Transit and Contactless Open Payments: An Emerging Approach for Fare Collection
Publication Date: November 2011
Two of the undeniable forces behind the evolution of transit fare payments have been passenger needs for rapid fare payment transaction speeds and payment choices. A third legitimate element, more recently, merits inclusion: payment security. Throughout the 1990s and into the new century virtually all of the major transit agencies in North America invested in automatic fare collection (AFC) technologies, allowing the development of robust transaction-based systems. These card-based, closed loop systems appealed to core transit customers as agencies refined and then promoted stored value and stored pass product implementations. Despite this success, however, the industry was still challenged in at least two key areas: first, the means to attract rider markets either unfamiliar with or not needing the purchase of these specialized fare instruments; and second, the burden of owning, operating, and maintaining proprietary card-based systems.
Transit rider preferences, however, represent a subset of the broader consumer marketplace. According to the 2010 Federal Reserve Payment Study, credit, debit and prepaid payments made up over 65 percent of all non-cash payments in 2009, with a value of $3.52 trillion. Further, the number of non-cash payments in the United States has increased at a compounded annual rate of 5.2 percent since 2006. These findings and trends, as the study points out, result from a combination of technological and financial innovations that influenced the payment instrument choices of consumers and businesses. The banking and payment industries understand consumer desires for faster transactions, the convenience of not carrying cash, improved theft and loss prevention, and ease of record keeping. Recognizing opportunities to expand card use in low-value transactions, the payment industry re-defined payment requirements, including the elimination of signatures and receipts, contactless technology adoption, and expansion of prepaid bank card products.
This white paper examines the confluence of two industries, transit and financial payments, moving toward the mutually compatible goal of market expansion through customer convenience, transaction speed and data security. The contactless payment card transaction process and fee structure operate within a unique multi-party system, in direct contrast to the transit agency model of proprietary card payments. Understanding the two approaches is key to recognizing the tradeoffs and merits of open payments for transit agencies. The white paper outlines the mechanics of the bank card payment process, including payment aggregation and advanced processing techniques to address transit needs dealing with authentication, authorization and approval in real-time or near-real-time. Transit integrators are implementing risk management solutions tailored to the transit environment, and the industry is working with the card-issuing community to ensure processing rules are in place that are suitable to transit as a merchant category.
Two new technologies, NFC and EMV, are also being introduced in the market. NFC, a short distance wireless communications technology, may completely alter the payment landscape by allowing purchases from mobile phone users, and enabling location-based advertising and communication. EMV is an open standard specification for smart card payments and acceptance devices designed to improve the security of bank card transactions. Eighty countries are in various stages of EMV chip migration.
Through the publication of this paper and others like it, it is hoped the transit community will gain a new understanding of the architecture of open payments and its benefits. Like many industries, transit agencies struggle with multiple standards and the challenges of interoperability. By adopting bank industry standards for payment, however, the goal of interoperability is achieved. Increasingly, as shown by the pilot projects conducted in the New York-New Jersey region, the open payment operation of the Utah Transit Authority, and several ongoing procurements among large North American operators, the industry will develop further insights into the opportunities and benefits of open payments and account-based fare payment approaches.
About the White Paper
This white paper was developed by the Smart Card Alliance Transportation Council to inform the transit industry of the opportunities, benefits and challenges of accepting contactless open bank cards for fare payment and to inform the bank card industry of unique requirements for transit fare collection.
Transportation Council members involved in the development of this white paper included: Accenture; ACS, a Xerox company;American Express; Booz Allen Hamilton; Bell Identification B.V.; CH2M; Chicago Transit Authority; Collis; Connexem Consulting; Cubic Transportation Systems; Dallas Area Rapid Transit (DART); Discover Financial Services; epay North America; Gemalto; Giesecke & Devrient; HID Global; Identive Group–SCM Microsystems; IDmachines; Infineon Technologies; INSIDE Secure; JC Simonetti & Associates; JPMorgan Chase; Keville Enterprises; LF Consulting; LTK Engineering Services; MasterCard Worldwide; MTA NYC Transit; NJ TRANSIT; NXP Semiconductors; Oberthur Technologies; OTI America; Parkeon; Payment Strategy, LLC; Quadagno & Associates; Scheidt & Bachmann; Southeastern Pennsylvania Transportation Authority (SEPTA); Thales Transport and Security Inc.; U.S. Department of Transportation (DOT)/Volpe Center; Utah Transit Authority (UTA); VeriFone; Visa Inc.; Washington Metropolitan Area Transit Authority (WMATA).
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 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.