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Transiting to open-loop contactless payments

01 April 2010  |  6929 views  |  0

If you don’t live in a large city, the revolution in mass transit payments that has taken place over the last few years may have passed you by. Cities as far apart as Melbourne, Beijing, London, Salt Lake City and Singapore have all introduced contactless smart cards for their transit systems. In these cities a single contactless transit card can be used (depending on the city) on buses, underground rail, light-rail and even ferries. For travellers, contactless transit cards mean a seamless cashless journey, but for transit operators the benefits are even greater, in the way of huge savings. Collecting cash fares can cost as much as 34 cents for every $1 collected, while transit cards paid for by a credit/debit card can cost as little as 3 cents for every $1 collected.

Most transit cards are closed-loop stored value cards whose value is purchased or automatically topped-up from a credit or debit card or a bank account, but there is a move to accept open-loop credit/debit payment cards directly on transit systems. MasterCard PayPass, Visa PayWave, American Express Express Pay, or Discover Zip can be used directly to board a light-rail service or get on a bus. For travellers from out-of-town or occasional transit users the benefit is obvious – no need to buy the local transit pass, just use your regular credit or debit card to ride the transit system.

Other than Turkey, which has been using open-loop payment cards on transit for 2-3 years, the Utah Transit Authority (UTA) is one of the first transit authorities to accept open loop payment cards.  Many other transit authorities, such as New York City Transit, now have similar projects planned as well.

Apart from the benefits to customers and to transit authorities, what does this mean for the more widespread use of credit and debit card contactless payments? Up to now, the channel has suffered from a kind of chicken-and-egg scenario, whereby both cards and terminals need to be in place for contactless to really take off. However, with contactless credit/debit cards accepted on buses, trains, light-rail and so on, card scheme branding would be much more visible. This will increase brand recognition and familiarise consumers with contactless card use, which should make them more likely to use contactless in other places where the technology is available.   Contactless credit and debit card acceptance on transit could well be the chicken - or the egg - that breaks the loop, and propels the growth of contactless payments forward.

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