Opening the Loop with Transit Programs

by Mercator Advisory Group 0

Transit represents a small dollar in the open-loop market, but cities that have adopted open-loop transit card programs are realizing their value. Pilots by agencies such as the MTA New York City Transit (NYCT) and the Utah Transit Authority (UTA), where contactless financial payment cards are acceptable as fares, are starting to be fully deployed. Growth in this segment will be closely tied to the adoption rate of general purpose contactless cards and use of contactless in prepaid applications. It should be noted that a significant percentage of this market is still represented by open-loop cards that target improved convenience for parking. Based on Mercator’s 2010 Annual Prepaid Benchmark, the transit segment increased from $49.4 million in 2008 to $57.8 million in 2009, a 17% increase.

In September, the Chicago Transit Authority issued a request for proposal for implementation of an open-loop payment program. Also that month, the U.S. Department of Defense put out a request for information on the addition of transit payment capabilities to its Common Access Card.

In February 2009, the Utah Transit Authority became the first U.S. transit agency to launch a fare collection system that accepts contactless credit and debit cards from American Express, Discover, MasterCard and Visa.

Open-fare pilot programs have also taken place with the transit authorities in New York, Los Angeles and San Francisco’s Bay Area. Additionally, an active procurement is underway for Washington D.C.’s transit system.

Transit agencies are hoping to save money on ticketing and staffing by switching to an open-payment system. With closed-payment systems, the transit agency must buy the ticket stock and contactless cards, issue the fare media and provide support when customers have problems with their transit passes.

An open-fare system could change that. “If you have a problem with your card, you’d call your bank first,” says Phil Dixon, director of new product development for San Diego-based Cubic Transportation Systems, which provides fare payment infrastructure systems for the mass transit industry.

The key is finding in a third-party issuer, such as a bank or a vendor, to issue the cards. “Transit agencies want to be considered a merchant, just like a Macy’s or any other organization that accepts payment cards,” Dixon says. “They would process transactions directly at the point of sale just like any other merchant.”

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