Automated Fare Collection Systems

Adoption of an Automated Fare Collection System: City of Tshwane Taxi
Owner's Perspectives
by
PETER MUWANULA
A dissertation submitted in fulfilment for the Degree
of
Magister Commercii
in
Business Management
Faculty of Management
UNIVERSITY OF JOHANNESBURG
Supervisor: Dr. M. Dos Santos
Co-Supervisor: Ms. E. Strydom
2013

DECLARATION
I certify that the minor dissertation submitted by me for the degree Master’s of Commerce (Business
Management) at the University of Johannesburg is my independent work and has not been submitted by
me for a degree at another university.
PETER MUWANULA

Abstract
The smart card concept was first patented in 1970 by Dr. Kunitaka Arimura of Japan
and further developments of the smart card took place throughout the 1970s (History
of Smart Cards) and development still continues today. A Contactless Smart Card
(CSC) is a card the same size of a credit card which consists of a chip, a magstrip
and an antenna imbedded in the card. The purpose of the antenna is to
communicate with a contactless card reader eliminating the need to insert the card
into a Point of Sale (POS) terminal. The main purpose of the contactless feature is to
facilitate transactions below R200 as well as speed up these low value transactions
by eliminating the need to insert a Personal Identification Number (PIN). This allows
card holders to pay for goods or services quickly and it also enables retailers and
service providers to increase their throughput. The CSC can be used in both retail
and transit environments and in South Africa, the CSC is the latest development in
electronic fare media for transit operators and it also forms part of an Automated
Fare Collection System (AFC).
Smart card technology in South Africa for public transport use is still a new concept,
but is now visible with the Gautrain rail service in Gauteng, and the MyCiTi bus
service in the Western Cape. Applying an AFC system to the South African taxi
industry would be a step in the right direction towards formalising the taxi industry
and aligning it with that of more developed countries. This would mean that taxi
owners, drivers and commuters would have to migrate from what is a predominantly
cash based industry to using a CSC for fare media payments. Previous research on
this topic is limited and therefore, this research sought out to determine the views of
selected South African taxi owners regarding adopting an AFC system in the South
African taxi industry. The research objectives of the study were to determine the
levels of awareness and knowledge of an AFC system among selected South
African taxi owners, to determine the perceptions of the benefits, barriers and
industry challenges to adopting an AFC system of selected South African taxi
owners and to determine the views of selected South African taxi owners of the role
of the National Department of Transport (NDoT) in adopting an AFC system.
i

A qualitative research approach was adopted where data was collected by means of
in-depth interviews. The results of the research revealed that despite taxi owners
identifying operational benefits for incorporating the AFC system into their taxis, they
are currently not ready to adopt the solution. Taxi owners indicated that the cost to
use the CSC and the prompt migration from cash to card may be a bit too radical for
the majority of commuters. Most of their commuters are on the lower end of the
market and cash is what they are used to. Taxi owners also showed concern
towards the potential risk of sabotage of the AFC system by their drivers. With the
incorporation of the AFC system in to their taxis, taxi owners could not identify any
real benefit for the taxi driver. One of the identified operational benefits by the taxi
owners was that the AFC system would mitigate the theft of fare income by taxi
drivers. According to the taxi owners, this disadvantage for the taxi driver would drive
them to look for loopholes within the AFC system and exploit the loophole. This
action from the drivers could potentially leave the taxi owners in a worse off financial
position.
This research from a management perspective will give AFC system providers and
contactless card issuers an indication as to how compatible the existing solution is
for the South African taxi industry. As the solution stands now it may not be suitable
for the South African industry and modifications may need to be considered in order
to make the innovation successful.
ii

Acknowledgements
The past three years have been the most challenging and exciting years in my
academic career. My decision to travel down this path has taught me a lot about
myself and has proved to myself that anything is possible through effort and
perseverance.
It gives me great pleasure and gratitude to acknowledge the following individuals that
have contributed to my success:
• To my two dedicated supervisors at the University of Johannesburg who I feel
went the extra mile to provide me with continuous feedback and guidance to
ensure that I complete the research on time. Dr. M. Dos Santos & Ms. E.
Strydom, I would just like to thank you from the bottom of my heart for the
countless hours you put aside to help me with my work. You are really good at
what you do and thank you for your contribution towards producing quality
students and unleashing them to take on the world with confidence.
• I would also like to mention Dr Corne Meintjes who went above and beyond in
assisting me in fine-tuning my research to this level of perfection that even has
me still surprised in what can be achieve when effort and persistence has been
applied.
• To my parents, Edward and Olivia Muwanula who gave me constant support and
my mom who called me almost every day to check up on my status and push me
to complete.
• To my sister Pheona Härtel and brother in law Dirk Härtel who always made their
home available to me when I just needed to work away from Johannesburg.
• To my wonderful girlfriend, Ntebogeng Mashilane, who without fail was always
there for me from the start until the end and always made me smile when I was
down.
• To the participants that participated in this research, thank you for your
contribution towards this research.
iii

TABLE OF CONTENTS
PAGE
Abstract i
Acknowledgements iii
CHAPTER ONE: ORIENTATION AND BACKGROUND
1.1. Introduction 1
1.1.1. The South African Taxi Industry 2
1.1.2. Characteristics of the South African Taxi Industry 3
1.2. Operating Environment and Challenges 4
1.3. New Technology Issues in AFC 5
1.3.1. Operational Advantages of the AFC 6
1.3.2. Infrastructure Costs 7
1.4. Adoption of New Technologies 8
1.4.1. Process and Model of the Innovation Decision Process 9
1.5. Problem Statement 12
1.6. Purpose of Study 13
1.7. Research Objectives 14
1.8. Conceptualisation and Metatheoretical Framework 14
1.8.1. Sociological Systems Theory as Grand Theory 15
1.8.2. Disciplines of Marketing and Business Management 15
1.8.3. Theories Related to the Study 16
1.9. Previous Studies 17
1.10.Research Design 18
1.10.1. Target Population 18
1.10.2. Sampling 18
1.10.3. Data Collection 19
1.10.4. Data Analysis 19
1.11. Delimitations and Assumptions 19
1.12.Importance of the Study 20
1.13.Research Ethics 21
iv

CHAPTER TWO: THEORETICAL FOUNDATION AND PRACTICAL
ORIENTATION OF THE STUDY
PAGE
2.1. Introduction 23
2.2. Systems Theory 23
2.3. Marketing as a Discipline 25
2.4. Business Management as a Discipline 26
2.5. Innovation 26
2.5.1. Types of Innovation 27
2.5.2. Benefits of Innovation from Various Perspectives 27
2.5.3. Barriers to Innovation Adoption 29
2.5.4. Decision Process 32
2.5.5. Characteristics 34
2.6. Background of the South African Payment Environment Related to 36
Transportation
2.7. The South African Taxi Industry 37
2.8. Fare Media 39
2.8.1. Non-Electronic Fare Media Options 42
2.8.2. Electronic Fare Media Options 42
2.9. Conclusion 48
CHAPTER THREE: RESEARCH METHODOLOGY
3.2. Research Design 50
3.3. Problem Statement 51
3.4. Purpose of Study 52
3.5. Research Objectives 52
3.6. Sampling Design 53
3.7. Data Collection 54
3.7.1. Interview Schedule 56
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7.2. Interview Procedure 58
3.8. Data Analysis 59
3.9. Pilot Study 62
3.10.Trustworthiness 63
3.11. Ethical Concerns 65
3.12.Conclusion 65
CHAPTER FOUR: RESULTS
4.2. South African Taxi Owners Interview Results 66
4.3. Biographical Information 67
4.4. Research Results of Research Objective 1 71
4.7. Conclusion 93
CHAPTER FIVE: CONCLUSIONS AND RECOMMENDATIONS
5.1 Introduction 94
5.2 Conclusion of Findings Related to Research Objectives 94
5.2.1. Research Objective 1: Taxi Owners Awareness and Knowledge 94
of an AFC System
5.2.2. Research Objective 2: Taxi Owners Perceptions of the Benefits, 95
Barriers and Challenges to Adopting an AFC System
5.2.3. Research Objective 3: Taxi Owners Views of the Role of the 98
NDoT in Adopting an AFC System
5.3 Recommendations 98
5.4 Limitations of Research 100
5.5 Recommendations for Future Research 100
5.6 Conclusion 101
vi

PAGE
Reference List 103
Appendix A: Interview Consent Form 111
Appendix B: Pictures Used with Interview Agenda 112
Appendix C: Research Agenda 114
Appendix D: National Land Transportation ACT, 2009: Regulations 118
Relating to Integrated Fare Systems.
vii

List of Tables
PAGE
Table 1.1: Costs Associated with AFC System 8
Table 1.2: Theoretical and Metatheoretical Framework 15
Table 1.3: Ethical Considerations 21
Table 1.4: Demarcation of Chapters 22
Table 2.1: Properties of the Systems Theory 23
Table 3.1: Advantages and Disadvantages of In-depth Interviews 55
Table 3.2: Aim of Interview Questions 56
Table 3.3: Code Categories 61
Table 3.4: Aspects of the Pilot Study Addressed 63
Table 4.1: Research Objectives and Associated Themes 67
Table 4.2: Biographical information 67
Table 4.3: The Understanding and Awareness of an AFC System among 72
SA Taxi Owners
Table 4.4: The Perceptions of SA Taxi Owners of the Benefits for them to 74
Adopting an AFC System
Table 4.5: The Perceptions of SA Taxi Owners of the Benefits for 75
Commuters to Adopting an AFC System
Table 4.6: The Perceptions of SA Taxi Owners of the Benefits for 77
Taxi Drivers to Adopting an AFC System
Table 4.7: The Perceptions of SA Taxi Owners of the Barriers for 78
them to Adopting an AFC System
Commuters to Adopting an AFC System
viii

PAGE
Taxi Drivers to adopting an AFC System
Table 4.10: Intended Decisions Regarding the AFC System 85
Table 4.11: The Views of Selected SA Taxi Owners of the Role of the 91
NDoT in adopting an AFC System
ix

