Mass Transit’s Next Big Move

First came contactless. Now, transit payments are gaining the account-to-account advantage, and with it more flexibility for riders and insight for operators.

Long heralded as a key factor in spurring contactless payment adoption, transit-payment programs are fully embracing the technology. Yes, the Covid-19 pandemic was a key instigator in this change, but advancing payment technologies also are making it easier, and desirable, for transit operators to adopt contactless payments. This is especially true for open-loop schemes that let riders use the payment device of their choice.

Transit systems, in many instances, have had to contend not only with decreased ridership in the past couple years, but also with the trepidation of passengers who feared touching turnstiles and payment kiosks. That’s where contactless payments was the apparent answer.

In 2021, 88% of riders expected a contactless payment option from their local transit operators, found the Visa Inc. “Future of Urban Mobility Survey.” And 74% of consumers, in general point-of-sale transactions, intend to keep using their tap-and-pay cards this year, according to a report from the Electronic Transactions Association, a Washington, D.C.-based trade group, and The Strawhecker Group, an Omaha, Neb.-based payments advisory firm.

Outside of contactless payments, the boom in account-to-account payments also is altering transit-payment programs. Operators adopting this technology are able to provide customized payment schedules without having to manage thousands of stored-value accounts.

“The pandemic helped spur that growth to allay fears of handling cash and [minimizing] contact,” Brian Stein, co-vice chair of the Secure Technology Alliance Transportation Council. The Alliance is an Englewood, Colo.-based organization. “I don’t see that momentum changing direction any time soon.”

Others agree. “Transit ridership was dealt a significant blow throughout the pandemic as riders looked for other ways to commute to avoid contracting the virus,” says Andy Taylor, senior director of global strategy at Cubic Transportation System. “This emphasized the need for modern technologies that support contactless fare collection to curb the spread of the virus and give customers great peace of mind.”

“The result,” Taylor continues, “has been promising with a number of transit agencies around the country adopting systems that enable multiple methods of fare payments, including digital wallets and contactless cards.”

‘More Efficient’

Among these is the OMNY project for New York City’s Metropolitan Transportation Authority, which enables riders to pay with major-brand contactless credit and debit cards as well as Apple Pay, Google Pay, Samsung Pay, and FitBit Pay.

In April, the OMNY contactless system counted more than 1 million taps on a Friday alone, reported SILive.com. The MTA also said in December the OMNY scheme had been installed throughout the city’s transit network, the site said.

And, in New Jersey, the Port Authority of New York and New Jersey announced in November it would adopt a tap-and-go contactless payment service to begin in 2023. The current system uses a physical fare card. The new one will let riders use their own cards and mobile devices. The authority expects the cost for the new system to be $99.4 million.

In Boston, the Massachusetts Bay Transportation Authority will convert its currently insertable CharlieTickets to tappable ones this month. This also will enable riders to use a contactless credit or debit card, Apple Pay, and Google Pay on select subway lines and bus routes. Eventually, the fare-payment service will be available on all MBTA transit modes.

The common critical element in all of these projects is the ability for the fare service to access the user’s funding account in near real time without requiring an intermediary stored-value wallet.

“Cloud-based computing has really helped spur this moment,” Stein says. “Now the cost and management in the back end is much more efficient and economically viable for transit agencies.”

‘One to Many’

It also brings flexibility for riders.

As an example, commuters buying a monthly pass have had to pay the full fare amount—which could be a few hundred dollars—up front. In an account-based fare scheme, the rider might be able to just pay for the next ride or keep a certain amount to cover the next ride, she says. This can help riders avoid having to lay out the entire monthly rider fees all at once, Stein says. Account-based services also may enable fare capping, where, after a certain number of paid rides, the following rides are at no charge.

“When transit agencies combine open-loop payments with fare capping, riders avoid tying up funds on a transit card in anticipation of their commutes (when they might not even be sure how often they’ll be riding on a given day or week),” says Julie Scharff, head of card present and strategic initiatives at Visa  in an email message.

“They can pay for rides directly and be confident they are getting the best price, while keeping funds available for other daily essentials in addition to transit,” Scharff continues.

Visa reported earlier this year it processed more than 500 million tap-to-ride transactions globally in the first half of its fiscal 2022. It processed 700 million for all of the previous fiscal year, which begins each Oct. 1.

This flexibility is essential, says Taylor. “Commuters want to have greater control and flexibility over their days, and that extends to transportation. Offering various ways to pay contactless fares and making fares more cost-effective for riders by introducing fare capping or rethinking the multi-day fare pass can enable transit agencies to support the future of work in new and exciting ways,” he says.

For transit operators, an additional benefit is further insight into ridership patterns. “What excites me the most is the move from a one-to-one relationship between the vendor and consumer to a one-to-many,” says Chris Hicks, chief revenue officer at Till Payments, an Australia-based payments-technology provider that recently marked its North America entry, in an email.

“The shift benefits everyone in the ecosystem,” Hicks says. “The operators enjoy the previously unimagined insight into their consumers’ transit habits, importantly, who their consumers are (age, economic and geographic demographics all form a part of this transformational change), while consumers enjoy the ease and the convenience of innovative payments solutions.”

Expanded Options

Integrated access to other transit providers, other partnerships, and other loyalty programs also could develop. “In addition to contactless and tap-and-go capabilities, the continued development of partnerships and loyalty programs will be integrated into the payment process,” says Mike Crumpler, managing principal at Capco, a Belgium-based consultancy with multiple U.S. offices.

“This will help sustain continued patronage and potential growth in existing and new markets,” he continues. “We should expect to see an expansion of these payment options being tested and expanded [further] in large mass-transit markets around the country.”

Adopting open-loop fare-payment services may also serve riders and agencies well as employers and employees adjust to hybrid work models. “Until recently, every leg of a journey required a new payment, the result being a burden on both the consumer (having to deal with the inconvenience of multiple check-ins), and the operator (with increased operational costs associated with the processing of numerous transactions for a single journey),” Hicks says.

Transit payments that enable riders to complete multiple legs in a day and have the costs consolidated into a single end-of-day payment enables consumers to access and use the transit network so it accommodates their needs to work from home, the office, or another location without having a raft of transaction lines on their statements, he says.

New fare systems also can better address access to public transportation. “As cities continue to get moving again, there will need to be a greater focus on fare-payments systems that are equitable for everyone,” Scharff says.

“For instance,” he adds, “fare-capping with open-loop payments will play an important role in balancing a much more dispersed workforce without disadvantaging those whose work routines remained constant throughout the pandemic. Fare capping offers every customer the most flexibility and value.”

Open-loop and contactless payments also can lower cash use, and its costs, for transit operators. With funding mechanisms using automated clearing house access or a payment card, customers can add money to a transit account as needed, which may help reduce cash use on buses, Stein says. A majority of transit operators are bus-based, he adds. “That’s the one element where connectivity to the fareboxes to the backend is quickly improving,” he says. There will still be a need to accept cash on buses because 100% cash removal is very unlikely, Stein says.

Transit operators have been reaching for account-based fare systems for a long time, he adds, but as with anything, timing is everything. Contactless payments at the point of sale and in transit saw greater adoption because of the pandemic. And, as is likely at the point of sale, contactless payments for transit are not likely to retreat.

“Everything was point of presentation when [the transaction] happened,” Stein says. “Now, this is shifting to the account in the backend.” This affords transit operators and their vendors some creativity in designing fare-payment schemes. “Now, with accounts moved to the back end, this opens the door to new programs. Contactless cards helped spur open programs.”