In Transit Payments, Collaboration Is Key

Agencies that work with vendors on innovation and service will get more of both.

Word on the street is that some transit agencies are choosing to opt for more modular approaches when it comes to their transit-payment systems, picking and choosing different vendors for different parts of their systems.

Agencies following a modular, open-architecture approach believe they will be able to roll out the new technology more quickly and at a lower cost, while avoiding
being locked into single-source suppliers and their technology. However, there are risks that come with this approach.

When looking at the state of the industry, a 2020 Mercator Advisory Group survey found that 25% of riders have purchased prepaid transit fares. The same study found 20% of the nation’s transit systems are now capable of accepting open-loop payments.

Clearly, there is no one-size-fits-all approach when it comes to transit-fare payment systems. What works for some agencies may not work for others. As with any major decision, it is important to look at the big picture and weigh both the pros and the cons.

Let’s take a ride on the modular vs. single-supplier superhighway.

Paying the Toll 

When you look at the sticker price of a more modular approach, it could look cheaper—just like the base model of a new car. For example, if you simply need validators on your buses and you want them to be both contactless and EMV-compliant only, then some of the smaller hardware manufacturers could sell you these devices for a one-off price.

However, you also need to consider the physical installation and integration into the back office, certification, validation, training, service, and maintenance. If the price you are being quoted covers all of that, then that’s not an issue. Further, if you go into the modular approach fully understanding what the true cost of acquisition and integration will be, then this is a perfectly viable route.

It is said that modular vendors like using application programming interfaces, standards, and pre-integration with other module vendors, such as validator makers. Some claim this would obviate the need for any system integrator (SI).

Meanwhile, it is said that single-supplier SIs lock in their customers and inflate prices—and that big SIs will not engage with an agency in a city of less than 2 million people for open-loop projects.

From our perspective at Cubic, single suppliers typically try to use standard APIs wherever they are available, but the issue we find here is that transit-agency solutions are very rarely “productized” and are more project-based. We foresee more off-the-shelf solutions being procured in the future, which will drive down the cost of acquisitions. This will benefit the customer, as it may choose a single-supplier back office with third-party validators or a mobile app.

Patchwork Speed Bumps

If you choose to go down the modular route, know that this is a patchwork approach. This can lead to overlap in capability, or, in the worst case, gaps. While 99% of the population is okay with coping with “minding the gap” between solutions, some users may not be.

For example, there’s been a massive emphasis on mobile ticketing recently, which is fantastic. A recent analysis shows the global mobile-ticketing market size is estimated to grow at a compound annual growth rate of almost 11% during the forecast period of 2021 to 2024. This technology represents a simple approach to delivering capabilities through a device that most people regularly use.

That said, there’s a group of people who don’t have phones, have old phones, are unbanked, or have disabilities that prevent them from using a phone. The deployed solutions can often deliver useful applications, but they do not encompass all who use public transportation.

In addition, some of the current mobile-ticketing vendors cannot offer solutions compliant with the Americans with Disabilities Act, or the equivalent in Europe, which excludes part of the demographic.

So the patchwork approach can work, but agencies need to be cognizant of what they are adding to the mix.

Many agencies take on the evolution of their fare-collection systems, which can be a great thing. The agency knows its customer and knows what that customer in that city truly needs. If the agency is prepared to take on the role of system integrator, along with the issues and costs, that’s certainly one approach.

But the agency also needs to know that the cost of building and evolving its system over time can often be far higher than procuring a solution from a vendor directly.

As budgets get trimmed, there tends to be a desire at agencies to improve services by looking at incremental changes to what they already have. These incremental costs will likely be higher than what a single procured standard solution could be. It is then up to the agency to decide what is fiscally and operationally beneficial for them and their customers.

On the downside, being an SI is not easy. Many are looking into the financial certification of readers to common payment gateways for major schemes. The complexity of this is mind-blowing, and the effort required to certify individual schemes for a common back office is overwhelming.

The Road Ahead

So an agency needs to be mindful that expertise will be needed. It also needs to be cognizant of the process, standards, certifications, and regulations, and it needs to know it is responsible for delivering on time and within budget to its users. Some agencies can do this themselves.

Agencies have solid intel they can bring to the development and evolution of products. We encourage those agencies to talk to the industry about models where we can co-develop specific modules that could then be licensed for re-sale to other agencies.  More people will benefit, and the original agency will also get a share of the license fee.

The road ahead can be paved with collaboration and innovation if we work together in unity.

—Andy Taylor is senior director, global strategy at Cubic Transportation Systems.