List of Figurers
PAGE
Figure 1.1: Composition of a Contactless Smart Card 6
Figure 1.2: Model of the Innovation Decision Process 12
Figure 2.1: Transit Operator Fare Media Options/ Types of Fare Media 39
Figure 3.1: Creswell’s Data Analysis in Qualitative Research 60
Appendix B
Figure 1.1: Commuter Making Payment before Boarding Taxi 112
Figure 1.2: Commuter Presenting CSC to Contactless Reader 112
Figure 1.3: Smart Card Payment Process in Taxi Environment 113
Figure 1.4: Payment Transmission Process 113
x

List of Acronyms
AFC Automated Fare Collection
ATM Automated Teller Machine
BRT Bus Rapid Transit
CSC Contactless Smart Card
GDP Gross Domestic Product
I.T. Information Technology
LBRT Local Road Transportation Board
M.I Management Information
MS Magnetic Strip
MSF Merchant Service Fee
NDoT National Department of Transport
POS Point of Sale
PIN Personal Identification Number
PVC Polyvinyl Chloride
RF Radio Frequency
ROI Return on Investment
SIM Subscriber Identity Module
TTC Toronto Transit Commission
UK United Kingdom
xi

Adoption of an Automated Fare Collection System: City of Tshwane Taxi
Owner's Perspectives
CHAPTER ONE
ORIENTATION AND BACKGROUND
1.1 Introduction
A public transport system is one of the most important building blocks of any
economy (Fourie, 2003:2). In every economy where there is some form of transport
network, people without their own means of transport are reliant on public transport
(Ferreia, 2010:1). In South Africa three main modes of transport exist which includes
trains, buses and taxis (Barrett, 2003:6). Taxis are not only the most accessible but
they are the most common mode of transport within the South African environment
with the basic objective of transporting commuters from one point to another
(Ferreia, 2010:1). The current cash based payment to taxi drivers by commuters
facilitates cash theft and money laundering by taxi drivers (Ndebele, 2011). Thus,
there is a need for an alternative means to collect taxi fares. The National
Department of Transport (NDoT) and the Minister of Transport with his amendments
to the land transport act on the 17th
of June 2011 support the introduction of an
Automated Fare Collection (AFC) system. However, for an AFC system to be
introduced and adopted, taxi owners’ need to be aware and knowledgeable about
the innovation. Consequently, it has become necessary to explore the views of taxi
owners regarding an AFC system to gain an understanding of their levels of
awareness and knowledge as well as how they view the benefits and barriers to
adopting such a system.
This study will provide insight into the readiness of the South African taxi industry in
the adoption of an AFC system. The support provided by the NDoT for AFC systems
in the public transport environment and attempt to create an ecosystem for card
based payments, could be hampered or slowed down as a result of taxi owners and
1

possibly stakeholders within the industry not being ready to adopt the AFC solution.
Understanding the reasons behind the readiness or non-readiness of the taxi
industry in the adoption of an AFC system could be of value to both the NDoT as
well as contactless card issuers.
This chapter provides an overview of the South African taxi industry, outlined a
theoretical orientation towards this research and offers an overview of the
methodology adopted. The following discussion will take a closer look at the South
African taxi industry.
1.1.1 The South African Taxi Industry
The taxi industry was closely tied to the history of apartheid (Barrett, 2003:6). Black
South African's had limited legal access to business opportunities and it was almost
impossible for an African person to obtain a permit to operate (Barrett, 2003:6). The
minority of black African's that managed to get a permit used regular sedan vehicles
and catered for a very small market leaving the rest of the market to be dominated
by the state-owned rail sector and the subsidised bus industry (Barrett, 2003:6).
From the early 1960's black African's were relocated to townships which were part of
the apartheid policy to keep racially defined groups separate from each other
(Barrett, 2003:6). This relocation into townships meant that the commuters that
would usually take the train or bus to work were far away from their stations or bus
stops. Transport costs also escalated and train and bus services only operated
during peak times which were an inconvenience for commuters.
Although there was a loophole identified by taxi operators in the Road Transportation
Act of 1977 which allowed them to apply for a permit, obtaining a permit still proved
to be difficult and taxi operators continued to operate illegally (Barrett, 2003:6).
Between the early 1980's to 1995 the taxi industry grew at a phenomenal rate to
address the issue of limited transport options (Fourie, 2003:2-3).
According to Fourie (2003:2-3) the industry grew from a small informal operation to a
leading transport mode of choice in the public transport industry which accounted for
2

approximately 65% of passenger journeys. According to Fobosi (2013:1), to date, the
South African taxi industry is still an important pillar of the country’s public transport
system. It still remains the most available and an affordable mode of transport for the
public. Fourie (2003:2-3) suggests that the taxi industry provides transport for 5 to 10
million people every day and has a daily turnover of R15 million. This indicates the
magnitude of this industry and thus the need to consider and address areas where
the operational environment of this industry and section of South Africa’s public
transport system may be improved.
1.1.2 Characteristics of the South African Taxi Industry
In a speech held on the 25th October 2011 by Ndebele (2011) the Minister of
Transport for South Africa mentioned a few statistics about the taxi industry:
• the taxi industry is made up of minibuses and metered taxis. Minibus taxis
dominate the market by 90%;
• there are approximately 283 159 public taxis;
• of the available modes of public transport in South Africa, taxis account for 65%
of the mode used by commuters, buses 20% and 15% rail;
• it is estimated that the taxi industry contributes around R30 billion towards the
Gross Domestic Product (GDP) of South Africa;
• the taxi industry is made up of more than 125 000 owners and it creates an
estimated 600 000 jobs, which includes:
o 100 000 Car Washers: Individuals that wash the taxis;
o 80 000 Rank Marshals: Assist commuters by directing them to the
correct taxi;
o 100 000 Conductors: They assist drivers in the collection of fares;
and
o 283 159 Drivers: Drivers of taxi vehicles.
These statistics highlight the size of the taxi industry in South Africa, the importance
of the industry for commuters as well as the number of jobs it provides for individuals
that are willing to work for an income.
3

It was not until the mid-1980's when taxi drivers were no longer taxi owners. Taxi
owners were previously also drivers because of the limited number of vehicles
available. However, owners now employ taxi drivers whose income depends on how
many trips the driver makes (Khosa, 1994:62). Khosa (1994:62) suggests that the
taxi drivers’ conditions of employment are not favourable, taxi drivers are labourers
and not entrepreneurs, are not paid well and will probably never have the opportunity
to save enough to purchase their own taxi.
As taxi operators become more successful in their business, they continue to secure
fleets of taxis to the extent that they become managers employing not only drivers
but also cleaners, mechanics, taxi marshals and accountants (Khosa, 1994:63).
Although taxi drivers have employment, they are forced to work long hours which
can typically be between 16 and 18 hours with set daily financial targets that the
driver must achieve or risk losing their job (Khosa, 1994:63). Taxi drivers are not the
only ones facing challenges. The taxi industry itself also faces challenges such as its
operating environment. However, limited information and research are available
outlining these challenges and thus forms the starting point of this study.
1.2 Operating Environment and Challenges
According to Ndebele (2011) the current taxi industry's operating environment still
has a number of challenges including (1) it is an industry that has been de-regulated
for nearly two decades, but any form of regulation is viewed with suspicion; (2) profit
margins are low coupled with set daily revenue targets which forces taxi drivers to
drive aggressively to make as many trips as possible; (3) it is an industry where
working conditions and training requirements have not been given priority; (4) it is a
cash based industry which creates an opportunity for cash theft and fertile ground for
money laundering activities and (5) loss of revenue to government by way of tax.
According to Walters (2007:1) in developing countries such as South Africa, certain
features are absent from its public transport services as compared to those of first
world countries, such as making use of an Automated Fare Collection (AFC) system.
Not all strategies that have been set by the National Department of Transport
(NDoT) have been or can be achieved. Should the South African taxi industry
4

introduce an AFC system, some of the challenges outlined may be addressed.
Therefore, this research aims to determine the views of selected South African taxi
owners regarding adopting an Automated Fare Collection (AFC) system in the South
African taxi industry in order to gain a better understanding of whether the
introduction of an AFC system may be possible. However, a clear understanding of
AFC technology is necessary and thus discussed next.
1.3 New Technology Issues in AFC
An AFC system is a key interface between a transit operator and its commuters
(Toronto Transit Commission (TTC) Fare Collection Study, 2000:3). The key
objectives of an AFC system is to provide an economical way for transit operators to
collect fares while minimizing losses in the fare collection process and to also
provide commuters with a safe and practical way for paying for their trips to their
various destinations (TTC Fare Collection Study, 2000:3-4).
The Contactless Smart Card (CSC) is the tool that will be used to complete the AFC
system by making it possible for funds to be subtracted from the card by presenting
the card within close proximity to the contactless card terminal. This card looks just
like a normal chip enabled credit card. The card is primarily used for contactless
transactions but it can also perform contact transactions where there is no
contactless card reader present (Cornelius, 2012a).
The only added difference between the CSC and a credit card is that in between the
two plastics that holds the card together is an antenna that allows the card to
communicate with a wireless card receiver. This gives the card the ability to perform
contactless transactions. The basic idea is to eliminate or rather reduce the need to
hold cash by the user of the card and the merchant. The composition of a CSC is
displayed in Figure 1.1
5

Figure 1.1: Composition of a Contactless Smart Card
Source: Calypso Networks Association (2011)
CSC as a means of payment for transportation is starting to slowly surface in South
Africa with the example of the Gautrain rail service between the City of Tshwane and
Johannesburg and the MyCiTi buses in the City of Cape Town. A CSC card is used
to facilitate payment for trips. Contactless transactions do not require for the terminal
to go online and communicate with the bank to approve transactions. Transactions
occur offline and are stored in the terminal. The terminal communicates with the card
to determine if there are funds available on the card and then approves or declines
transactions based on the response received from the smart card (Kruger, 2012).
At the end of the day the transit operator can either place the terminal into a docking
station and the transaction information is sent to the bank, or they can have a
Subscriber Identity Module (SIM) card inserted into the terminal which would send
the transaction information via 3G to the bank (Kruger, 2012). This quick offline
interaction makes transactions occur almost instantly. It makes this form of payment
perfect for transit payments because of the faster throughput and various operational
advantages that can be achieved (Cornelius, 2012a).
1.3.1 Operational Advantages of the AFC
According to the TTC Fare Collection Study (2000:28) the following operational
advantages have been identified with the use of AFC systems coupled with the CSC
card:
6

