Francisco, other creators of pay-by-phone systems include PayByPhone Technologies Inc. of Vancouver, British Columbia and ParkMobile USA of Atlanta, both of which offered IVR systems before the advent of smart phones and have since expanded their offerings to include mobile Web and mobile-app-based payments.

Indeed, the staid, $18-billion business of parking in the United States is starting to undergo a mobile revolution.

For consumers, the main benefit of these systems is convenience, says Neil Podmore, vice president of business development for PayByPhone. They no longer have to find the right coins to feed the meter or worry about extending their parking session. The PayByPhone system sends customers texts when their sessions are about to expire, he says, and, if the lot or meter allows, lets them add time using the IVR, mobile app, or mobile Web.

PayByPhone’s clients, which include municipalities, private lot operators, and universities, benefit from reduced infrastructure and equipment expenditures, Podmore says.

“It really puts them on the path to reducing the investments they make and ultimately eliminating the investments they make in their meter infrastructure because the PayByPhone system is independent of the meters,” he says. “Meters cost money to buy, to operate, to service in terms of mechanical servicing and coin collection, and they’re a little bit vulnerable to theft in some cases. They don’t look very attractive on the streets.”

As pay-by-phone transaction volume increases, cities can consider reducing the number of meters, he says. “Our flagship in that regard would be Westminster in Central London, where they’ve actually eliminated parking meters now,” he notes. “If you go to Bond Street, Oxford Street, any of the area encompassed by the borough of Westminster, you won’t find any parking meters. You’ll only find a phone-payment system.”

Podmore says cities also benefit from improved data on parking-space usage. “The data that they’re getting from this type of payment system allows them to make much better-informed policy decisions,” he says. “In coin-only meters, they have very little insight into how parking is being used. Do 100 coins represent 50 people putting in two coins or five people putting in 10 coins? What time of the day are those coins going in?”

But with both historical and real-time transaction-level data, cities have a proxy for real-time space availability. For example, if a specific area has 200 total spaces and 150 are paid for, approximately 25% of the spaces are available, he says, and better guidance on availability could reduce congestion due to drivers circling looking for open spaces.

Some studies estimate that about 30% of all congestion in cities is caused by drivers looking for an available parking space, says Laurens Eckelboom, executive vice president of marketing and channels for ParkMobile USA. Guidance on availability could be disseminated through the navigation systems that many new cars now include, he says.

Douglas doesn’t dispute that municipalities may benefit now or in the near future from space-availability applications, but he does believe that it will be a few years before drivers can use such data to find available private parking-lot spaces.

No ‘Pushback’

In addition to reduced meter-related costs and congestion, Eckelboom cites as benefits increased revenues for cities and other parking-lot operators.

“We’ve seen that phone-parking transactions typically generate 20% to 30% more revenue than meter transactions. If you put coins in a meter, you tend to underpay because either you don’t have enough change or your appointment takes a little longer, so you risk paying too little and hope the enforcement won’t be in time,” he says.

ParkMobile allows consumers to remotely extend their parking sessions and to pay for only the amount of time they are parked, helping to prevent underpayment.

None of these payment systems requires operators to buy new equipment, but they generally require parking-enforcement officers to have a Web-enabled device, such as a smart phone or a PDA. Private parking-lot management companies and cities often already have devices that are at least capable of wireless connectivity, says Podmore. Once the devices are wirelessly connected, they can access payment information online to determine which spaces have been paid for and which have not.

In Naperville, Ill., which uses PayByPhone, police officers download reports from the payment machines installed in the two commuter train-station lots that allow consumers to pay for parking by phone, says Rory Fancler, project manager with the city’s transportation, engineering, and development business group.

“The report will populate which parking spaces have been paid for and which spaces remain unpaid,” Fancler says. “The officer then walks the lot, checks the spaces that are unpaid, and any vehicles that are parked in those spaces are issued citations.”

“I also have the ability to populate the same report from my office in the event that somebody calls or says, for whatever reason, ‘I didn’t receive a receipt when I submitted my payment. Can you verify my payment was received?’” she says.

Fancler also fields calls from people who aren’t sure they’ve paid for the correct spot.

She says that most people who use the pay-by-phone system do so because it’s convenient. It allows them to pay for their parking from the train platform or even the train itself, and is therefore popular with commuters who are running late. The usage rate has held fairly steady at about 10%, she says.

