Can modernized payments get the subway back on track?

Public transit has recovered from the pandemic more slowly than other forms of travel, but riders still expect a more modern payment experience when they return.

Ninety-one percent of people somewhat or strongly expect public transit to offer contactless payments, with 57% strongly supporting it, according to a Visa survey of 11,500 adults in global markets that was conducted during June. 

"I expected the expectation for contactless would be high but I didn't expect it to be that high," said Nicolas Mackie, global head of urban mobility at Visa, which has about 500 payment upgrade projects live at transit agencies globally with more coming. "People are citing the payment experience as a reason to get on board."

The appetite for contactless payments could bolster card revenue from transit, also prompting more card use at nearby merchants. Card networks and mobile wallet providers have long wished to use transit payments to form consumer habits that carry over to other shopping. But transit systems are still in a pandemic-era funk, with most commuter networks carrying about 50% of their pre-pandemic passenger volume. 

By making the transit payment experience similar to other payment types through the use of contactless transactions and mobile wallets, Visa is trying to accelerate the recovery and encourage more spending.

Payments

Canadian transit agencies get on board with contactless debit

Several rail and bus lines are working with Interac, the country's debit network, and its bank partners to allow the new fare payment option in addition to credit cards. They see the collaboration as a way to expand ridership among tourists and low-income residents.

By Robin Arnfield

November 12

"Payments are a big part of our daily lives," Mackie said. "So if you can create more uniformity there's a sense of ease and security around different types of payments."

In New York, where subway ridership is at about 60% of pre-pandemic levels, the open-loop OMNY system (which supports mobile wallets) is outpacing the traditional closed-loop MetroCard. OMNY's market share in Sept. 2021,  when schools opened and some employers returned to work, was about 23%, according to an email from the Metropolitan Transportation Authority. As of May 2022, OMNY's share has risen to about 33%.

Visa's survey found 32% of adults view contactless payment as an enticement to use mass transit more frequently. Additionally, fare-capped rides would encourage 30% of people to use public transit more often. Fare-capped rides generally charge the best fare available for a specific rider's usage patterns rather than relying on static discounts, such as charging a portion of a daily fare for a monthly pass. Fare-capped rides are a typical feature of open-loop mass transit payment systems. 

"Fare capping takes away one decision point regarding transit use, such as deciding to buy a daily card or a monthly discount card" Mackie said. "You just ride and get charged for the best fare that's possible. It automatically kicks in."

There is a strong incentive for metro systems to modernize. Transit agencies have lost a large portion of their rider-based revenue, as much as 90% during the initial stages of the pandemic, according to UCLA, which reports agencies face budget shortfalls that may require budget cuts. The New York MTA faces a "fiscal cliff" if ridership does not recover by 2025, according to TheCity.com's recovery tracker.  

"Transit agencies have been hit hard, and the cost and overhead of ticketing systems is a portion of that," Mackie said. 

Mastercard has partnered with transit agencies in London, New York and other cities. In London, about a quarter of riders are using the closed loop Oyster card, according to an email from Mastercard's public relations office. And the open loop system is on pace to collect about $2.7 billion in 2022. 

Mastercard is also is tying transit digitization to a broader Mastercard City Key project. Mastercard City Key is a payment program that allows cities to link payments, disbursements, access to municipal facilities and mass transit through a single contactless card. An early adopter, the town of Kolin in the Czech Republic, has extended the key to school entry, libraries and payment for school lunches through a partnership with local payment firm Paynovatio and Československá obchodní banka. 

The French payment technology provider Ingenico has deployed transit payment tech in Europe and Latin American markets for both closed and open-loop options, and Canadian debit network Interac in 2021 introduced an open loop payment system for Canadian transit agencies.  

"Similar to other industries, transit agencies and operators must modernize fare payment systems," said Christian Henry, senior vice president and general manager for the North American Eastern Region for Cubic Transportation Systems. "Open loop certainly has a role in attracting riders back to public transit."

Open-loop systems can reduce costs associated with dispensing MetroCards, for example, and also allow agencies to cut back on older, high-maintenance equipment, according to Henry. 

While technology has delivered convenience to those with access, there is the risk of leaving certain segments of the population behind, Henry said. Traditional closed-loop systems ensure rider equity by not excluding cash or unbanked riders, Henry noted. 

"The convenience of open payments on phones and wearables can entice riders to transit, but the unbanked or those without devices still need the ability to use cash with dignity," Henry said. 

Continued support for cash and stored-value cards offer more flexibility than a system that relies primarily on digital wallets, Henry said. "Incentives such as fare capping introduce opportunities to win riders back to transit while delivering greater equity."