• reduces the level of fraud because CSC is more difficult to counterfeit than paper
based ticketing systems;
• reduces the amount of both internal and external theft because AFC allows
improved financial control;
• improved fare equipment reliability because minimal or no physical contact or
interaction is required on the AFC devices. This reduces maintenance costs;
• improved management information which can assist in more focused planning;
• faster throughput because no more counting of change.
From these identified operational advantages it is possible to tackle current
challenges in the South African taxi industry such as reducing money laundering
opportunities and better revenue collection for taxi owners. Also the fact that there is
no more money in the system and commuters only have to tap their card, this could
lead to a better customer experience and a safer environment for both commuters
and taxi drivers. As with all new systems that are put in place, there are some costs
that may apply.
1.3.2 Infrastructure Costs
Cornelius (2012b), product owner and manager of Contactless Smart Cards at a
leading Bank suggests that creating an integrated environment for AFC requires
much work and a fully integrated transport network is also expected to take years to
really be visible and appreciated. He is of the opinion that in creating an integrated
AFC environment there has to be a starting point.
The mission of the NDoT in creating a fully integrated system (Delca Systems,
2005:9) has begun in Cape Town with the official launch of the myconnect CSC card
for the MyCiTi Bus Rapid Transit (BRT) Buses on the 10th December 2011 (MyCiTi,
2012). The myconnect card has replaced the paper based ticketing system that was
previously used with the MyCiTi public bus service and this CSC is an open loop
card by card association meaning that it can be used anywhere where the card
association branding can be found .i.e: MasterCard or Visa. The plan is to role this
technology out by starting off with buses, then taxi and rail. By doing this, an
7

integrated public transport network will be created, allowing commuters to use one
CSC for all modes of transport. Like all other new developments there will be some
costs that taxi operators as well as commuters will be subjected to which have been
tabulated in Table 1.1.
Table 1.1: Costs Associated with AFC System
Fees Applicable to Taxi Operators
1. Terminal Rental Fees
a Monthly rental fee per terminal (standalone terminals provided by
Bank)
R250.00 (excl. VAT)
b Call out / support fees R250.00 (excl. VAT)
per hour
c Communication service provider fees – ConnectNet R20.00 excl. VAT per
site
2. Merchant Service Fees
a Merchant Service Fee (MSF) – Taxi operator co-branded LVP
prepaid cards
0.68% excl VAT (no
annual CPI increase
is applicable)
b Merchant Service Fee (MSF) – Debit Cards with LVP functionality (if
introduced)
1.3% excl VAT (no
annual CPI increase
is applicable)
c Merchant Service Fee (MSF) – Credit Cards with LVP functionality (if
introduced)
1.85% excl VAT (no
annual CPI increase
is applicable)
Fees Applicable to Commuters
3. Card Fee
a Card fee R25.80 (excl. VAT)
Value Loads
b Load fee for load of value onto contactless card 2.5% of load value or
minimum of R1.50
(excl. VAT). Whichever
is higher
Source: Cornelius (2012b)
Bosworth (2013) suggests that South African commuters are price sensitive and tend
to favour cheaper costs. The fees listed above could potentially be one of the
barriers for taxi owners adopting AFC and integrating it into their current operations.
1.4 Adoption of New Technologies
Introducing AFC as described by the TCC fare collection study (2000:28) will allow
the users to achieve certain operational advantages which would suggest that taxi
owners would automatically adopt AFC into their taxis to benefit from these
8

operational advantages. According to Rogers (1962:7) technologists think that
innovations that will provide benefit to the users or businesses will be adopted
rapidly but in fact this adoption process occurs at a slow rate. This occurs because
businesses do not have all the information about the innovation. The innovation is
also new, which will develop a degree of uncertainty among businesses (Rogers,
1962:6).
To reduce this degree of uncertainty, complete information about the innovation will
have to be conveyed to the business. This has been identified as one of the main
means of reducing uncertainty (Rogers, 1962:6). For the taxi drivers to acquire as
much information about AFC and finally decide if it would be advantageous, they
would have to go through the innovation decision process.
1.4.1 Process and Model of the Innovation Decision Process
According to Rogers (1962:163) the decision process is a series of steps where the
individual or business first hears of the innovation, they then form their attitudes
towards the innovation, which could be positive or negative. At this stage the
individual/business may decide to adopt or reject innovation. According to Fülöp
(2005:1) making a decision is an indication that there are alternative choices that
need to also be considered. This process not only allows the business to address the
issue of lack of information, it also allows them to evaluate the innovation to see if it
can be incorporated into current on-going operations (Rogers, 1962:163). The last
two steps are the implementation of the innovation and final confirmation of the
decision.
In order for a business to decide on adoption or rejection of the innovation, they will
have to go through five stages (Rogers, 1962:164) being knowledge, persuasion,
decision, implementation and confirmation. These are briefly discussed.
Knowledge
This is when the business is made aware of the innovation and how it functions. In
this initial stage the business learns of the innovation and seeks further information
about the innovation. According to Sahin (2006:16), it is during this phase that the
9

organisation attempts to unpack further detail regarding why the innovation exists,
how it works and how it could potentially benefit the organisation.
Persuasion
The persuasion stage is characterised by the business forming an attitude towards
the innovation. This attitude can be positive or even negative due to barriers and
benefits that the business has identified. According to Wertheimer and Santella
(2004:3) innovation throughout human history has been the driver of progress. It has
enhanced and created new industries and fuelled economies. Innovation has also
provided individuals and businesses with many advantages and new opportunities.
The advantages of AFC as described earlier could play an important role in
persuading taxi owners to take up the AFC system and apply it to their taxi
environment.
From a business perspective, applying innovative solutions to one’s business can
give the business the competitive edge that it needs to remain efficient in its
operations as well as stay ahead of its competitors. In terms of competitive
advantage there could be a number of things that a business does better or more
efficient than its competitors (Hammer, 2006). This could be the utilisation of less
people to do the same work as a similar business. The business with fewer
individuals will be saving operating expenses putting the business in a better
financial position than another.
In the rail transport industry for example, the application of AFC in the Gautrain
system has allowed this transit operator to process commuters much faster than the
Metrorail system giving it the reputation of a fast service from getting onto the train
as well as the train ride. This quick service has therefore been one of the factors that
have attracted business individuals to the Gautrain service. Although there are
various benefits to applying innovative solutions to a business, the barriers in some
cases could outweigh the benefits. In a report compiled by IBM Global Business
Services (2006:1-5) five barriers to the adoption of innovations by businesses were
identified including (1) inadequate funding: Obtaining the funds to peruse the
innovation; (2) risk avoidance: The various risks associated with the innovation that
the business may not be willing to take on; (3) siloing: Businesses tend to have one
10

mission statement, one vision and one strategy. However businesses with
departments or divisions sometimes tend to compete with each other and may
individually fight for the innovation or resist it; (4) time commitments: How much time
that will be required to implement the innovation and its impact on normal operations
and (5) incorrect measures: The correctness in calculating the return on investment
(ROI) of the innovation which if incorrectly assessed could lead to the business
adopting the innovation for the wrong reason. This could lead to the failure of the
innovation in terms of the outcome the business was seeking.
Decision
This is when the business engages in activities that lead to a choice to adopt or
reject the innovation. Part of this process is the defining of the requirements of the
system and determining if these requirements meet the requirements of the business
(Fülöp, 2005:1). Sahin (2006:16) suggests that if an innovation is put through a trial
by the business a decision can be made quicker. The accelerated decision making
occurs because the innovation has been applied to the business own situation and if
it works well the business will come to an adoption decision, if the trial was
unsuccessful the innovation will be rejected until such a time that it can address the
requirements of the business.
Implementation
This is when the business puts the innovation to use. According to Sahin (2006:17),
during implementation there is still a degree of uncertainty about the outcome of full
implementation and therefor the business may still require technical assistance and
support to reduce the degree of uncertainty.
Confirmation
This is when the business seeks some form of reinforcement of the decision made.
An evaluation of the alternatives is usually done to compare the outcomes of various
options (Fülöp, 2005:2). The initial decision can be changed if the business is not
satisfied with the results.
Frambach and Schillewaert (1999:4) describe these stages in a similar manner but
suggest that the adoption decision occurs between two phases. The initiation and
11

implementation phase. According to Frambach and Schillewaert (1999:4) in the
initiation phase the business becomes or is made aware of the innovation, forms a
positive or negative attitude towards the innovation and evaluates the innovation
(product or Idea). In the second phase, the business makes the decision to adopt or
reject the innovation (Frambach & Schillewaert, 1999:4). The innovation decision
process can only be considered a success if the innovation is accepted and
integrated into the business (Frambach & Schillewaert, 1999:5). A model depicting
the Innovation Decision Process is provided in Figure 1.2.
Figure 1.2: Model of the Innovation Decision Process
Source: Rogers (1962:165)
The model that Rogers (1962:165) has defined above will form the basis of the
research to ascertain if taxi owners will adopt AFC systems into their current
practices. This model is important for this study because it is likely that the taxi
owners interviewed in this research will follow the innovation decision process as
described by Rogers in deciding whether they would consider adopting the AFC
technology or rejecting the technology.
1.5 Problem Statement
From a taxi owner's perspective, the current cash based payment to taxi drivers by
commuters facilitates cash theft and money laundering by taxi drivers. Ndebele
(2011) highlighted the points of opportunity for cash theft and money laundering
1. Adoption
2. Rejection
Continued Adoption
Continued Rejection
Later Adoption
Discontinuance
KNOWLEDGE PERSUASION DECISION IMPLEMENTATION CONFIRMATION
12

