Each day, the payments industry receives signals that consumers are happier using a contactless card system to pay transit fares than they are using the cards in stores.
And it's definitely a global trend, as announcements came June 18 about Netherlands Railways phasing out paper train tickets by 2013 and the Port Authority of Allegheny County in Pittsburgh developing a smart-card system for fares.
While Netherlands Railways moves toward use of an OV-Chipkaart card for payments, and Pittsburgh's port authority tests the Connect Card, other transportation authorities are moving to contactless payments at a slower speed.
The Massachusetts Bay Transit Authority offers contactless cards for some aspects of its system, but is considering mobile ticketing from smartphones as well because of logistic problems in providing contactless card readers throughout its entire system (
Consumers' acceptance of contactless cards at the retail point of sale will drive banks' future issuing decisions more so than whether the cards could be accepted for mass transit, Deborah Baxley, principal at Capgemini Financial Services, tells PaymentsSource.
"The conundrum for issuers is that other than the transportation industry, contactless cards have had a tepid adoption rate," Baxley says. "And they are seeing technology get even more complex with EMV [smart] cards coming."
Yet, that doesn't appear to be a main dilemma facing transportation authorities or consumers as payment technologies shake out.
More likely, it seems, transportation authorities will ponder whether to issue their own stand-alone contactless cards or develop a system that would also accept open-loop contactless cards issued by banks.
Issuers are likely watching what happens with Chicago's transit agencies, which are establishing an open-loop system to accept contactless cards issued by banks (
The closed- vs. open-loop cards question carries more weight in the transportation industry now, in light of concerns that banks may be less inclined to issue stand-alone contactless cards in the future if consumers and retailers instead favor EMV cards and Near Field Communication-enabled phones (
However, MasterCard Worldwide and Visa Inc. are encouraging merchants to have both contact and contactless readers because EMV standards include a contactless option, Baxley notes.
"It's not a mandate, but if the merchants do have both technologies, banks would likely issue more contactless cards," she adds.
There is another twist to the contactless fare card story. Some of the original contactless cards issued for transit fares actually became open-loop cards over time.
Hong Kong-based Octopus Cards Ltd. issued the Octopus Card in 1997 to collect fares on Hong Kong's mass transportation system. The product evolved to become an open-loop card for use in convenience stores, supermarkets, fast-food restaurants and at parking meters. The Hong Kong Monetary Authority authorized Octopus as a deposit-taking corporation in 2000, meaning consumers could make half of their purchases as non-transit payments with the cards.
In the same vein, the Oyster card that consumers use to pay fares on London's mass transit system will become an open-loop card through Barclays PLC sometime after the Olympics, Gareth Lodge, a London-based industry analyst with Celent, tells PaymentsSource.
Regardless of any pending conversions of transit cards to open-loop products, or whether consumers will adopt fare-paying contactless habits at a retail point of sale in the future, there is little doubt contactless cards, or a mobile payment method, will continue to flourish in the transportation industry, Lodge contends.
"I do foresee a time when ticketing will be predominantly cashless [for all transit systems]," Lodge says.
Contactless cards offer consumers faster transaction speeds and an alternative to carrying cash, he says, and the cards let transit employees carry less cash, reducing their risk of robbery.
"Mobile payments through a smartphone may become more prevalent in larger transportation systems, and who knows what other technology is around the corner?" Lodge says. "But certainly contactless makes a huge amount of sense."
