Google Pay, in a bid for open payments, takes transit fare out of the station

Mass transportation is experiencing an innovation wave similar to retail, as transactions migrate from fixed points of sale inside transit networks to an open system that encourages a more fluid, flexible rider experience.

Technology companies see revenue in this model, with NXP on Monday announcing a collaboration with Google to integrate NXP's cloud-based fare service, called MIFARE 2GO, with Google Pay. The companies envision people using smartphones and web-connected wearables to manage commuting.

Because Google Pay is already accepted at numerous mainstream merchants and is the default mobile wallet for many Android smartphone owners, it stands a strong chance of easing the friction of enrollment in a contactless fare system.

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Riders can purchase transit tickets on their phone, and place their phone or wearable near a terminal to ride a bus or rail system. The Google Pay app will include a map of transit stations related to the ticket purchase and a digital receipt of travel history.

Google and NXP are positioning the collaboration as a way to meet consumer expectations in the age of Uber. While not mentioning Uber by name, Google and NXP mentioned the expectation of convenience in an age in which people can hail a ride with "the push of a button." Apps like Uber and Lyft have made a minor dent in transit usage, with a greater impact on above-ground systems such as bus routes and light rail.

NXP's Google Pay integration's first deployment is in the Las Vegas monorail system, which runs between casinos.

"It will interact with the passengers and provide information before, during and after the journey," said Christian Lackner, Director of MIFARE products at NXP. "It will make the whole ride more interactive."

NXP would not comment on other potential integrations. The San Jose, Calif.-based company has more than 750 cities among its transit clients.

Other transit systems are also moving away from closed-loop fare cards toward open digital payment options. New York plans to phase out the plastic MetroCard by the early 2020s, hoping the growth of apps such as Apple Pay and Google Pay will enable open-loop digital payments to stick. Boston also hopes to phase out paper-based payments on MBTA routes by the end of the decade.

The MTA's project will include a contactless transit card, which will be “account-based,” meaning riders possess an MTA account and use it to add card value and check account balances, said C. Sue Brown, director of the Prepaid Advisory Service from the Mercator Advisory Group.

"Customers will use a variety of self-service options to manage their account, including a new agency-wide mobile app. At this point, riders can purchase MTA transit cards at out-of-system retailers like Duane Reade and CVS," Brown said.

Developers in North American cities can look to the success of cities such as London and Singapore, which have been migrating riders to open-loop mobile wallet ticketing and payments for mass transit for years.

"There is a trend towards more 'open' transit systems," said Zil Bareisis, a senior analyst at Celent. Hong Kong Octopus and London Oyster started as closed-loop systems, but now enable riders to pay with regular bank contactless card on London underground, trains and buses, he noted.

"However, the need to buy and load such cards is inconvenient for customers, especially those from abroad. It is also expensive for the providers, such as Transport for London, because they have to produce the cards and support the reload network," Bareisis said. "Open-loop contactless payments open up the networks for EMV contactless cards and compatible mobile wallets."