A Guide to Prepaid Cards for Transit Agencies
Publication Date: February 2011
For the past several years, transit agencies have been moving away from cash-based fare collection systems to contactless smart card-based systems. In most cases, the cards issued have been closed loop payment cards; that is, cards that can only be used to pay transit fares. Recently, in an effort to both reduce the costs associated with administering these systems and make the systems more convenient for customers, transit agencies are considering accepting contactless bank cards at points of entry, eliminating the need for customers to buy a transit-specific card.
The purpose of this white paper is to provide an overview of the prepaid card industry and the products available, including network-branded prepaid cards. It is directed to readers who work for or support transit agencies. The paper provides guidance on what transit agencies should look for when evaluating the feasibility and benefits of using prepaid cards as one element of an open loop fare collection system. The paper also provides useful information to other members of the prepaid card industry who have an interest in collaborating with the mass transit industry to expand the use of prepaid cards.
As banks continue the process of converting credit and debit cards to include contactless features, a large number of transit riders will be able to use these new cards on transit systems. However, transit agencies have a long-standing mandate to serve all constituencies in their service areas. Any movement to adopt financial industry products, such as bank cards, would therefore require that all riders be able to obtain such a card conveniently. Because some segments of a transit agency’s ridership may not qualify for a credit or debit card or may be uninterested in establishing a relationship with a bank, transit agencies should consider promoting the use of prepaid cards that can operate like a bank card but be available to anyone.
Non-reloadable “instant” prepaid cards provide this service. Because there is no requirement for consumers to apply for these cards, they cannot be declined. Non-reloadable “instant” prepaid cards are “cards for cash” in the simplest form. These can be limited to use at a single merchant, but they can also carry payment network branding enabling customers to use them at a wide variety of merchants, up to the amount loaded on the card at the time of purchase.
Another option is to use more sophisticated reloadable prepaid cards. These cards are issued by financial institutions and carry a payment network brand. Such cards are easier to obtain than a credit or debit card, since there are no credit approval requirements. The customer only needs to provide simple identification information to meet regulatory requirements. It is important to note that the issuer or provider determines the identification required, such as Social Security number, Individual Tax Identification Number or foreign-issued identification to satisfy these requirements. These cards can be reloaded as often as the customer likes and are frequently associated with payroll deposit programs.
In addition, prepaid cards can be obtained from convenient retail locations, from self-service kiosks, over the phone, or via a web site. There is no necessity to visit a bank.
By working with the prepaid industry, transit agencies can provide bank card products to supplement payment media, allow all riders to enjoy bank card privileges, and reduce the agency’s costs associated with the distribution and maintenance of closed loop transit cards, albeit by transferring some of these costs to the riders purchasing the prepaid cards. This approach has already proved to be feasible for serving riders that carry traditional credit and debit payment cards. Adding prepaid cards to the system would allow all riders to participate.
While network-branded prepaid cards can be marketed directly by a bank or other financial institution, one significant difference between network-branded prepaid cards and traditional bank cards is that they typically involve a third party, commonly referred to as a program manager. The program manager is responsible for marketing and distributing cards and supporting the program. Transit agencies are understandably reluctant to take on this role as it can be costly and is an area in which they lack expertise. Discussions in the industry have therefore focused on cooperative relationships with program managers that focus on retail-based prepaid cards; the agency works with a program manager who can distribute cards at transit locations as well as in shops near those locations, so that people can buy a card with cash when they need one.
Transit payment represents an important opportunity for prepaid card providers as an effective means for growing a stable customer base. Because transit agencies can benefit from cost savings, there is a reasonable basis for cooperation. Furthermore, retail-based prepaid cards are very similar to the closed loop smart cards that agencies provide today, which can facilitate a transition to an open system for current patrons, the retail sales outlets currently selling transit passes, and the agency itself.
There are even more types of prepaid cards than the retail-based products mentioned above. The prepaid card industry is highly segmented. An agency should consider each product type, since each type can provide convenient access to a unique segment of the market. Each type has its own special circumstances, but all types share a number of commonalities. Understanding the similarities and differences can help an agency develop a strategy for open payment card distribution that ensures that every rider has or can easily get a fare payment card at no cost to the agency.
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. 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, a Xerox company; American Express; Booz Allen Hamilton; Chicago Transit Authority; Connexum Consulting, LLC; Cubic Transportation Systems; Discover Financial Services; epay North America; First Data Corporation; Fiserv; Giesecke & Devrient; JC Simonetti & Associates; JPMorgan Chase; LF Consulting; LTK Engineering Services; MasterCard Worldwide; MTA New York City Transit; Payment Strategy, LLC; Ready Credit Corporation; Scheidt & Bachmann; South Eastern Pennsylvania Transportation Authority (SEPTA); Thales; Utah Transit Authority; VeriFone; and Visa Inc.
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.