activities as some of the challenges of the taxi industry. The introduction of an AFC
system may address the issues associated with a cash based payment system. The
NDoT and the Minister of Transport with his amendments to the land transport act on
the 17th
of June 2011 support the introduction of the new AFC system. However, for
an AFC system to be introduced and adopted, taxi owners’ need to be aware and
knowledgeable about the innovation. Consequently, it has become necessary to
explore the views of taxi owners regarding an AFC system to gain an understanding
of their levels of awareness and knowledge as well as how they view the benefits
and barriers to adopting such a system. The problem statement translates into the
general research question being investigated:
What are the views of selected South African taxi owners regarding adopting an
Automated Fare Collection (AFC) system in the South African taxi industry?
A number of research questions arise as a result of the general research question:
• What are selected South African taxi owners’ levels of awareness and
knowledge of an AFC system?
• What are selected South African taxi owners perceptions of the benefits,
barriers and industry challenges to adopting an AFC system?
• How do selected South African taxi owners see the role of the NDoT in
adopting an AFC system?
1.6 Purpose of Study
South Africa has two types of payment methods for its public rail network. Ticket
based payments which Metrorail uses and AFC which the Gautrain rail system uses.
The ticket based system used by Metrorail creates an environment that is not
commuter friendly. Long queues are formed at kiosks to get tickets before boarding
the train. There is possible loss of revenue through theft of money and counterfeit
tickets (TTC Study, 2000:28). The newer Gautrain rail service makes use of an AFC
system with automated card load self-service terminals. This is where commuters
feed cash or swipe their bank cards on a device that looks like an Automated Teller
Machine (ATM) to refund their cards. The commuter then taps their cards to make
13

payments through a series of gates to enter onto the train. The commuter also uses
the same card and taps it on a contactless terminal in a bus to make payment for a
bus ride. The use of this technology by the Gautrain transit operators has resulted in
the operational benefits identified by the TTC Study (2000:28). The introduction of
new technologies can be seen as a progression from what is current, replacing and
closing up loop holes of old systems or processes. According to Snow (2004:2-3)
new technologies replace and force old technologies out of inefficient applications
and are usually efficiency-enhancing. Thus, the introduction and adoption of an AFC
system in the South African taxi industry may address some of the problems and
challenges this industry is facing. However, in order for such a system to be
introduced and adopted by all the relevant parties in the industry, taxi owners need
to be aware of and have knowledge of both the benefits and barriers associated with
such a system. For this reason, this research focuses on exploring the views of
selected South African taxi owners regarding adopting an Automated Fare Collection
(AFC) system in the South African taxi industry.
1.7 Research Objectives
The study is guided by the following specific research objectives as they emanated
from the problem statement and research questions discussed in the previous
sections:
Ro1: To determine the levels of awareness and knowledge of an AFC system
among selected South African taxi owners.
Ro2: To determine the perceptions of the benefits, barriers and industry challenges
to adopting an AFC system of selected South African taxi owners.
Ro3: To determine the views of selected South African taxi owners of the role of the
NDoT in adopting an AFC system.
1.8 Conceptualisation and Metatheoretical Framework
The theoretical and metatheoretical conceptualisation of the study is presented in
Table 1.2.
14

Table 1.2: Theoretical and Metatheoretical Conceptualisation
Grand theory Sociological systems theory
Field/discipline Marketing Business Management
Theories Diffusion of innovation, systems theory, resilience theory
Concepts Innovation
Constructs/dimensions
Benefits Barriers Decision
Process
Characteristics
Higher profits Inadequate
funding
Knowledge Complexity
Reduced costs Risk
avoidance
Persuasion Compatibility
Process
improvements
Siloing Decision stage Relative Advantage
Customer
satisfaction
Time
commitments
Implementation
stages
Trialability
Incorrect
measures
Confirmation
stage
Observability
1.8.1 Sociological Systems Theory as Grand Theory
The systems theory proposes that mechanical, organic and social systems can be
defined by their interactions with their environment (Buckley (1967:129). Systems
theory from a sociological perspective looks for the application of the systems
concept to the widest perspective such as human groups, societies and humanity as
a whole (von Bertalanffy, 1973: 194). Sociology is essentially the study of human
groups or systems from small groups to working groups both informal and formal.
Sociological theory attempts to define the sociocultural systems in terms of
functionalism considering the social phenomena with respect to the whole they serve
(von Bertalanffy, 1973: 195-196). Human groups, such as the South Africa taxi
owners, are not only an outcome of the social forces in the industry and South Africa,
but may be regarded as subhuman organisms where they are part of a “man-created
universe called culture” (von Bertalanffy, 1973:197).
1.8.2 Disciplines of Marketing and Business Management
Marketing is a discipline that enables produces of goods and services to interpret
that a customer wants and to satisfy those wants (Chartered Institute of Marketing,
2009). The Chartered Institute of Marketing (2009) suggests that marketing is a
management process that involves identifying, anticipating and satisfying customer
requirements profitably.
15

According to Hissom (2009:4), management is a process that includes setting
objectives, managing resources, strategic planning and deploying the financial and
human assets required to achieve the set objectives. Business management also
has four key functions which include planning, organising, leading and control.
These make up the functions that need to be performed to ensure a business
functions smoothly (Hissom, 2009:4).
In more developed countries, the transit operator as a customer needed a solution to
remedy some of the challenges they were facing. The concept of AFC systems was
developed to remedy specific challenges experienced in the transit industry and this
technology has been adopted. The adoption of these technologies in more
developed countries than that of South Africa was possibly as a result of the transit
operators applying the key functions of business management in order to achieve
the goal of being more efficient in their operations. The taxi industry in South Africa
is currently experiencing challenges as mentioned by Ndebele (2011) and taxi
owners may also have their individual problems that need to be addressed. If the taxi
owners want to address their business challenges they will have to practice the key
business management functions which should lead to the adoption of the AFC
solution mainly because of the operational advantages that can be gained. The taxi
owners may however need to assess this innovation and decide whether the industry
is ready to adopt the AFC solution.
1.8.3 Theories Related to the Study
Diffusion of innovation
According to Sahin (2006:14), the steps involved in adopting innovations have been
studied for over 30 years. The innovation decision process consists of a series of
steps where the individual first hears of the innovation, forms an attitude towards the
innovation, decides to adopt or reject the innovation and then confirms if they are
satisfied with the decision (Rogers,1962:163). Sahin (2006:14) suggests that Rogers
diffusion of innovations theory is an appropriate method for investigating the
adoption of technology.
16

Resilience theory
The resilience theory points out that there is a strong link between ecological and
social systems which are dependent on change in order to survive (Atwell, Schulte,
Westphal. 2008). Carlson, Bassett, Buehring, Collins, Folga, Haffenden, Petit,
Phillips, Verner and Whitefield (2012:12) define resilience as “a process linking a set
of adaptive capacities to a positive trajectory of functioning and adaptation after a
disturbance”. Adaptation is therefore an important component of remaining resilient.
Although there may be profit in the South African taxi industry for taxi owners the
attractiveness of this industry could be diminishing due the potentially high levels of
revenue loss through theft from taxi drivers. In order to fight the theft taxi owners
need to adapt and apply solutions to protect their money and maintain resilience.
Systems theory
A system, as defined by Skyttner (1996:16), is “a set of interacting units or elements
that form an integrated whole intended to perform some function”. Ackoff (1981:15)
defines a system as a set of two or more elements that satisfy the condition of the
behaviour of each element that has an effect on the behaviour of the whole. The
behaviour of the elements and their effects on the whole are interdependent and
therefore subgroups of the elements are formed. There are a number of properties
associated with the systems theory. These include interrelationship and
interdependence, holism, goal seeking, transformation process, inputs and outputs,
entropy, regulation, hierarchy, differentiation, equifinality and multifinality. These are
discussed in Chapter 2.
1.9 Previous Studies
No other studies of this nature was found. There have however been
implementations of Bus Rapid Transit (BRT) systems and Rail systems that make
use of AFC systems such as (1) My City Bus Service in Cape Town, (2) Rea Vaya
Bus service in Johannesburg and (3) the Gautrain rail service. No research specific
to taxies utilizing AFC systems could be found.
17

1.10 Research Design
According to Babbie and Mouton (2001:270) qualitative research is the study of
human action from the perspective of the social actors themselves. This form of
research also requires specific methods and techniques which form a
methodological approach to obtaining data (Babbie & Mouton, 2001:270). Wimmer
and Dominick (2003:111) suggest that qualitative research makes use of a flexible
questioning approach and although a basic set of questions are included in an
interview schedule, the questions can be changed at any time.
Quantitative research on the other hand is a research method where data is
collected data in the form of numbers, then measures and analyses the numbers to
arrive at a conclusion (Babbie & Mouton, 2001:270). Unlike qualitative research
where the questions are flexible, quantitative research makes use of static or
standardised questions (Wimmer & Dominick, 2003:111). For this research, a
qualitative approach was used to obtain the research data.
1.10.1 Target Population
The target population for this research was all taxi owners operating in the Tshwane
metropolitan area. Babbie and Mouton (2001:173) define a study population as the
element that is being studied. To further clarify the study element the respondent's
demographics were described. The target population consisted of 20 taxi owners
that resided in the City of Tshwane and had two or more taxis. The study focused on
taxi owners with two or more taxis because with the increased amount of taxis to
manage, taxi owners were expected to face more operational challenges than what
they would if they only had one taxi to manage.
1.10.2 Sampling
According to Skosana (2010:47) sampling involves the use of any acceptable
method or procedure using a small number of a total population to make conclusions
regarding the total population. Babbie and Mouton (2001:270) suggest that there are
two types of sampling methods being non-probability sampling and probability
18

