What are Open Payments in Transit?
You need to go places. There are many options available to you as a traveler: Hail an Uber or cab, ride a bus or train, or reserve a bike or e-scooter. The list goes on.
Out of all these options, selecting a ride on public transit is the easiest choice to make. You read that right: there is no option outside of walking that can be easier to use than a public transit system that leverages Open Loop Payments.
Imagine this scenario: You walk up to a vehicle or gate, pull out your credit card and tap it on a payment terminal. Instantly you have access to the public transit system. That entire process took 3 seconds. Now you can go, sit down in a plush chair, and read the latest John Grisham novel while you are whisked off to your destination. You didn’t have to:
Search the app store and download an app
Enter credit card details on an app or website
Stand in a line waiting to purchase a ticket
Figure out what type of pass you need to buy
Count out cash to make a purchase
Wait for a traditional credit/debit transaction to complete
Worry if this transaction will incur a low balance fee
Behind the scenes, payment is charged to your credit or debit card account and shows up on your statement with a nominal “Tap to Ride” fee. This is how Open Payments works in its simplest form: enabling travelers to simply Tap and Ride. The mechanisms that make an Open Payment transaction work are generally comprised of three parts:
Design by Bytemark, Icons by KonKapp from NounProject.com
Ride: A traveler presents their contactless payment card, mobile device, or wearable to a validator or unattended payment terminal. This initiates a short-range wireless conversation between the card and the validator in which the authenticity of the card is verified, and the card id is compared to a list of cards that have been explicitly marked for denial. In an Open Payments system, the validator can function completely offline, and asynchronously sends tap transactions to the back-office for further processing.
Manage: Open Payment systems require a transaction processing engine that, among other things, determines the charges based on fare policies. Being the central system that orchestrates all of the transactions, the back office transaction management platform is where the value of any Open Payment solution is determined. Many legacy systems pass through each tap as a fixed charge to the acquirer. In new generation Open Payment systems like Bytemark Connect, we maximize the value to agencies by aggregating multiple taps into a single transaction and apply flexible fare policies and fare-caps prior to passing charges to the acquirer.
Settle: An acquiring bank manages authorization of charges and settlement of funds. Through their relationship with cards brands and issuing banks, they ensure payments meet strict industry requirements and guidelines to enable funds are transferred securely with traceability.
All these mechanisms that make up the Open Payment system have a close relationship with the transit agency.
To Ride, agencies can be responsible for thousands of pieces of hardware within their system. Agencies should have the freedom to choose the best validator for their needs rather than be tied to a specific manufacturer by a system integrator.
To Manage, agencies must establish configuration parameters to suit their business needs, include flexible fare policies, and have visibility into the daily operational performance. Agencies should look for platforms that can provide the flexibility required to improve revenue efficiency and enhance customer experience.
To Settle, revenue relies on the transfer of funds managed by the acquirer. Agencies should look for acquirers that have Open Payment friendly integration options.
Do people have the right cards to make open payments work?
Open Payments, at least how it is used for public transit today, is limited to Contactless EMV (cEMV) media. This will likely change as we find more ways to integrate alternative financial tools, but we will focus on the traditional scope for this discussion.
Tap to Ride, Tap to Pay, Contactless Payment—the terms used by transit agencies vary greatly, but the key technology that enables all of them is cEMV. If you have a credit or debit card with the ubiquitous logo, or a mobile device with a bank card stored on it, you have all you need to use it on an Open Payment system today.
In fact, cEMV penetration in the US has grown to a level that nearly everyone that has a compatible card or mobile device ready to use Open Payments today. In 2019 cEMV penetration in the UK was 48% and TfNSW deployed a very successful Open Payment program. Today, the cEMV penetration in the US is even greater. That means nearly everyone with a bank account already has one or more cEMV supported cards in their pocket or mobile device. On top of this, we are still seeing significant growth.
How do Open Payments work?
Open Payments is a simple concept. It is so easy to use that it masks a great deal of complexity and flexibility behind the scenes. In its simplest form, any traveler can to tap a payment card, mobile device, or wearable to a payment terminal and immediately enter the transit system. Advanced Open Payment systems like Bytemark Connect offer a whole suite of features that serve to greatly improve the experience of the traveler, encourage the use of public transit over other means of travel, and improve revenue for the public transit Agency.
There are many examples of basic Tap to Ride schemes that have been implemented in North America that incur an independent transaction every time a traveler taps their card. These systems have been expensive to implement, carry high interchange fees, and perhaps haven’t lived up to anyone’s expectations.
The good news: the latest generation of Open Payments systems have largely resolved these issues. They offer a lot more value to public transit agencies and consumers alike. There are compelling benefits (for both agency and rider) that the best of these systems offer:
Improve equity through fare capping, by lowering the up-front cost for travelers who could benefit from multi-day passes
Save time by eliminating steps to use public transit—saving seconds during the transaction can help a rider save minutes
Improve access by coupling with an account-based system that implements special fares for qualified individuals or groups
Improve Ridership by making it easier for everyone to use public transit compared to other choices
Improve the environment by reducing the reliance on single purpose transit cards that contribute to chip supply problems and plastic waste
Lower costs by aggregating multiple taps into a single transaction with a single interchange fee
Reduce operational burdens that are driven by activities like supporting retail networks, maintaining Ticket Vending Machines, and cash management
Enhance Security by following stringent security compliance standards that ensure card data is always encrypted, and that stolen or lost cards can’t be used in the system
Perfect, right? Well, if you look a little deeper there is a lot of effort to make that transaction happen. As a result, the cost of implementation has been off-putting to some agencies.
The good news: costs to implement and maintain an Open Payment system are no longer beyond reach for public transit agency of any size. In fact, Cal-ITP has put this to the test by procuring proposals from companies that offer Open Payments and publishing competitive pricing for any agency that seeks to implement it. Combining that with the added value that an Open Payment system provides, agencies that don’t implement Open Payments risk losing a great opportunity.
Open Loop Payments make public transit agencies more competitive than ever. By making it dead simple to use, travelers will choose public transit more often. Riders already have the technology in their wallet, by leveraging new strategies made possible by mature Open Payment platforms everyone stands to benefit.
About Kevin Burgess
Kevin Burgess has spent over 10 years delivering solutions for public transportation agencies around the world, primarily focused on innovative payment systems with a fintech approach.