Usage might be higher with a lower transaction fee, Fancler says. PayByPhone charges the consumer 35 cents per transaction, which means most people use it only in certain circumstances, such as if they’re running late and want to avoid a ticket. By contrast, the city levies a 5-cent charge on credit card transactions, and of course cash payments are free.

PayByPhone, ParkMobile USA, and QP QuickPay all charge per-transaction fees of up to $1.

Some of PayByPhone’s municipal or private clients choose to pay the transaction fee to encourage adoption, Podmore says; others pass the fee on to the end user. PayByPhone charges lower per-transaction fees when its clients absorb them rather than passing them onto consumers, he says, because then end-user adoption is higher. Sometimes the end user also pays the credit or debit card processing fee.

Douglas Parking absorbs the card-processing costs, but does charge end users a fee between 25 and 50 cents, Douglas says.

“Believe it or not, I have not heard any pushback on that,” he says. “I think customers are OK paying it because it’s so much more convenient than having to look for cash.”

He notes the number of people using QP QuickPay increases every month, though he isn’t certain of the current usage rate.

Durbin Weighs in

Recently, however, the normally mundane subject of transaction fees for mobile parking payments took on an air of controversy thanks to a routine announcement from ParkMobile USA.

ParkMobile offers a stored-value mobile-wallet application that allows users to add money to their ParkMobile accounts, use that money to pay for parking, and set up automatic value reloads when the amount on the wallet goes below a specified threshold, Eckelboom says. The wallet also offers consumers lower per-transaction fees.

On Oct. 23, ParkMobile announced that as of Oct. 29, it would increase its per-transaction fee for the spaces it covers through its contract with the District of Columbia from 32 cents to 45 cents. It also said customers using its wallet application would pay a reduced transaction fee of 30 cents.

The announcement cited the Dodd-Frank Wall Street Reform and Consumer Protection Act’s Durbin Amendment, which directed the Federal Reserve System to set debit fees at “reasonable” and “proportional” amounts, as the reason for the price increase.

The amendment, which capped debit card interchange for issuers with more than $10 billion in assets, has led Visa and MasterCard to price so-called small tickets (typically transactions under $15) at the maximum allowable rate, around 22 cents—considerably higher than the old, unregulated cost. This has caused considerable consternation for any number of markets that depend on low-value sales, such as vending, convenience stores, and parking.

While the card networks are within the limits of the law, they are under no obligation to price small tickets all the way up at the Durbin maximum, a fact that didn’t escape the attention of Sen. Richard Durbin, D-Ill., author of the amendment. When he got wind of the ParkMobile announcement, he issued a statement calling its claims false and misleading.

“The Durbin Amendment was crafted to put a limit on exactly the type of unreasonable swipe fee increases that you lament,” the statement to ParkMobile said. “Blaming the Durbin Amendment for Visa’s and MasterCard’s decision to raise your fees is like blaming a traffic cop for a driver’s decision to speed and drive recklessly.”

ParkMobile did not respond to requests for comment. Early in November, however, the company issued what amounted to an apology to customers, explaining that it had relied on an “overly simplistic” understanding of the “underlying cause” of factors leading to the pricing difference between wallet and non-wallet transactions. Later in the month, ParkMobile abruptly replaced chief executive Albert Bogaard, who became a company advisor. The company offered no explanation for the move.

Paying by Nav

PayByPhone is considering introducing a mobile-wallet payment method but hasn’t yet finalized pricing for it, Podmore says. Different tender types within the wallet will come with their own costs, so the pricing is likely to vary based on the instrument, he says.

Regardless of the instrument people use to fund their mobile parking payments, the technology is likely to spread and encompass other payments.

ParkMobile is working to increase its footprint and is also considering offering payment services for other transportation-related services, says Eckelboom.

“We’re also looking to add new silos for micro-payments. Imagine that you could pay for parking and then could pay with your ParkMobile Wallet for a cup of coffee or for your newspaper. Instant couponing and hyper-local marketing initiatives are also things we’re introducing in the very near future,” he says.

Eckelboom and Podmore expect payments to become increasingly vehicle-based. With in-car navigation systems growing in popularity, payment is likely to follow, they say.

“There’s almost no doubt that we will see in our lifetime the elimination of on-street parking meters,” Podmore says. “I don’t necessarily believe that people will be using their phone to pay for parking forever. I think there will be, in essence, a high degree of automation initiated by the in-car navigation systems and devices that are increasingly two-way. Whether it’s you doing it with your phone or your car doing it automatically, that’s the way parking will proceed.”