sampling. For this research, non-probability sampling was used and the sampling
technique that was used was snowball sampling. According to Babbie and Mouton
(2001:167) snowball sampling is a form of accidental sampling. This form of non-
probability sampling can be initiated by collecting data on the few available
individuals of the target population and then asking those individuals for information
other individuals that fall within the target population needed to be located. Babbie
and Mouton (2001:167) suggest that snowball sampling is the most appropriate
method to use when the target population is difficult to locate.
1.10.3 Data Collection
Data was collected from 20 respondents by setting up scheduled face-to-face in-
depth interviews with the sample population and recorded as many interviews that
were given consent to. According to Burns and Bush (2010:249) in-depth interviews
are a set of questions asked on a one-on-one basis to a participant by an interviewer
to gain more information from the respondent. The interview itself was semi-
structured and an interview schedule was used. Where a participant did not provide
enough information the participant was probed in order to extract more information.
1.10.4 Data Analysis
According to Levine (1997:1) data analysis can be seen as a body of methods that
can assist in the detection of patterns, describing facts and assist with the
development of explanations in the research process. The collected data was first
inductively coded and coded data was placed in categories and then sub-categories.
Axial coding was then done to determine the relationships between the categories
and sub-categories. For this research, Creswell's (2009:185) method for data
analysis was used which consists of six steps for data analysis.
1.11 Delimitations and Assumptions
This research adopted the systems theory as theoretical base. It is acknowledged
that stakeholder theory may provide additional insights into this research. However,
for the purpose of this study, this fell outside its scope. Although this research has its
19

focus on the concept of innovation, its particular focus lies with the decision-making
process, particularly the knowledge phase. Attention was given to the other phases
with less emphasis.
It is assumed the taxi owners participating in this research are currently experiencing
challenges within the industry and are seeking ways to reduce the challenges that
they are experiencing. Due to the publicity created around the Gautrain system,
which was the first high speed rail service that made use of an AFC system in South
Africa, it was assumed that all taxi owners would have heard of this AFC
implementation.
Furthermore it was also assumed that the taxi owners were aware of the NDoT’s
visions for the public transport industry because it was assumed that the NDoT had
great influence over the taxi industry.
1.12 Importance of the Study
Understanding the levels of awareness and knowledge of an AFC system among
selected South African taxi owners as, without being aware or having any knowledge
of the benefits and challenges of such a system could hinder the successful adoption
of this innovation. If taxi owners have a fair grasp of an AFC system and how they
could apply it in the South African taxi industry, the taxi owners, as one of the
stakeholders of the implementation of such a system, could drive this process.
In the case of this research taxi owners have not had an opportunity to test the
innovation in their current operations. This research attempts to understand the
perceived benefits and barriers that the taxi owners think of the innovation. This will
however give an indication to interested parties of the readiness of taxi owners for
the adoption of the innovation. If barriers are identified solutions can be formulated to
remedy the barriers to the adoption of AFC in the taxi industry.
The South African government plays an important role in the public transport sector
with strong campaigns to try to motivate South Africans to make use of public
transport and also to also elevate the public transport sector in South Africa to that of
20

a level that is comparable to first world countries. On the 17th
of June 2011 changes
were made to the National Land Transport Act of 2009 to support and stimulate the
adoption of AFC. Understanding if taxi owners understand what the Minister of
Transport is doing to support AFC is important as this could be one of the factors
that could lead to the adoption of AFC if taxi owners understand and believe in the
work that the NDoT is doing.
1.13 Research Ethics
Ethics is typically associated with morality and deals with matters of right and wrong.
Therefore, anyone involved in research should be aware of the general agreements
shared by researchers about what is accepted practice in this area. The areas that
were explored were voluntary participation, no harm to the participants, anonymity
and confidentiality as well as analysis and reporting (Babbie & Mouton, 2001:470).
Table 1.3 indicates these aspects as they relate to this study.
Table 1.3: Ethical Considerations
ASPECT CONSIDERATION
VOLUNTARY
PARTICIPATION
The wishes of participants were respected that did not want to
participate in the research. Prior to conducting interviews with the
participants, it was ensured that all participants signed a consent form.
NO HARM TO
PARTICIPANTS
It was ensured that no harm in any form was inflicted onto the
participants. It was also ensured that all participants involved in the
research were comfortable to participate.
ANONYMITY
Although contact was made and the participants were interviewed, it was
ensured that special care was taken to ensure that the participants could
not be linked to the responses that were given.
CONFIDENTIALITY
Great care was taken in ensuring that all information that was provided
by the participants remained confidential.
ANALYSIS AND
REPORTING
The findings of the research were reported on without bias. The contact
detail of the researcher was also made available to the respondents
should they which to see the results of the research.
Source: Babbie & Mouton (2001:470-475)
21

Table 1.4: Demarcation of Chapters
CHAPTER NAME DESCRIPTION
CHAPTER 2 Theoretical foundation
and practical orientation
of the study
Innovation can be considered to be one of the key
drivers for business success. From a fare media
perspective, the incremental innovations of fare media
types to address the operational challenges within the
transport industry have led to the AFC system being
developed which addresses most of the challenges of
previous fare media types. There are however various
aspects of innovation that taxi owners have to
consider, which includes the characteristics of early
adopters, the innovation decision making process as
well as the characteristics of the innovation. The
purpose of this chapter was to further elaborate on the
taxi industry in South Africa, fare media types and the
possible barriers and benefits to innovation adoption
that taxi owners could be faced with.
CHAPTER 3 Research Methodology This chapter solely focused on describing the
research methods and design that were used to
obtain data from the taxi owners that were interviewed
in the City of Tshwane. For this research a qualitative
research approach was adopted where non-
probability sampling was used and face-to-face in-
depth interviews were conducted.
CHAPTER 4 Results This chapter focused on analysing, reporting and
finally interpreting the collected data on the opinions
and views that taxi owners had about the AFC and its
application in the taxi environment. What was
discovered was that the majority of taxi owners were
aware of an AFC solution and they were able to
identify their perceived benefits and barriers to
adopting the innovation. The NDoT had no influence
in the taxi owners making their decision to adopt the
innovation and what was considered to be the biggest
barrier in their decision to adopt the AFC system was
the taxi driver.
CHAPTER 5 Conclusion and
Recommendations
This chapter covered the conclusions and
recommendations which were based on the findings
from the data analysis. What was found was the taxi
industry is made up of a number of stakeholders
which includes the taxi owner, the drivers, the
commuters and the government. The AFC solution
would have addressed some of the operational
challenges that the taxi owners were experiencing but
at the same time it would have exposed them to tax
which they were not willing to pay as they feel the
NDoT does not give their industry enough support.
From a systems theory perspective in order for the
AFC system to function correctly all stakeholders in
the taxi industry need to be comfortable with the
solution. As a recommendation to encourage adoption
of the AFC solution a two-step geographically phased
approach were recommended that would slowly
introduce the AFC solution to the various stakeholders
within the taxi industry which could possibly lead to
the acceptance and eventually adoption of the AFC
solution.
22

CHAPTER TWO
THEORETICAL FOUNDATION AND PRACTICAL ORIENTATION OF THE STUDY
2.1 Introduction
Chapter 1 of this study provided a general orientation and overview of the current
research. The theoretical and metatheoretical conceptualisation of the study was
outlined and briefly mentioned. Chapter 2 furnishes more detail regarding the
different aspects of the conceptualisation of the study. Furthermore, it provides a
more detailed look into the South African payment environment, the media used and
the South African taxi industry.
2.2 Systems Theory
According to Langlois (1982:582) the systems theory is focused on the arrangement
and relations between the parts which connect them to a whole. These parts are
interdependent on each other and without each other they cannot make up the
whole. In the context of the South African taxi environment, the taxi industry is a
system made up of key stakeholders who are interdependent on each other and are
not able to function without the other. The taxi industry is made up of taxi owners,
taxi drivers, commuters, the public and the government. The properties of the
systems theory in relation to the study are discussed in Table 2.1.
Table 2.1: Properties of the Systems Theory
PROPERTY OF SYSTEMS
THEORY
DESCRIPTION OF PROPERTY RELATIONASHIP TO THIS
STUDY
INTERRELAIHIP AND
INTERDEPENDENCE OF
OBJECTS AND THEIR
ATTRUTES
Unrelated and independent
elements can never constitute a
system
The taxi industry is made up of
taxi associations and
stakeholders who include
commuters, taxi owners, taxi
drivers and the South African
government. The stakeholders
are the interdependencies that
form the system which is known
as the taxi industry
23

PROPERTY OF SYSTEMS
THEORY
STUDY
HOLISM Holistic properties are
impossible to detect by
analysis, but it should be
possible to define them in the
system
The stakeholders that make up
the taxi industry are separate
entities that not only form the
whole, but they also have an
influence on each other
GOAL SEEKING Systematic interaction must
result in some goal of final state
to be reached or some
equilibrium point being
approached
Each of the stakeholders in the
taxi industry is part of the
system known as the taxi
industry. The goals of the
various stakeholders are
however not the same, but they
influence the parts of the
system
TRANSFORMATION
PROCESS
All systems must transform
inputs into outputs
Each component of the system
impacts on the other. Through
this impact the system as a
whole transform any influences
or inputs into outputs. This
means that if there is an
influence on one part of the
system, the system as a whole
form part of the response or
output to the influence.
INPUTS AND OUTPUTS In a closed system the inputs
are determined once and for all.
In an open system additional
inputs are admitted form its
environment
Through wanting to achieve
different goals the components
of the system provide input to
each other and this affects the
output which impacts on the
various components
ENTROPY This is the amount of disorder
or randomness present in any
system. Non-living systems
tend toward disorder. If they are
left alone they will eventually
lose all motion and degenerate
into an inert mass
The goals of the different
stakeholders in the taxi industry
may not be aligned with each
other and may even be in
conflict with one another, which
may result in turn in entropy
REGULATION The interrelated objects
constituting the system must be
regulated in some fashion so
that its goals can be realised.
Regulation implies that
necessary deviation will be
detected and corrected.
Feedback is important for
effective control
The taxi associations have
specific goals which they want
to achieve and this can only be
achieved through the
application of rules and
regulations to the various
components of the system. In
South Africa the government
governs the taxi industry
24

