As the situation you are applying this to is where they do not produce said railcard you are relying on the person to then provide another form of verifiable ID (Passport, Driving licence) not just a credit card in the name of someone else who has a railcard or the typical scumbag response of "I have no ID".
Plenty of TOCs don't and there are a lot of journeys for which the only walk-up fares available are full fare. Take Virgin, a regular traveller buys a railcard discounted off-peak and uses a peak train. Does his best to avoid on-board checks and gets away with it some of the time, other times ends up having to pay the difference to an anytime fare that should have been paid anyway.
Really I don't see the point in adding a complex, expensive system with gaping loopholes for criminals just to accomodate those few "genuine cases" who are too stupid to remember to carry a credit-card size piece of plastic in their wallet which they are aware (by purchasing railcard-discounted fares) is saving them a lot of money.
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I think you're over complicating things/misunderstanding. At the moment, a passenger who claims to have forgotten their railcard has four usual outcomes, depending on their train and journey: 1. Pay the full fare 2. Receive an unpaid fare notice 3. Pay a penalty fare 4. Guard uses discretion and does not charge. These 4 apply whether the passenger has lost, forgotten, or never had, a railcard. My reading of this system is that these 4 options get replaced with a 'upgrade to full fare plus an admin fee'. If you can provide ID at the time - which could take any number of forms, it really depends on the TOCs as to what they chose to accept - you can use this ID, and a valid railcard, to later reclaim the extra money that you paid at a station. In a penalty fares zone, you would have to pay the penalty fare - but again, could reclaim this.
If you have no ID on you, tough luck (because the whole ID system is essentially giving you a second chance having failed to fulfil the original agreement); if you have no railcard, then the system doesn't particularly change for you, as you still pay more due to the admin fee.
Indeed, there's no reason why this couldn't be implemented whilst still asking passengers to pay the full fare on board (ie buying a new ticket, rather than upgrading), if this made sure that evaders didn't benefit. ID+ the new ticket+railcard would still get you your money back at the station. The advantage is that this system removes some of the pressure on the guard to enact option 4 from my list above - they can charge the extra and then say 'yes sure, I'm sure you do really have a railcard, if you go with your ID and railcard to a station, you can get the money back'. I agree this doesn't solve every single case - a passenger may completely lose their wallet, for example - but it will help some genuine errors whilst potentially making things easier for guards.
Or, you know, TOCs can continue to treat people who make mistakes like criminals. Fine, they've forgotten or misplaced something that they should have and yes there can be consequences for this. But when you could bring in such an easy system that would lead to a pleasant resolution for all sides, I don't see the problem here.
