Public Transit Could Give Contactless a Much-Needed Boost

Public Transit Could Give Contactless a Much-Needed Boost

Public Transit Could Give Contactless a Much-Needed Boost

Charles Keenan

Charles Keenan

Charles Keenan has written about payments since joining the American Banker as a staff reporter in 1997, a time when automated teller machines were appearing just about everywhere but people's living rooms thanks to the relaxation of surcharging rules.

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Contactless as a way to pay in the United States hasn't gained much traction so far. Yet the payment method might finally get the jolt it needs to go mainstream.

Nationwide, transit agencies, with their vast populations of riders, are in the process of upgrading or planning to revamp their fare collection systems with contactless technology that will allow commuters to pay for rides in real time with contactless bank-issued credit and debit cards.  

Nowadays, there's contactless payment in transit systems nationwide, but they're closed-loop, with no interoperability with other networks. With open loop, all riders have to do is tap their regular debit or credit cards and the fare would be automatically calculated. 

In the Philadelphia region, the Southeastern Pennsylvania Transportation Authority (SEPTA) is in the process of rolling out a new system that accepts contactless. Its buses and trolleys now accept SEPTA's Key Card, where users can set up accounts that are linked to a credit or debit card.

"Transit is a strong use case for driving consumer habituation for contactless," says Daniel Sanford, vice president of consumer products at Visa.

That's nothing new in American transit — other major cities such as Los Angeles use contactless. But SEPTA could be the first big agency to deploy an open-loop system for contactless, where it accepts other major card brands and mobile wallets with a tap at the fare gates.

Various branded contactless technology such as Visa payWave, Mastercard PayPass, American Express ExpressPay and Discover Zip will eventually be accepted by SEPTA, once the agency enables the technology. The underlying platform uses open standards and open architecture to allow for bank-issued cards to be accepted. 

"We wanted to have something that would be very customer-friendly and open up a number of possibilities," says Richard Burnfield, SEPTA's deputy general manager. "We were really looking at something for transit that would be seamless, but also move away from providing the transit currency."

An expensive business 

Transit currency is indeed an expensive business. Agencies face high costs just to print tickets, receipts and monthly passes. By opening these systems to accept NFC-enabled cards and mobile phones, they would essentially offload the printing expenses. Think of how the bring-your-own-device movement has lowered the technology costs for companies. This is the same concept, in that people would 'bring their own card,' taking the expensive task of issuance off the hands of the agencies. It will also lower reliance on fare equipment, operations and maintenance for agencies.

In a bid to push more people to start using its contactless Key Cards, SEPTA stopped selling tokens at ticket windows on April 30, 2018 for its buses, trolleys and subways. Sales of paper transfers end on Aug. 1. 

"Tokens, collecting cash, processing cash — that's a very significant effort for us in terms of manpower and expense," Burnfield says. "As we eliminate tokens and paper-based tickets and transfers, it will really position us well in terms of improving our operations."

Transit as catalyst

Until now, there really hasn’t been a compelling value proposition for consumers to start using contactless cards. It has been plagued by a chicken-and-egg problem: not enough merchants, and not enough users. Yet in transit, the technology offers a real incentive in added convenience. Riders can skip having to wait in line at booths or machines. With a tap at the station gates or on buses, single-ride trips can be calculated and automatically debited from an account balance.

About 51% of consumers are interested in using their NFC-enabled smartphones instead of a payment card to making purchases when checking out, up from 39% in 2015. (2017 U.S. Consumer Payments Study)

Overseas, Transport for London's adoption of contactless has been a hit. The agency launched its program on buses in December 2012, then on its railways in September 2014. Now, half of all tube and rail pay-as-you-go rides use contactless payment cards or mobile devices, up from 25 percent two years ago, the agency announced in April.

The habit of using contactless in transit has helped spread its use for all transactions in the United Kingdom, Visa Inc. notes. Contactless payments represented 56 percent of all face-to-face transactions as of March. "Transit is a strong use case for driving consumer habituation for contactless," says Daniel Sanford, vice president of consumer products at Visa.

In the United States, major transit agencies have taken notice. New York's Metropolitan Transit Authority last year announced plans to adopt an open-loop contactless fare collection system, starting in mid-2019, to be rolled out in phases over five years. Other agencies looking to adopt or upgrade contactless technology include Miami, Boston, Los Angeles, San Francisco and Portland, Sanford notes. "They're all looking at how they want to improve the consumer experience, moving toward a contactless acceptance environment," he says.

Mass reissuance on the way? 

SEPTA and other transit agencies could do contactless a big favor by getting riders used to the technology. That's when the real demand among consumers could kick in. SEPTA averaged 718,000 riders daily this year through May 31. While overall ridership has declined 6.6 percent over the same period a year earlier, it's still a high volume that translates to a lot of new users in the contactless world. 

That dovetails nicely with growing awareness about contactless. About 51 percent of consumers said they had an interest in using their NFC-enabled smartphones instead of a payment card to make purchases when checking out, up from 39 percent in 2015, according to TSYS' 2017 U.S. Consumer Payment Study, released in April 2018.

So for financial institutions, transit’s adoption of open-loop fare systems could mean a lot more customers asking for a contactless card this year and next. "You have to be considering your issuance strategy leading up to 2020, when a lot of these transit markets go live with contactless," Sanford says. "That's both a big potential risk for financial institutions that fall behind, and a differentiator for those that issue contactless cards."

The statements and opinions of the writer do not necessarily reflect those of TSYS.

Other Articles by Charles

Charles Keenan

Charles Keenan has written about payments since joining the American Banker as a staff reporter in 1997, a time when automated teller machines were appearing just about everywhere but people’s living rooms thanks to the relaxation of surcharging rules.

His work at the American Banker included writing about credit and debit cards, merchant processing, and bank stocks. He later freelanced for the Banker and industry publications such as Banking Strategies, Bank Director, Community Banker, and U.S. Banker. He also writes about investing, insurance and health care, and is based in Los Angeles.

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