PROPERTY OF SYSTEMS
THEORY
STUDY
HIERARCHY Systems are generally complex
wholes made up of small
subsystems, which implies
hierarchy
The taxi industry and its
stakeholders which include the
taxi owner, the taxi driver and
then commuter creates a
hierarchy within this system
DIFFERENTIATION In complex systems specialised
units perform specialised
functions
The taxi associations have
specific functions they perform
in the industry.
EQUIFINALITY AND
MULTIFINALITY
Open systems have equally
valid alternative ways of
attaining the same objectives of
from a given initial state obtain
different and mutually exclusive
objectives.
Source: Adapted from Skyttner (1996:20-21)
In the case of the taxi industry from a systems theory perspective, it is important that in the
process of introducing the AFC system, all stakeholders are aware of the potential
introduction of the AFC system. If the introduction does not add value to all the stakeholders
within the system, there may be potential resistance from certain stakeholders and ultimately
total rejection of the innovation. This is so because of the dependencies required for the
system as a whole for function correctly. Marketing as a discipline therefore plays an
important role in the adoption of the AFC solution.
2.3 Marketing as a Discipline
According to the Chartered Institute of Marketing (2009), marketing is a management
process that involves identifying, anticipating and satisfying customer requirements
profitably. Marketing is also a function of promoting goods and services that are
aimed at satisfying the customers’ needs. Similarly Lamb, Hair, McDaniel, Boshoff,
Terblanche, Elliott and Klopper (2012:5) define marketing as a philosophy, attitude,
perspective and a management orientation that focusses on customer satisfaction. In
the context of this study, the adoption of a new innovation in the form of an AFC
system could significantly improve the customer satisfaction levels of commuters.
Lamb et al (2012:10-14) argues that in the field of marketing six competing
philosophies influence an organisation’s marketing activities. The variety of
25

orientations to marketing includes the production, product, sales, consumer, societal
marketing and relationship marketing orientation. This study focusses on the taxi
industry and taxi owners as small-business entrepreneurs with a relationship
marketing orientation towards improving the customer experience of commuters
through addressing challenges in their operational environment.
2.4 Business Management as Discipline
Business management is about achieving set objectives while exercising the four
key functions which include planning, organising, leading and control (Hissom
.2009:4). In its simplest form, business management involves coordinating and
overseeing work activities to ensure that all activities are completed efficiently and
effectively. According to Lefeber and Vietorisz (2004), efficiency involves achieving
the most output for the least amount of input and effectiveness relates to completing
activities so that organisational goals are achieved. In the taxi industry control over
the efficient cash management from fare income has been demised and this loss of
efficient cash management is costing taxi owners. To gain back this control and
mitigate cash loss, innovative solutions can be introduced to the business in order to
address the issue at hand. Through historic information there is evidence that the
introduction of an AFC system into the public transport industry can improve
inefficiencies and improve revenue collection. This may be a practical solution for the
taxi industry in South Africa, but looking at the industry from a systems theory
perspective may impact the decision to adopt as the components of the system do
not function in isolation.
2.5 Innovation
According to Frambach and Schillewaert (1999:2) innovation can be considered as
one of the key drivers for business success. Lazic (2007:12) suggests that
innovation is a process through which creative ideas are brought to life, implemented
and tested. Innovation can not only focus on concept design, implementation also
plays a vital role. If the innovation is not implemented properly it could lead to the
demise of a business (Lazic, 2007:12). The characteristics of the innovation also
have to be suitable for its application (Cornelius, 2012d) and therefore the adaptor of
26

an innovation also with their own characteristics usually considers the products
features and limitations before adoption is considered.
2.5.1 Types of Innovation
According to Dickerson and Gentry (1983:225) there are three types of innovations,
namely continuous, dynamically continuous and discontinuous. Dickerson and
Gentry (1983:225) suggest that continuous innovation causes little or no disruption to
behavioural patterns and it simply involves the introduction of a slightly modified
product. Dynamically continuous innovation causes some disruption to normal
behavioural patterns. This form of innovation may involve the introduction of a new
product or even the modification of an existing product (Dickerson & Gentry,
1983:226). Discontinuous innovation involves the introduction of a totally new
product and it will require the users of the new innovation to change their behavioural
patterns totally (Dickerson & Gentry, 1983:226).
The introduction of CSC into the South African taxi environment will totally change
the way taxi owners collect fares and how commuters pay for their trips and would
thus constitute discontinuous innovation. Commuters will have to top up their card on
a regular basis depending on how much money they store on the card and the taxi
owner has to come to terms with receiving digital money. Taxi owners may also have
to pay their drivers a fixed monthly salary for services rendered to the taxi owner,
which is quite different from the norm in terms of how taxi drivers are currently paid.
The possible impact that it may have on taxi drivers is reducing the opportunity for
them to pocket some of the revenue. They may not be in favour of the adoption of
the AFC system because of this reason.
2.5.2 Benefits of Innovation from Various Perspectives
Innovation, if applied correctly can drive a business to achieve higher profits through
additional sales and reduced costs which are derived from process improvements
(Samson, 2010:4). Innovation applied in the business can also be used to increase
customer benefits through more value added services (Samson, 2010:13) and thus
customer satisfaction. The application of the AFC system could provide benefits to
27

the taxi owners, drivers and commuters. As suggested earlier some of these benefits
could be operational benefits for the taxi owner, cash security and convenience for
the commuter and cash collection benefits for the taxi driver. In South Africa, the taxi
industry consists of individual taxi owners who collectively make up a taxi
association. In order for the AFC system to be adopted widely amongst taxi owners
in the early stages of the adoption process, a critical mass of taxi owners may need
to display some of the characteristics of early adaptors as suggested by Dickerson
and Gentry (1983:226).
Characteristics of Early Adopters
According to Dickerson and Gentry (1983:226) early adaptors of innovations have:
• more education;
• more income; and
• higher status occupations.
Dickerson and Gentry (1983:226) suggest that better education could relate to the
better comprehension of the functions and performance of the innovation. Higher
income relates to the level of financial risk associated with the purchase of the
innovation. This financial risk is smaller with higher income since the cost of the
innovation is a smaller portion of the individual’s disposable income. Higher status
occupation means that the individual could have more regular exposure to new
innovations and products than individuals with lower status jobs. Taxi owners in the
South African environment can not been seen as early adaptors because they
possibly do not meet two of the three criteria as identified by Dickerson and Gentry
(1983:226). Education levels are generally low among taxi owners and their
occupations are not considered as higher status occupations (Drabile, 2012). These
could be some of the characteristics taxi owners have that could have a negative
influence in the adoption of the innovation.
28

2.5.3 Barriers to Innovation Adoption
In a report compiled by IBM Global Business Services (2006) five barriers to
innovation adoption were identified from a business perspective. These are
discussed in the following sections.
Inadequate funding
Inadequate funding refers to the situation where there is not enough money to fund
the initiative (IBM Global Business Services, 2006:2). The taxi owner has to allocate
some of his/her working capital towards the AFC system and may find him/herself in
a situation where he/she may not have enough money to fund the AFC system for
the period required for commuters to get used it. The potential risk for the taxi owner
is that if he/she depletes the funds that were allocated to funding the migration
before the operational benefits are realised, the owner may have to scrap the whole
system and revert back to cash in order to survive. This will result in the owner
incurring a financial loss.
Risk Avoidance
With every innovation there are risks associated with it due to potentially negative
consequences (Solomon, 1999:280). The risks may be unique to the taxi owners and
not yet identified even when background research about the innovation was done.
The IBM Global Business Services (2006:2) report indicates that businesses want to
maintain their health, wealth and peace of mind. These are businesses that are
classified as businesses in their comfort zone and according to IBM Global Business
Services (2006:2) no progress can be made by business without calculated risk
taking. In order for the taxi industry to move to the next level of fare media
acceptance and efficiency enhancement, they have to consider migrating from cash
to card and convince all of its stakeholders of the benefits that will also apply to
them.
Siloing
Within large businesses there are departments and there could be a disconnect
between these departments. In the context of the taxi industry, these departments
could be looked at as the taxi owner, the driver and the commuter. If any of these
29

role players resist the offering it will bring about a barrier preventing the
implementation of AFC. According to IBM Global Business Services (2006:3) a
better understanding of the needs and concerns of the business can be a starting
point in managing the conflict. Taxi owners may have to gain an understanding of the
concerns and fears of their drivers as well as their commuters. Understanding these
concerns will reduce the risk of resistance from the drivers and commuters. It will
also enable them to have a better understanding of their fears in using this new
product as opposed to physical cash which is what they are used to.
Time commitments
According to the IBM Global Business Services (2006:4) time is a very precious and
scarce commodity which can’t be wasted. The application and integration of AFC
into the taxi owner’s current operations will enhance productivity in terms of cash
collection and possibly faster throughput. On the other hand the time the taxi is taken
off the road to undergo terminal installation may prove to be too expensive for the
taxi owner because that is lost income for the day which each taxi is not operating.
Incorrect measures
Many businesses use revenue and profits as a measure of success (IBM Global
Business Services, 2006:5). In the case of an innovation that is truly specific to an
industries business, information may not be available to truly convince the innovation
adaptor that the innovation will achieve their expectations. In the South African
environment there is no data specific to the taxi industry. There is only data available
to the bus, and rail services. This lack of information may further add to the risk
element in the eyes of the taxi owner and negatively influence their decision to adopt
the innovation. Despite all the identified barriers there are also benefits that a
business can achieve if the innovation has been applied properly (Samson, 2010:4).
Barriers to Innovation from a Commuter Perspective
From a commuter perspective Ram and Sheth (1989:6-7) have identified five
potential barriers to innovation which are applicable to the taxi commuters and AFC.
These barriers include usage, value, risk, tradition and the image barrier.
30

