High rates of private-vehicle ownership and usership are creating traffic congestion and contributing to mobility-related emissions, space constraints, and lost time for drivers in major cities worldwide. At the same time, consumers are exhibiting a growing desire for more sustainable and shared-mobility options in urban areas.1
Innovation and action are needed on several fronts within the mobility sector to support the transition to more-sustainable urban transport. One solution currently gaining traction is the mobility budget. Mobility budgets can address mobility challenges and consumer needs by making more-sustainable transport options more convenient and affordable while also helping companies attract and retain talent, garner reputational benefits, and harness the vast opportunities in the micromobility and public-transport sectors. By optimizing offerings, user experience, and awareness in five target areas, mobility-budget players can position themselves to become front-runners.
How mobility budgets can boost sustainable-transport use
A mobility budget can help companies and employees alike in terms of transport convenience, affordability, and sustainability. It is a monthly allowance that can encourage employees to use low-carbon public-, private-, or shared- mobility options ranging from e-bikes and e-scooters to car sharing, taxis, buses, and trains. Currently, there are three main models of mobility budgets. The first is a one-stop-shop option that integrates access to different transport modes in one app. The second is a mobility payment card or voucher option that employees can use in different mobility apps or platforms. The third and most traditional option is for employees to submit receipts for mobility transactions to their employers at the end of the month for reimbursement.
Mobility budgets offer perks for employers and employees
Mobility budgets are an employee benefit that can help attract and retain talent and improve employer branding, as well as improve cost efficiency by reducing fleet costs. At the same time, the perk allows employees to use sustainable transit, reduce their commuting expenses, and save time getting to and from work by avoiding traffic jams and rush-hour traffic.
In addition to complementing other employee benefits, mobility budgets and incentives can help shape people’s habits when it comes to using sustainable shared transportation. In 2022, for example, Germany offered a flat-rate €9 ticket to travel on all regional and local transportation networks during the summer months. The promotion proved immensely popular. According to a McKinsey survey of more than 500 consumers across Germany, more than 70 percent of respondents who bought the €9 ticket said they would increase their public-transit use in the future, even without other price incentives.2
This preference for public transit is also evident in a 2021 McKinsey survey about consumer perceptions regarding mobility budgets in Germany. One of the survey questions sought to identify which modes of transport respondents deem necessary to include in a potential mobility budget. Buses, subways, and long-distance public trains were relevant to more than 80 percent of survey respondents, implying that demand for these types of public transit already exists (Exhibit 1). A mobility budget could further encourage people to opt for sustainable forms of transit.
Regulatory and policy support for mobility budgets
Governments in Europe have started to introduce policies that support the implementation of mobility budgets to further promote sustainable-transportation use. Austria, Belgium, and France offer tax exemptions for sustainable mobility, for instance. Germany, Italy, and Poland have also begun promoting mobility budgets in other ways. For example, the French government introduced the sustainable-mobility package Forfait mobilités durables in May 2020 to encourage easier, less-expensive, and lower-carbon modes of daily commuting.3 As part of the package, employers may compensate employees as much as €700 per year for personal-transport costs between home and work. Mobility modes within the scope of compensation include electric and traditional bicycles, carpooling, non-subscription-based public transport, and shared-mobility services, including shared electric or hybrid vehicles and rental scooters. The package is available to all employees, including part-time employees meeting specific requirements for work duration. The package can also be used in conjunction with other mobility support schemes, such as public-transportation subscriptions, up to a combined reimbursement limit of €800.
Market opportunities in Europe
Major consumer trends are prompting a transition to more-sustainable and shared urban mobility. A McKinsey Center of Future Mobility 2022 consumer survey shows a rising consumer preference for this switch.4 Nearly a third of survey respondents indicated they would use forms of micromobility such as e-scooters and e-bikes more often in the next decade. And almost half of survey respondents (46 percent) said they would consider transitioning from a private vehicle to another mode of transport. In addition, 46 percent reported already using more-sustainable brands or products, and 16 percent intend to alter their habits considerably to support sustainability.
While the market is still in a nascent phase across Europe, there is an estimated serviceable market of more than 60 million employees.5 Depending on the country, customer type, and revenue model, the monthly license fees of €5.0 to €10.0 per employee would generate a recurring value of €3.6 billion to €7.2 billion for mobility providers. Additional value streams would also be available, including one-off setup fees, commission fees from transport providers, and tech integration fees for services such as payroll integration.
