It’s one of the last remaining modes of transport that has been relatively untouched by innovation.

The UK rail sector transports 1.5 billion passengers annually and benefits from billions of pounds of investment, but has struggled to move with the times.

That could be about to change. Last month Virgin Trains East Coast signed a deal with startup Seatfrog, an app that auctions seat upgrades two hours before travel. Passengers with standard tickets have the chance of upgrading to first class for as little as an additional £5.

Seatfrog, which launched in 2016, originally targeted the airline sector but expanded the model after speaking to Virgin Trains. Co-founder and chief executive, Iain Griffin, says the firm has since been contacted by a number of other rail providers who are interested in the model.

Rail firms tend to have antiquated systems and a reputation for poor customer experience.

Griffin says: “There is a real opportunity for rail organisations to embrace innovation to tackle this. [They] recognise it’s a win-win for them and their passengers.”

The rail sector appears to be waking up to the possibility of new ideas, particularly those that come from SMEs. Virgin Trains launched its Platform X accelerator this year, and HackTrain runs an annual hackathon and conference with backing from Great Western Railway, Stagecoach, Arriva, and others. Eurostar recently took a cohort of startups to the Viva Technology conference in Paris, that pitched for the chance to run a pilot with the company. The competition was won by DigitalGenius, which uses machine learning and artificial intelligence to improve customer service.

Prof Clive Roberts, director of the Birmingham Centre for Railway Research and Education, says it is a difficult industry for many to break into.

“There are some barriers to entry, particularly for anything that is safety critical, or operationally critical,” he says. “It’s easier in terms of some of the digital applications around passenger services. The innovation cycle is much longer than it might be in other industries, although the sector … wants to be innovating more rapidly and it’s getting better at that.”

Of course, not all developments are welcomed with open arms. Ben Kaube co-founded TrainTrick in 2016 to help commuters claim refunds when their trains were delayed, at a time when £150m in compensation was unclaimed every year. The app launch coincided with the Southern Rail strikes, and attracted thousands of signups a day. Unfortunately, pressure from the rail companies led the business to close a year later. Kaube admits the founding team was surprised by the backlash.

“Everything was going beautifully,” he says of TrainTrick. “Then we ended up on the radar of the train companies and they weren’t as enthusiastic about us as their passengers were. We got quite intimidating letters from them [and] they stopped paying out on our claims. As a small business it’s very difficult to operate under such uncertainty.”

Jeremy Acklam went around the rail companies when he launched Ticketclever in January 2017. The former executive at Trainline developed technology that uses ticket data, made available by the Rail Delivery Group, to search for the cheapest fares.

It uses a complicated algorithm that’s taken years to develop, and takes into account combinations of peak and low-peak fares, ticket “splitting”, and longer journeys that may be cheaper.

“The industry as a whole is, I believe, very open to innovation,” says Acklam. “The challenge with an industry like this, is it’s like the aviation industry. You cannot trial a half-baked idea. [And you have to] know the industry very, very well.”

Ben Whitaker, who co-founded Masabi and its mobile ticketing system JustRide in 2000, said transport firms are nervous about testing anything new unless they are sure it is the right thing to do. “No matter how persuasive you can be, everyone wants to be second,” he says. “Nobody wants to be first. We rely on heroes in an organisation to get other stakeholders to squint and give it a go.”

Masabi now processes more than $500m (£380m) worth of tickets per year worldwide, with imminent launches planned for the Far East and Central America. Whitaker’s found the US simpler to deal with than the UK – the cities are far enough apart that one company can introduce a new product without the agreement of other rail networks.

In the UK, Whitaker is heartened by the progress the various rail franchises have made to embrace mobile as a means to sell tickets, although it’s taken many years to get to this point. The challenge has been to attract new users by changing everyday behaviour, as well as getting rail companies on board.

He says: “We’ve found this about disruption in general – it’s easy to get the early adopters, but they’re fickle and will move on to the next thing quickly.”

For Roberts, it’s partnerships that are key for any entrepreneur wanting to break into this market, and he recommends investigating organisations such as the Rail Alliance, which has more than 400 SME members, and the Railway Growth Fund loan scheme that invests in SMEs developing products for rail.

It can be a lucrative sector to be in, he adds, not least because of the reputation of British rail abroad. “Internationally, rail technology from Britain has a very good pedigree and a good reputation,” Roberts says. “The market is huge. More or less every country in the world is building a railway [or] extending a railway. If we can develop the technology, there’s a huge export market. It’s an exciting space.”

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