Mass transit's cashless conundrum

Boston’s Massachusetts Bay Transportation Authority is the latest transit agency to attempt to eradicate cash and the bottlenecks that it causes from situations where customer throughput is paramount. But is this effort truly viable given the entrenched payment behaviors and requirements for serving everyone, even digital naysayers?

Cash isn’t king

It’s a common frustration — cash causes friction. Waiting in a checkout line, or to board a bus while the person in front of you is fumbling through change is annoying to say the least. Currently 7% of MBTA users still rely on cash, a number that should be reduced by limiting its acceptance.

Transit officials predict the project would speed up the boarding process for passengers, reduce fare evasion and, if all goes to plan, cost the MBTA about $65 million less to operate over the duration of the contract than if the current system remained in place.

But the MBTA shift to cashless is not absolute.

"This is not a cashless system," state Secretary of Transportation Stephanie Pollack said. "This is a system in which cash is not used aboard vehicles." Cash can still be used to buy passes at kiosks, for example.

However, concerns remain that the inability to simply jump on a bus and pay in cash will cause issues for less digitally inclined lower income and elderly passengers.

A global shift to cash free transit

Boston is by no means unique in transitioning its transit network to cash free. Metro areas across the U.S. including San Diego, New Orleans, San Francisco, New York and Houston have launched digital payment initiatives.

Internationally, numerous initiatives have demonstrated the value proposition of ditching cash. In London, TfL’s Oyster Card has become something of a poster child of how consumers can shift to digital payment in transit. It favors Near Field Communication (NFC) technology, and even bank-issued credit or debit cards can be tapped directly on the reader outside the turnstiles to pay for fares.

In the U.S., the transition to contactless cards and payments has been less aggressive, but the organic growth of mobile payments such as Apple Pay and Android Pay, plus increased interest in contactless cards by issuers, could precipitate a similar shift away from cash-based payments.

The transition to cashless has also ignited a hotbed of vendors facilitating these projects. Several key vendors such as Masabi, moovel North America, Passport, Cubic Transportation System and INIT GmbH have been at the forefront of deployment of mobile ticketing.

The allure of a cashless society

At a macro level, the benefits of going cashless are highly appealing. According to the Visa’s Cashless Cities report, which studied transitioning to cash alternatives across 100 cities globally, consumers would see net benefits of $28 billion, businesses would net benefits of $312 billion and $130 billion for governments. The economic impact of moving to achievable levels of “cashlessness” over the next 15 years would have even greater benefits — $12 trillion in additional economic activity, an average 19-basis-point annual increase in GDP, 5 million additional jobs and a 0.16% increase in wages.

Clearly, the demise of cash is highly attractive to Visa and other card networks, but this future depends on consumers embracing digital alternatives to cash. The inertia of entrenched payment habits might prove to be something of a barrier.

Further, cash is more available than ever. The San Francisco Federal Reserve found that in most of the world's largest 42 economies, cash in circulation (CIC) has outpaced GDP over the past 10 years, including most of Europe, North America and Asia. Norway and Sweden were the only two countries to see an outright decline in CIC over the past 10 years, and in South Korea and Mexico, CIC outpaced GDP by more than 100% over the last decade.

Battling bottlenecks

There are three major advantages to ditching cash in favor of electronic alternatives — ease of payment attracts new customers that can be switched from driving a car if the alternatives are less cumbersome; cashless payments improve the efficiency of transit; and big data enables smarter transportation.

The big data argument makes a lot of sense for the providers of transportation logistics, but this is also however an area that could deter users from dropping cash. The MBTA says it has considered all of these concerns in developing the plan. The contract, for example, requires the vendor to make it impossible to match personally identifiable information and a passenger’s trip history. Nonetheless, paranoia relating to emerging payments persists and the anonymity of cash remains appealing.

(As an apt aside, the brand name for the MBTA system is the “Charlie Card,” which is derived from a 1949 song about a man doomed "to ride forever beneath the streets of Boston" because he lacked the correct change to get off the subway.)