In addition to their significant potential market value, mobility budgets would be strong contributors to decarbonization and decongestion if more employees transitioned from single-user vehicles to public transportation. Mobility budgets that include private travel could have an even larger impact.
Improving mobility budget opportunities for mobility players
For mobility budget providers to capture impact opportunities and establish partnerships with employers, they must prove themselves a viable option. Providers can demonstrate this by enhancing employees’ experience with their offerings and by streamlining the user experience, building revenue streams, and meeting goals for sustainability, congestion, and timeliness. Mobility budget providers can engage in efforts in five areas:
Optimize the user experience by improving the reimbursement process
The McKinsey survey on mobility budgets found that end users ranked two process-related features among the three most important features in a mobility budget: automated expense accounting (87 percent) and digital invoice submission (85 percent) (Exhibit 2). At the same time, interviews with customers of mobility-budget players indicate that an easy-to-manage process for employers, including guidance on taxes by country, is also critical.
To improve the reimbursement process, mobility budget players need strong IT capabilities and should invest time and effort in integrating an expense system that allows employers to easily cover the cost of travel for employees. A skilled team and a streamlined, cost-efficient process are also helpful.
Integrate various transport modes in mobility offerings, especially public transport
As mentioned above, the mobility budget survey shows that urban and long-distance public transport are critical transport modes for employees using a mobility budget. However, it could be challenging to cover these two options within a mobility budget while maintaining an optimal user experience, because public-transport systems can be fragmented among different countries and even regions within a country.
The challenge is especially significant for one-stop-shop players that integrate access to different transport modes in one app. Because public-transport partners are usually fragmented by region and country and because each system typically has a different API, integrating options in a timely manner could be difficult. However, it is worth noting that the API integration with public transit could be simplified with flat-rate ticket offers, such as the €49-per-month local transit ticket offered in Germany.6 Alternatively, the mobility payment card or voucher business model may provide an advantage in offering preferred mobility options for public transport, because it allows employees to apply their credit card or voucher more flexibly and to use multiple apps and platforms. But the card or voucher model provides a less streamlined user journey and has lower barriers to competition.
A hybrid business model that combines the one-stop-shop and credit-card models is one potential solution to explore. To adopt the hybrid model, players must consider market dynamics, including the ease of integrating public-transport options, and end-user preferences regarding credit cards. This model may also require capability investments in foundational technology and market insights to identify a balanced option suited to the development phase and market environment.
Enhance offerings with other employee benefits
Mobility budget players may wish to enhance their offerings to complement other employee benefits. For example, players could couple mobility budgets with entertainment or food offerings. Providing customized offerings could help employers fulfill a variety of investment needs and could help mobility budget players enhance their revenue streams and provide additional user traffic for each of the benefits in the package. Mobility players that choose this option should consider brand perception and avoid confusing customers and end users. Brand considerations include whether to integrate other benefits with the original transport offering or create a separate, customized platform to differentiate brand perception.
Build in-house policy and regulatory expertise to support employers
According to our conversations with leading mobility budget players, employers often struggle to implement a standardized compensation approach across regions because local and regional regulations vary. This signals a need for an in-house team specializing in policy and regulatory topics. Mobility budget players could build in-house expertise in subsidies, tax, and regulatory information by geography to ensure a deep understanding of complex market dynamics and provide valuable consultancy to customers. This will help mobility budget players improve customer service, especially for multinational companies facing the challenge of clarifying differing subsidies and tax information across regions and countries. Mobility providers can also add value for multinationals by helping them integrate the offering into their expense management and claims systems.
Increase concept and brand awareness
Because mobility budgets are still in a nascent phase across Europe, providers should focus on generating more awareness of their services among both employers and end users. Only 44 percent of consumers responding to McKinsey’s survey on mobility budget perceptions were familiar with the concept of a mobility budget. Given the limited awareness of the product and the anticipated demand for employee benefits and sustainable transportation, mobility players could focus on rapidly defining the right go-to-market strategy by geography and engaging in customer education and lead generation.
Mobility budgets enable employers to reduce fleet costs, strengthen their brand, attract prospective talent, and encourage employees to use greener forms of transportation. As mobility budgets continue to gain traction, an uptick in adoption could in time help cities alleviate traffic congestion by reducing the number of cars on roadways. Mobility budget players should invest in critical capabilities now and fine-tune their appeal to employers to advance the future of transportation.