A Return in 2023 to Market Growth for Contactless Ticketing

It is clear that 2022 reflected an overall decline in the contactless ticketing market in all regions. A perfect storm of macroeconomic and geopolitical factors resulted in full-year results trending downward as lasting COVID-19 effects, the chipset shortage, and energy cost increases have all played their part in determining market dynamics.

As it relates to a market recovery to pre-pandemic levels for ticketing smart card issuance, ABI Research still does not believe the global market will recover for a number of years, currently estimated at 2025, not only due to the impact the pandemic had on traveling habits, but also the chipset shortage, which entered its most critical year in 2022 and continues into 2023. All major markets saw demand for chips already surpass anticipated levels in 2021 and 2022, which is expected to continue in 2023. This effect will be felt more harshly, as it relates to ticketing smart cards, in developing and emerging economies where transit authorities will have to pay the higher Average Selling Prices (ASPs) their contactless ticketing smart cards now demand.

However, there are some positive key takeaways from 2022. Despite a ticketing market contraction in 2022 and ridership levels not anticipated to return to pre-pandemic levels in the midterm, a shorter-term positive market impact will be driven by macroeconomic pressures as more people return to public transport in the wake of increasing fuel prices, making public transit a more attractive value proposition.

The contactless ticketing market has suffered more than other smart card verticals, such as government Identity (ID), being a lower priority market using lower margined chipsets. ABI Research anticipates additional capacity arriving in 2H 2023, supported by the slowing of the Consumer Electronics (CE) device market where component inventory is now building up. This means foundries will find alternative markets to fill capacity and the slowdown in the consumer electronics market will open allocation for smart cards.

The market has played out in a variety of ways from a regional perspective throughout 2022:

• North America: The continuing chipset shortage hampered the U.S. transit market through 2022; however, moving into 2023, we will see the critical year successfully navigated from an allocation perspective, meaning North American ticketing smart card issuance will grow.
• Latin America: Latin America has had a historical tendency toward mass transit, originating from widespread ridership on public and privatized bus, minibus, metro, and taxi systems. There also remains a transformative opportunity to develop Latin American transport systems beyond their current capabilities as it relates to both infrastructure and payment systems. With the digitization of existing urban mobility systems in larger countries, such as Brazil, Colombia, and Argentina, the Latin American region, as a whole, can begin to leverage technologies, such as Account-Based Ticketing (ABT) and open-loop Europay, Mastercard, Visa (EMV), that can further increase the efficiency of public transportation and draw travelers back to the network.
• Europe: Transit authorities in the European market are certainly finding success in bringing travelers back to the network. Government subsidized programs in Germany with the €9 ticket saw a surge in travelers returning to transit networks and have retained this since the project ended. Furthermore, neither COVID-19, nor the chipset shortage has impacted planned programs and upgrades for transit systems, with Russia, Paris, Ukraine, and Athens set to roll out before the end of the forecast period ending 2027.
• Asia-Pacific: The Asia-Pacific region did see a middling level of impact, with China one of the most severely affected as a result of its zero-COVID-19 policy lockdowns effectively shutting down entire transit networks. Countries most affected over the forecast period include India, China, Australia, and the Philippines.
• Middle East & Africa: Experiencing considerable negative effects, the Middle East & Africa struggled somewhat throughout 2022. The shortfall in availability of Integrated Circuits (ICs) and rising energy costs, coupled with global inflation resulted in a range of high-population African cities with established public transport systems, including Addis Ababa, Dakar, Cape Town, Nairobi, and Accra, seeing significant reductions in the level of ridership. On the other hand, similar to the trend identified in Latin America, increases in fuel prices have driven some travelers to return to the transit network as a cheaper alternative to running a personal vehicle.

ABI Research expects a continuing migration toward open payment systems throughout 2023, with various payment networks and financial institutions becoming increasingly interconnected. The dominant trend in the ticketing market, at present, is giving as wide a range of payment options as possible to the end user to streamline the user experience and provide as frictionless travel as possible. Enabling the easy transfer of funds between different systems also permits travelers to leverage a variety of payment methods, including credit and debit cards, digital wallets, and alternative forms of electronic payments. While closed- and open-loop EMV is still a present trend, and is indeed growing in the market, open-loop EMV is still being observed as an option to expand choice, rather than a complete replacement for all Transport Authority (TA) infrastructure, largely due to the cost of installation and Payment Card Industry (PCI) compliance.

These critical developments are the result of currencies and payment methods becoming increasingly decentralized. Moving into the next few years, ABI Research envisions the installation of open payment ecosystems, which will transform the accessibility of transit systems in all countries, especially in underbanked or unbanked areas, or citizens who lack access to traditional banking networks. This transformation in the payments and ticketing market will see the rise of real-time payments and digital interbank schemes presenting a range of new prospects for transit authorities, digitizing economies, and travelers alike.