Ram and Sheth (1989:7) suggest that the usage barrier relates to the innovation not
being compatible with existing practices or habits. To further add to the resistance,
taxi commuters may see the innovation as an offering that does not offer strong
value for money as outlined in Table 1.
The risk barrier represents the level of uncertainty that the commuter has towards
the AFC (Ram & Sheth, 1989:8). Laukkaanen, Sinkkinen and Laukkanen
(2008:3062) suggest that uncertainty is inevitable with all innovations which support
statements made by Rogers (1962:174). The innovation to the man in the street in
this instance may be too advanced for local commuters. This could lead to
commuters fearing the product as they do not physically see their money which is
what they are used to. Public transport commuters in South Africa are generally poor
and although some may have bank cards they still may want to use cash as a means
of payment.
The tradition barrier refers to the deviation from cultural tradition which may be
created by the innovation (Ram & Sheth, 1989:8-9). The physical handling of money
in South Africa may have some cultural significance that we are not aware of.
The image barrier refers to resistance created because of the origin of the innovation
(Ram & Sheth, 1989:9). This origin can be in terms of country or even in terms of
business. Although there is no real evidence that suggests that South African
commuters dislike products such as plastic cards which were produced in America
(Rankl & Effing, 1997:2) this could be one of the unknown barriers to this innovation.
Barriers to Innovation from a Taxi Owner Perspective
Barriers to innovation from a taxi owner perspective could be directly linked to the
characteristics of early adopters suggested by Dickerson and Gentry (1983:226).
Taxi owners in South Africa usually don't have high education levels, their
occupations are not regarded as high status occupations and the amount of money
taxi owners make is questionable, some make a lot of money and other owners
make just enough money to be able to survive (Drabile, 2012). The perceived
characteristics of the taxi owners could be barriers to the innovation.
31

2.5.4 Decision Process
As consumers come across problems they need to explore various options and
make decisions in order to solve their problems (Hawkins & Mothersbaugh, 2010:
496). Rogers (1962:164) has identified five steps in the innovation decision making
process which an individual or business has to go through before an innovation is
adopted.
Knowledge
According to Rogers (1962:164) individuals and businesses play a passive role in
the exposure to an innovation. He suggests that individuals or businesses can not
actively seek information about an innovation until the individual or business knows
that the innovation exists (Rogers, 1962:164). Individuals therefore expose
themselves to new information about products or services if it falls within their area of
interest or need (Rogers, 1962:166).
Taking into consideration the statements made by Rogers (1962:170) the current
challenges faced in the South African taxi industry as highlighted by Ndebele (2011)
should have led the taxi owners to seek information about possible new innovations
that could help them address some, if not all of the current challenges that they are
facing in their industry. If the innovation is not in the country, the technology could be
imported from a country where it is available.
The introduction of the Gautrain could have possibly led taxi owners to try and
understand the type of technology and fare media type that this transit operator
uses. The bus and rail service are forms of transport and this should fall under an
area of interest for taxi owners. This could suggest that taxi owners have in some
way or other heard of this technology and have been exposed to additional
information about it.
Persuasion
The term persuasion in this context as described by Rogers (1962:169) refers to an
attitude formation from the perspective of the individual or business adopting the
innovation. In terms of a product or offering, an attitude can be described as the way
32

one thinks, feels and acts towards the product in question (Hawkins &
Mothersbaugh, 2010:392).
During the persuasion stage the individual becomes more psychologically involved
with the innovation (Rogers, 1962:170). What aids in this process is that the
individual actively seeks more information about the innovation and even goes as far
as imagining the use of the innovation in the current working environment as well as
in a future situation. Solomon (1999:274) suggests that consumers may actively
search the marketplace for information after a need has been recognised.
According to Hansen (2011:2) the consumer decision making process is one that is
very complicated and could possibly involve a number of constructs. Many
innovations have a degree of fear and uncertainty associated with them. Therefore
part of the individual’s information seeking process includes consultation and
innovation evaluation information from past users in order to reduce the innovation’s
perceived risk (Rogers, 1962:170).
Decision Stage
A method to assist the adopter in the decision process and reduce the level of
uncertainty is to partake in a pilot run. A pilot is a form of partial adoption of the
innovation and making use of it in a real world environment. This practice is done to
reduce uncertainty relating to the innovation and potentially increase the chances of
the adopter adopting the innovation (Rogers, 1962:172).
A pilot programme is currently underway in the City of Cape Town and
Pietermaritzburg to assess the AFC system in the taxi industry. The pilot programme
is currently run under controlled conditions but detailed feedback obtained from the
pilot according to Rogers (1962:172) should assist in making the decision to adopt
the AFC system.
Implementation Stage
This phase occurs when the adopter puts the innovation into use. Rogers (1962:174)
suggests that in this phase there is still a degree of uncertainty even though the
adopter decided to go ahead with the innovation. This is a clear indication that
33

although the adopter obtained information about the innovation, the adopter is still
uncertain about how the innovation may uniquely affect their business.
Most businesses consist of stakeholders which could be the ones that resist the
innovation. In the taxi industry, the heart of the industry is the commuter and taxi
driver. Without the commuter and taxi driver buy in, there would be no revenue for
taxi owners. Therefore if the commuter resists the use of AFC the taxi owners will not
achieve their anticipated outcomes of the innovation because of poor uptake
Cornelius (2012b).
As was mentioned earlier, what could contribute to the fear and resistance of
innovation adoption could come from a customer or business perspective or a
combination of both which could affect the decision to implement the innovation. Taxi
owners and taxi drivers could reject the system (business perspective) or taxi
commuters (customer perspective).
Confirmation Stage
This is the final stage of the innovation decision making process. By taxi owners
implementing an innovation, it is not an automatic indication that the innovation has
been totally accepted. Taxi owners may still decide to revert back to their previous
operating model. Rogers (1962:184) suggests that the individual or business will
seek reinforcement for the innovation decision that was made.
In the case of the City of Cape Town, a monthly Management Information (M.I.)
report from their banking partner allowed them to monitor the use and uptake of the
myconnect smart card. If uptake became suddenly poor and usage drops, the city
could possibly revert back to the old system. Rogers (1962:184) also suggests that if
the innovation turns out to not achieve the operational advantages expected, this
could lead to the rejection of the innovation.
2.5.5 Characteristics
From a taxi driver’s perspective, the innovation of AFC may allow the taxi owners to
realise the operational benefits as identified by the TTC Fare Collection Study
34

(2000:28) or the advantages of using smart cards as described by Plotnikov
(2001:57). What can potentially influence the adoption of the innovation is the
compatibility and complexity of the innovation (Dutton, kahin, O’Callaghan & Wyc
Koff, 2005: 1). According to Sahin (2006:17), the characteristics of innovatioion
includes: (1) complexity, (2), compatibility, (3) relative advantage, (4) trialability and
(5) observability. Each of these is discussed in the next section.
Complexity
Complexity relates to the how difficult the innovation is for the potential adopter to
grasp. The higher the level of complexity, the lower the rate of adoption (Sahin,
2006:18). During the knowledge gathering stage of the innovation decision making
process taxi owners’ have the opportunity to assess the level of complexity of the
innovation and this will aid them in deciding if the innovation is too complex for them
or their stakeholders to adopt.
Compatibility
Compatibility relates to how the potential adopter perceives the new innovation to fit
into their current lifestyle and needs. Sahin (2006:18) suggests that if an innovation
is compatible with the potential adopters needs uncertainty about the innovation is
decreased and the likelihood of innovation adoption will increase. The South African
taxi industry is a cash based industry and migrating to a card based system is a
concept that is new for the majority of the commuters, drivers and owners. The AFC
system and the use of the CSC card may be incompatible for the South African taxi
industry.
Relative Advantage
Sahin (2006:18) suggests that relative advantage is the perception that the
innovation provides more satisfaction to the potential adopter than a solution that
already exists. The operational advantages highlighted by the TCC study (2000:28)
could be experienced by the taxi owners. However, the potential operational
advantages that could be achieved by the taxi owners may not out-weigh the
potential complexity and compatibility issues of the AFC innovation.
35

Triability
Trialability relates to the relative ease of experimenting or testing the innovation
before a decision is made by the potential adopter (Sahin, 2006:18). Taxi owners
may only be willing to adopt the innovation if they are able to pilot the innovation.
Taxi owners may adopt the innovation but the stakeholders also need to adopt the
innovation in order for the AFC system to function properly.
Observability
Sahin (2006:18) describes this as the degree to which the results of the innovation
are visible. For the taxi owners this information is available from the banking partner
that the City of Cape Town collaborated with. The results of the innovation AFC
system that was applied to the buses may not necessarily be related to taxies but
this could give the taxi owners an example of what they can expect if it was applied
to their industry.
2.6 Background of the South African Payment Environment Related to
Transportation
In the South African economy there is reliance on money in the form of coins,
banknotes, cheques, credit/debit cards and also electronic transactions. Dr Monde
Mnyande, who was the Chief Economist and General Manager of the South African
Reserve Bank, mentioned at a Bank Note Design Competition Gala which was
hosted in the City of Tshwane, that "In addition to the traditional coins and banknotes
and other paper-based instruments, direct debit and credit transfers, debit and credit
cards, and telephone banking as well as internet banking facilities have become
more widely available. Electronic systems have rapidly increased in importance, both
for retail and wholesale transactions to the point where they now account for the
majority of payments in the formal sector, by numbers as well as by value"
(Mnyande, 2007:2).
Despite this, there is still a large portion of the economy that makes use of cash as a
method of payment for goods and services and the handling of money comes at a
cost. These costs include but are not limited to distribution costs and the storing of
36

