Alliance Activities : Publications : Fare Payment and Collection Systems : Guidelines

Planning for New Fare Payment and Collection Systems: Cost Considerations and Procurement Guidelines

Publication Date: March 2010

  • Download the white paper.
  • Download the Excel transit payment system cost model.

The management and operation of fare payment systems in the U.S. public transportation industry require considerable expenditure of labor and materials. The manufacture and distribution of fare media, ongoing equipment maintenance, and the collection and processing of cash may require agencies to spend 5–15% of their total revenue to collect fares. Industry-wide, this expense is even more striking when viewed against a total annual revenue of $10.3 billion generated in 2008.

Transit agencies planning to upgrade fare collection systems must consider the entire range of cost implications associated with fare payment projects. This Smart Card Alliance Transportation Council white paper has two purposes: to outline an approach for planning and procuring a new fare payment system, and to present a cost model made available by the Smart Card Alliance Transportation Council for use in evaluating alternative payment systems.

Two keys for agencies contemplating a new system are scope and approach. Agencies should begin by examining their fare payment strategy (in simple terms, where is the agency today, and where does it want to be in the long term). The answers require an agency to examine how it collects fares today and set goals for how it would process fares in the future.

Fare systems have long investment lives and typically change once a generation, at best. Many U.S. systems currently use outdated technology that is challenging to maintain. Other transit systems have upgraded and invested in contactless smart card technology and are looking to refresh their systems with technology upgrades to meet the expectations of internal and external customers and potentially create new revenue streams through collaborative cross-industry partnerships. Unfortunately, U.S. transportation agencies are challenged to keep pace with changes in technology. Consequently, agencies must look to future-proof their investments and prepare to change the way they do business internally.

This white paper emphasizes the need for transit agencies to consider the role played by cost analysis when planning and procuring new fare payment systems. Fare payment and collection activities often reside within a wide range of agency operations: media manufacture and distribution, media sales, inventory control, cash collection, processing, and transport, for example, are all part of the fare payment landscape. With this in mind, agency personnel need to understand, define, and capture all costs associated with the fare payment function to establish a baseline for comparison of new or upgraded alternatives. This baseline provides the agency with a complete understanding of the resources needed for current operations, and serves as a guide to identify and evaluate alternative fare systems.

Equipment and technology are not the only considerations. Fare policy and structure must also be considered. For example, agencies are advised to assess current conditions as a way to formulate goals for new systems or derive measurement criteria to evaluate new systems: current fare-box return, the equipment’s remaining useful life, or the need for regional fare integration are the starting points from which to frame the issues associated with and the requirements for future improvements. This information helps narrow the alternatives. The outcome of the planning effort is a group of alternatives that are sufficiently defined and specified to enable cost evaluation.

A cost model has been made available by the Smart Card Alliance Transportation Council that can be used as a tool not only to evaluate the cost implications of new system alternatives but also to identify how current system costs will change. The model is composed of a series of tabs, or worksheets, in which the user enters the cost estimates for the alternatives identified during the planning phase. All costs linked with capital, operating, maintenance, and contractual functions are estimated for each alternative. In addition, the user must specify a variety of assumptions related to workforce changes, financial considerations, and equipment lifecycle needs. The model yields a number of outputs that allow a comparison and analysis of alternatives.

The final issues associated with implementation of a new fare payment and collection system are procurement and contracting requirements. In the procurement phase, agencies are advised to define the project requirements fully and prepare a concept of operations that captures the project vision for all stakeholders. As the project moves from the planning into the procurement phase, various contracting options are available to the agency, for which the key elements are the contract form, type, and method of award.

About the Smart Card Alliance Transportation Council

The Transportation Council is one of several Smart Card Alliance Technology and Industry Councils, focused groups within the overall structure of the Alliance. These councils have been created to foster increased industry collaboration within a specified industry or market segment and produce tangible results, speeding smart card adoption and industry growth.

The Transportation Council is focused on promoting the adoption of interoperable contactless smart card payment systems for transit and other transportation services. Formed in association with the American Public Transportation Association (APTA), the Council is engaged in projects that support applications of smart card use. The overall goal of the Transportation Council is to help accelerate the deployment of standards-based smart card payment programs within the transportation industry.

The Transportation Council includes participants from across the smart card and transportation industry and is managed by a steering committee that includes a broad spectrum of industry leaders.
Transportation Council members involved in the development of this white paper included: ACS, Booz Allen Hamilton, Cubic, Giesecke & Devrient, INSIDE Contactless, JPMorgan Chase, Southeastern Pennsylvania Transportation Authority (SEPTA).
Transportation Council participation is open to any Smart Card Alliance member who wishes to contribute to the Council projects. Additional information about the Transportation Council can be found at /activities-councils-transportation.