Where new card technology meets old infrastructure, mass transit systems and highway authorities find themselves increasingly in the unaccustomed role of entrepreneur. Their move to advanced payment media puts many state and local transportation agencies on a faster track than some of the banks they may end up using to settle their electronic transactions. Several payment media are already in use, at least to an experimental degree, ranging from basic magnetic-stripe cards or smart cards for paying bus and subway fares to toll-collection systems using radio-frequency transponders to debit passing drivers' accounts. Because these users are public agencies, the systems' potential payoffs in reduced labor costs, fraud, and fare evasion could accrue to the taxpaying public.

* * * The Washington Metro Area Transportation Authority, using a $1 million grant from the Federal Transportation Administration, is testing its own version of a multiapplication smart card, called the Go Card. It could some day displace the flimsy paper tickets with magnetic stripes that serve as today's Washington Metro stored-value tickets. The Go Card, which is about three times as thick as a credit card and communicates data to terminals via radio frequencies, was initially distributed in February to 1,100 commuters for use at five parking facilities, 29 rail stations, and three bus lines in place of cash, tokens, monthly passes, or magnetic-stripe cards. A battery-powered circuit board embedded in the card is waved over a target an antenna on turnstiles and fare collection boxes and the fare is debited from the card's balance. Information regarding time, date, and place can be recorded and transmitted to a central data base. Value can be replenished by inserting cash into special kiosks near trains and buses. Unlike smart cards currently promoted by banks, Go Cards are contactless they don't have to be inserted directly into a reading device. The system has the advantage of no moving parts and less maintenance, and it can process transactions fast enough to accommodate rush-hour crowds of hundreds of thousands of commuters. In transit, you have to process people very quickly, said David Dekozan, director of marketing at Cubic Automatic Revenue Collection Group, Vienna, Va., which developed the Go Card program. With the contact card, you have to stop, insert the card, and pull it back out, he said. Cubic, which is part of San Diego-based Cubic Corp., decided the idea was important enough that we developed our own contactless RF card. The Go Card is the latest advance on Cubic's automated fare systems that are familiar to riders of the Metro in Washington, Bart in San Francisco, and the subways of New York City, Oslo, and London. The Go Card was first used in London in 1990. If the Go Card is rolled out in Washington after the year-long test, the next generation of cards would have microprocessor chips powered by the target antenna in turnstiles, Mr. Dekozan said. The cards would be slimmed to the same size as credit cards, no longer needing a battery.

* * * Though many transit card systems are proprietary, or single-use, the Delaware Department of Transportation wants to piggyback on a trial planned for 1996 by Electronic Payment Services Inc.'s Smart Card Enterprise. EPS, owner of the MAC automated teller machine network, expects to work with several local banks to issue stored-value chip cards to at least 500,000 people in coming years. Wilmington Trust Co., which will be part of the EPS trial, has agreed with the Delaware Department of Transportation to issue smart cards that can be used on commuter bus lines, as well as at other participating merchant locations. Richard K. Wilhide, vice president and manager of delivery systems for Wilmington Trust, called the project completely different from anything else in the United States. It's the first joint effort between the public sector and private sector to provide payment options for local transportation.

All the other transit authorities issue cards on their own, said Mr. Wilhide. They're finding it expensive, and it's not increasing ridership. In Delaware's Smart Dart project, however, both parties do what they do best; DelDOT runs the transit system, and the bank will provide the customers and the marketing. The bank receives fee income and a willing merchant. EPS wants to issue a multiuse card that people can put into their normal daily routine, said Mr. Wilhide. So this is one more use on the card. Sean Ricketson, transportation program specialist at the U.S. Department of Transportation, called Delaware an important test ground. If the public-private cooperation works out well, we would like to see more of it, he said. Mr. Ricketson said his department is seeking opportunities for transit agencies to improve user-friendliness, make mass transit easily accessible to more people, and reduce the cost of fare collections and money handling. In addition to their operating efficiencies, he said, smart cards can be used as part of campaigns that reduce employers' taxes when they encourage employees to use public transportation, which improves air quality. Mr. Wilhide questions the assumption that contact smart cards are too slow. He said a transaction takes only two seconds to complete. Most government agencies use magnetic-stripe or radio frequency cards because that's what they know, he said. They don't recognize the possibility of teaming up with a financial services stored-value card that has wide possibilities because that doesn't exist yet. Mr. Wilhide said the banking and transportation industries could work together if banks are effective in providing solutions. Otherwise, (transit agencies) will continue to go in the direction they're going. Banks have to be much more proactive. We'd like to see transit operators develop systems that may be compatible with emerging stored-value cards and standards, said Mr. Ricketson. They'll only shoot themselves in the foot if they don't consider that as something they may want to move into in the future.

