London's Transit Fare Payments Come Out of Their Shell

The Oyster contactless payment card is no longer the only fish in the sea for London's mass transit network, which will accept contactless payments via credit and debit cards by mid-September.

The move takes advantage of the growing availability of bank-issued contactless cards. It also helps Transport for London migrate away from older payment methods; the agency stopped accepting cash on buses in July.

"In the U.K. almost all of the card-issuing banks are now issuing contactless cards, so the penetration is quite high," said Roger Crow, senior vice president and managing director of Cubic Transportation Systems' European Operations, which provides technology for fare payments.

Transport for London has extended its contract with Cubic for ticketing and fare collection services. The new deal, which commences in August 2015 and is valued at about $700 million, runs through 2022 and could be extended to 2025 for a total value of about $1 billion.

The move creates a more open system for London's Tube, rail network, light rail, tram, ferry and other transport modes.

"For tourists and other travelers it's a convenience. If they have a contactless payment card, they can pay for a ride on the system," said John Hill, the Transport account director for Cubic.

The Oyster card launched in 2003, enabling fare payments through a yellow card reader attached to ticket gates. Open-loop payment cards will use the same reader.

Riders will be able to use any mobile phone with a payment app on the London transit system, Crow said.

Transport for London has been testing Near Field Communication payments for the past few months, addressing initial concerns that mobile phone-based NFC payments were too slow to handle commuter volume. The transit agency has worked with Consult Hyperion on a project to make NFC card readers work faster without compromising security.

The transit agency's cost-saving programs, which track when and where cards are used, will migrate to contactless debit and credit card payments. The cost-saving measure is called capping, and is based on the fare zones and number of trips a rider makes during a set period of time.

"[Transport for London's] incentive is to offer the best value proposition," Crow said. "They will find you the best price available for your journey."

By extending capping, the transit agency has a potential sales case for contactless debit and credit cards, said Gareth Lodge, a senior analyst at Celent, of the hurdles contactless transit payments may face elsewhere.

"The Oyster cards hold, on aggregate, a large value," Lodge said. "So the question becomes why would I swap from Oyster other than pay-as-you-go rather than paying upfront? Until recently, there was very little reason. Being a closed-loop system, [Transport for London] could guarantee the person would always be charged the cheapest fare, whereas contactless couldn't. That [has changed]."

Transport for London is not issuing its own open loop contactless payment cards, though it has not ruled out doing so in the future, Hill said.

Cubic is also working with transit officials in Chicago on a contactless payment project that includes both a closed-loop payments card and an optional open-loop card that can be used outside the Chicago transit system.