notes (Bergman, Guibourg & Segendorf, 2008:42). Risks associated with the
physical handling of money include leakage costs, which is the removal of some of
the total sum of money that is to be delivered, making use of cash-in-transit services,
robberies and cash heists. Leakage is high in the taxi industry (loss of revenue due
to theft usually by taxi drivers). It not only affects the owners of the transport vehicles
or buses but it also affects the amount of revenue received by the government in the
form of taxes on this income if it has been declared.
2.7 The South African Taxi Industry
As was mentioned in Chapter 1, the taxi industry was closely tied to apartheid and
black South African's found it almost impossible to obtain a permit to operate in the
taxi industry (Barrett, 2003:6). The Motor Carrier Transportation Act of 1930
stipulated that the transportation of goods or services was not allowed without
permission from the Local Road Transportation Board (LRTB) (Sekhonyane &
Dugard, 2004:13).
Due to the fact that taxi owners found it difficult to obtain permits to operate vehicles,
corruption between taxi owners and law enforcement officials became common with
the issuance of fraudulent permits (Barrett, 2003:8). With limited available
transportation options for commuters the taxi industry grew at a phenomenal rate
(Fourie, 2003:2-3). According to Sekhonyane and Dugard (2004:14) black
commuters found this form of transportation popular because taxis (1) provided late
night transportation; (2) travelled to places where other forms of transportation did
not travel; (3) charged affordable rates; and (4) had shorter queues than that of the
queues for buses.
According to Sekhonyane and Dugard (2004:13) prior to deregulation in 1985, taxi
operators had defy laws to provide a transportation service to commuters.
Fortunately for taxi operators deregulation was to take place in the coming years.
Deregulation
Once deregulation of the taxi industry took place in 1985, permit enforcement halted
and the industry was then flooded with operators. During this time of massive and
37

accelerated growth within the industry, signs of over-saturation in some areas
around the country set off violent battles between taxi owners who were fighting for
routes all over the country (Barrett, 2003:7). The results of these “Taxi Wars” were
the death of between 1500 and 3000 people between 1994 and 2000 (Barrett,
2003:8). Despite the negative impact of the "Taxi Wars", the taxi industry had
created an environment of employment among South African's.
Employment in the Taxi Industry
Ndebele (2011), indicates that the taxi industry is made up of more than 125 000
owners and it creates an estimated 600 000 jobs, directly contributing to
unemployment reduction in the country. Drivers within the taxi industry make up the
majority of workers in the industry (Ndebele, 2011; Barrett, 2003:9). According to
Barrett (2003:9), there are more wage employed drivers than self-employed drivers
in the industry. Wage employed drivers are drivers that are employed by taxi owners
and are paid in four different ways (Ferreira, 2010:29):
• Drivers’ are not paid a basic wage, but rather pay a percentage of the week’s
takings to the owners and keep the rest as their own income.
• Drivers’ receive a basic wage and then pay the owner a percentage of the
week’s takings and then keep the rest as their additional income.
• Drivers’ pay in all the money that they receive to the owner and then the owner
pays the driver a regular wage (this is uncommon).
• Drivers’ give the owner all the money that they receive in the week and the
owner allows the driver to keep all the income on an agreed day of the week.
Dealing with so much cash and no recording of cash collected leads to a loss of
money as there are many loop-holes in this method of collecting cash. Barrett
(2003:9) suggests that taxi owners claim that up to 50% of their takings are stolen by
drivers. This may indicate that the current fare media type used in the taxi industry is
not favoured by taxi owners and they may be willing to take on the innovative CSC
as a new fare media type. From the available fare media, the innovative AFC system
has been in operation in America and European countries for a number of years
now. This system was introduced into these economies to increase both the
efficiency and attractiveness of public transportation services (Thomas, 2005:803).
38

According to Dodgson and Gann (2010:14) most innovations are incremental from
what is current. This is also the case with fare media, whereby a new fare media
type is developed to address the shortfalls of fare media that is being used.
2.8 Fare Media
Fare Media can be described as the accepted payment instrument by transit
operators as proof of payment for the use of their services (Plotnikov, 2001:47).
Before electronic fare media was introduced other forms of media were available and
still exist today in many economies as depicted and described below by Plotnikov
(2001:47). Fare media options or types of Fare Media are outlined in Figure 2.1.
Figure 2.1: Transit Operator Fare Media Options / Types of Fare Media
Source: Plotnikov, 2001:58
2.8.1 Non-Electronic Fare Media Options
A number of non-electronic fare media options exists and are outlined below.
39

• Cash
Coins have been the most widely accepted medium for payment of transit services.
Once the cost of transport increased transit operators began to accept notes in
addition to the already accepted coins. Cash in many economies is the major
payment method that individuals use because it is readily available (Plotnikov,
2001:48). In South Africa the use of coins is still a common sight and is still the most
popular medium within the taxi industry (Ndebele, 2011). For transit operators this
meant that all of their potential clients had access to cash and there were no
modifications required for the transit operator’s equipment in order to accept cash.
Barriers
In the United States of America, barriers of using cash for transport payments started
to emerge particularly when the fare structure started to change to cater for many
variables that were used to calculate the price of the fare (Plotnikov, 2001:48). These
barriers could have also been the reasons why some transit operators in South
Africa such as Metro Rail made the migration to paper based tickets.
These variables include:
• distance travelled;
• time of day;
• rider type ( adult, student, disabled or senior).
The introduction of alternative media for transit operators was also due to fraud, theft
and the growing administrative work required in recording such transactions for audit
purposes.
• Tokens
These were one of the most popular forms of fare media and were available in a
variety of forms and materials (Plotnikov, 2001:49). Tokens can be in plastic or metal
and can vary in size or shape. One of the major benefits that was achieved with
tokens was the ability to accommodate the various pricing structures for pensioners
and volume discounts which encouraged and increased the use of public
transportation services (Plotnikov, 2001:49).
40

Barriers
The use of tokens meant that transit operators had to perform additional revenue
collection activities such as production of tokens, distribution, valuation, collection
and the recirculation of tokens. To the commuter tokens meant that they could only
use the token with a specific transit operator which was not the case with cash
(Plotnikov, 2001:50).
• Paper Tickets
Paper tickets as a fare media is very similar to the token. The major difference is the
material used. The fact that the material used to make paper tickets is paper; made
them easier and cheaper to produce than the token. Tickets could also easily be
removed from circulation and invalidated than the token (Plotnikov, 2001:50). Transit
operators also favoured this form of fare media because it could also accommodate
distance based fares by having the travel times and stops that the commuter was
entitled to, which further added to the fare structure that was available to commuters.
The bus and train industry in South Africa to this day still makes use of a paper
based ticketing system. However these two transit operator types are slowly making
a shift towards contactless smart card payment options.
Barriers
Although there are added benefits to that of the tokens, paper based tickets are
more prone to counterfeiting (Plotnikov, 2001:50).
• Paper Passes
Paper passes which are also known as flash passes almost have the same concept
as a paper based ticket. The commuter is only subjected to a visual inspection of
their ticket (Plotnikov, 2001:50). The difference here is that a paper pass gives the
holder of the pass a window period in which to use the transit operator’s services.
This could be a week or even a month where the pass becomes invalid after its
"valid to" date has lapsed (Plotnikov, 2001:50). The paper passes are usually issued
out at a discount price and in some instances even rider type discounts are applied
making it attractive to commuters. This form of fare media is still used today in bus
services that operate around mines in South Africa. Miners purchase passes which
41

are usually weekly based and as they enter the bus the miners show their passes
and the bus driver does a quick visual inspection of the pass. The Golden Arrow Bus
Service in Cape Town also makes use of a paper pass type system but their passes
are made out of plastic (Golden Arrow Bus Service, 2012).
Barriers
For the transit operator, use of paper passes can lead to high levels of fraud. For the
commuter, paper passes usually require a high prepayment for the pass and if they
were to lose their ticket the pass can't be recovered (Plotnikov, 2001:51).
As transit operators developed new fare structures to accommodate and meet
commuter demands, the complexity of the various forms did not only make it difficult
to effectively administer, it also drove up operational costs. The next phase of
innovation was electronic fare media which had the ability to easily support complex
fare media structures while keeping administrative costs down. Although this was the
first step in the development of the CSC, the older forms of fare media such as cash,
paper tickets and passes still remain and will still take some time to be phased out.
2.8.2 Electronic Fare Media Options
At the same time, a number of electronic fare media options exist which are outlined
below.
• History of Plastic Cards
According to Rankl and Effing (1997:2) the introduction of the plastic card started in
the United States of America (USA) in the early 1950s. The material that was used to
manufacture plastic cards was polyvinyl chloride (PVC). This allowed for the
production of durable and long lasting cards which were better suited for daily use as
opposed to the paper equivalent (Rankl & Effing, 1997:2).
The first trans-regional plastic card used for payment of goods and services instead
of cash was issued out by Diners Club in 1950 (Rankl & Effing, 1997:2). With the
entry of the two major card associations, namely Visa and MasterCard, the
42

proliferation of the plastic card occurred at a rapid pace. This occurred first in the
USA, then Europe and then the rest of the world (Rankl & Effing, 1997:2).
• Magnetic Strip Tickets and Passes for Transit
This form of fare media was first introduced in the 1960s in the United Kingdom (UK)
and the United States (Plotnikov, 2001:51). The innovation and concept of electronic
fare media came from the banking industry. This form of payment acceptance was
very expensive for most transit operators and was only adopted by large transit
operators such as the Bay area Rapid Transit (BART) in San Francisco and the
London Underground rail service in the UK (Plotnikov, 2001:51).
The magnetic strip (MS) media has two main elements: The carrier and the layer of
magnetic material. The carrier can be made out of paper or plastic and the magnetic
material comes in two types of material: low-coercivity or high-coercivity. Low-
coercivity MS media can be easily damaged by magnetic interference such as
bringing the MS ticket in close proximity to a speaker or even cell phone (Plotnikov,
2001:52). High- coercivity MS media are more resistant to most magnetic fields and
will not be affected from most types of magnetic fields. The use of electronic fare
media also reduces administrative costs because these are electronically tracked
and stored (Cornelius, 2012c). The next level of progression from the MS was the
smart card which opened new doors and opportunities to transit operators.
• Integrated Circuit Smart Cards
Smart cards are the latest development in electronic fare media for transit operators.
The smart card concept was first patented in 1970 by Dr. Kunitaka Arimura of Japan
and further developments took place throughout the 1970s (History of Smart Cards).
This smart card technology is gaining greater acceptance within the public transport
industry in South Africa as seen with the Gautrain rail service in Gauteng and the
MyCiTi bus service in the Western Cape. These cards can also be used for retail
applications and not only transit which further adds to the convenience factor
(Cornelius, 2012c). In its physical form the smart card looks similar to a normal credit
or debit card. Countries in Europe and Asia-Pacific offer smart cards as their primary
43

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