* * * New York State highway agencies are building systems to allow drivers to pay tolls without stopping their cars. Metropolitan Transportation Authority Bridges and Tunnels is adopting EZ Pass on New York City crossings. The Verrazano-Narrows Bridge, connecting Brooklyn to Staten Island, will debut the new technology this fall. Not a smart card, EZ Pass is a radio frequency transponder, an intelligent tag that is attached to a vehicle's windshield. The pass, which stores 256 bits of information and was designed by Mark IV Corp. of Buffalo, is a read/write system that transfers information via an antenna set up in the road to a reader near or under the toll plaza. Consumers can prepay by credit card, mail, or in person at customer service centers. At collection points, tolls are debited automatically. On average, 700,000 drivers a day use New York City crossings. Donald Spero, director of strategic and capital planning for MTA Bridges and Tunnels, said the authority has a conservative goal of 30% market share in two or three years and 60% by the sixth year. Customers will get a discount for using EZ Pass, similar to the one now offered on bulk token purchases, or about 50 cents less than the posted toll. The authority hopes some day to eliminate tokens. Mr. Spero said the new system is a more convenient, faster way to pay tolls. The entire transaction takes three to five seconds, substantially shorter than waiting in line and paying cash. The agency will invest $25 million to $30 million for installation, but we'll definitely save money over time because it will help reduce labor costs, said Mr. Spero. The New York State Thruway has already begun installing the system, with 15,000 tags distributed in Albany. The Tappan Zee Bridge across the Hudson River above New York is to be next. Eventually, the New Jersey and Pennsylvania turnpikes are expected to participate in the interagency project. You'll use the same transponder to travel from Philly to Buffalo, said Mr. Spero. It's one of the main reasons we're doing it. The long-term goal is to get the whole country hooked up to one system, he said. The MTA also oversees the New York City subways, but the latter are just at an early stage of conversion to a magnetic-stripe fare card, the Metro Card, which is not compatible with EZ Pass. There is talk of the Metro Card's possibly evolving into a smart card. Mr. Spero pointed out that, if the chip and transponder technologies were combined, a card issued by a bank or other entity could give consumers the option of an electronic purse that could be used for shopping, tolls, public transportation, and a variety of other payment transactions.

* * * In Seattle, the Metro Transit agency has used market research to test consumer reaction to various means of fare payment. In one of the few surveys in any industry on public reactions to technology alternatives, 41% favored proximity cards chip cards that use radio frequency transmissions to obviate the need for inserting the cards into terminals. Another 26% preferred swipe-read magnetic stripe cards, 19% liked paper passes that simply need to be flashed at the entry point, and 14% voted for the slowest and most cumbersome option magnetic stripe passes that need to be inserted to generate a printed receipt. The research is crucial to streamlining payments in what is known as the Regional Pass Planning Project. The public transportation network in the central Puget Sound region includes five transit agencies serving four counties and the Washington State Ferries, each with its own fare system and a confusing array of intersystem-travel arrangements, said Chuck Sawyer, a King County (Wash.) Department of Metropolitan Services executive.

The regional pass project is exploring proximity smart cards, magnetic stripe cards, and unlimited ride passes, among other options, Mr. Sawyer said at a technology conference in July sponsored by the Smart Card Forum, ITS America, and the U.S. Department of Transportation. With the right technology that improves customer convenience, the agencies hope to lower costs and boost ridership. While people reacted favorably to smart card technology, they were less interested in the prepaid service than in an unlimited-ride pass similar to the familiar flash passes. The regional research contrasted with other stored-value studies that have shown consumers' preferring multi-application cards that can be used in several ways, such as for transportation, telephone calls, buying newspapers and vending machine purchases. In the Seattle survey, more than 50% wanted a card for transit fares alone. Few were interested in an open system, where the cards could be used for routine purchases. Worried about security, privacy, self-control, and mixing employer subsidies with private uses, many consumers see the new type of card as another temptation in their wallets, said Mr. Sawyer. Valerie Block is an American Banker staff writer.

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