The pandemic brought mass-transit ridership to a screeching halt, and at the same time the crisis
In the midst of these trends, Discover Financial Services has detected some important changes in how riders are paying as
While mass-transit ridership is still 30% below pre-2020 levels, Discover's mass-transit transaction volume has soared by 120% since 2020 as more transit agencies enable contactless payments and enable open-loop payment systems, said Emily Foshee, vice president of core products at Discover.
The reason is that as contactless access expands and encourages more tap-to-pay rides, consumers are bypassing fare-ticket kiosks and prepaid transit cards, which generally drive higher-ticket individual transit sales for Discover, she said.
"Discover cardholders that are transit riders are making more frequent transactions for lower-dollar amounts, illustrating that many mass-transit riders prefer a pay-as-you-go approach to purchasing long-term passes," Foshee said.
The average transit transaction size on Discover's network has decreased by about 58% since 2020, and as ridership recovers Foshee expects the trend to continue.
Another transformative change is a gradual migration away from closed-loop fare systems that require users to purchase a ticket or load funds to a transit card to open-loop ticketing systems that aim to support contactless payments across all buses and rails in a city or region, Foshee said.
"Many transit agencies seem to have taken time over the last few years to change their technology to support contactless and open-loop payments," Foshee said.
Open-loop fare systems are by far in the minority among transit systems, Foshee points out, although many are moving in that direction.
Like other card networks, Discover has participated in the ongoing testing and certification of open-loop transit-payment support in major markets like New York City, London, Singapore, Taipei in Taiwan and Qatar, Foshee said.
Philadelphia is slated to enable open-loop payments on its mass-transit system in the near future, and San Francisco will follow suit later this year.
"There's a global transition to open-loop transit payments happening," she said.
In the U.S., many smaller and regional transit agencies are also beginning to shift to open-loop payments, which will further accelerate the shift to more contactless and mobile payments, Foshee said.
Last year Discover aimed to support 20 new global open-loop transit developments, and this year there are more than 60 opportunities, she said.
For Discover, these projects require the Riverwoods, Illinois-based card network to make sure its applets conform to the transit agencies' systems, which can be a time-consuming process. Each card network pursues this work separately on different timelines.
"Our goal is to be compliant on the first day a transit system goes live with open-loop payments," said Foshee, a nine-year veteran of Discover who moved to her present role a year ago.
In her global travels to ensure Discover is meeting standards for transit agencies around the world, Foshee said it's clear there's no going back once a transit agency adopts open-loop payments.
"People have become so used to tapping to ride a bus or a train that it's intuitive, and so much easier than stopping at a kiosk or reloading a card with value before getting aboard," she said.
Hurdles to broader open-loop adoption include the fact that many cities have more than one transit agency and fragmented systems, or a lack of funding to invest in the migration to open-loop technology, transit-payment experts say.
And because many unbanked citizens may not have a contactless payment device yet, open-loop transit benefits aren't universal, said Peter Quadagno, CEO at Quadagno & Associates, a West Chester, Pennsylvania-based transit-payment consultant.
"Transit has always struggled with open-loop with respect to payments and transaction-processing environments, but now that companies are bringing employees back to offices and some Gen Z groups seem to be moving back into the cities, the tide may begin to turn," Quadagno said.
Transit-payment settlement systems are improving, and open-loop increasingly makes sense for cities trying to encourage business and tourism development, he said.
But transit agencies are wise to wait until they have the funding and support to ensure their open-loop transit payments work across all types of transit and for all users in a given system, he said.
"People don't like the experience [of contactless or open-loop] transit payments unless it works well," Quadagno said.
