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Visa Inc. is developing a product it hopes will appeal to the unbanked: a dual-purpose contactless payment card that combines a prepaid general-purpose account with a separate account dedicated to transit payments.
The San Francisco-based payment card company says it is planning a 12-month trial of a transit and open-loop, multifunction card in conjunction with the Los Angeles County Metropolitan Transit Authority.
W.A. "Sandy" Thaw, a senior business leader in Visa's global product innovation group, says its other partner in the trial, kiosk operator Ready Credit Corp. of Minneapolis, could issue up to 10,000 Visa cards to LA Metro riders.
The two payment functions are a good fit because the underbanked market likely has considerable overlap with public-transportation riders, especially in a car-oriented market such as Los Angeles, Thaw says.
Visa is conducting the test to determine if the combination will prove popular "We want to understand if, in fact, we have a viable commercial model here," Thaw says.
Other transit trials, such as one beginning next year in New York and New Jersey, use contactless credit or debit cards instead of dedicated fare cards to unlock turnstiles, says Tim J. Walsh, Ready Credit president and CEO.
"Our approach is different because it has the transit application as well as Visa payWave on a single card. And it's a prepaid card," Walsh says. "You don't have to be creditworthy to get the card."
A number of transit authorities around the country are exploring similar efforts, says Jennifer Tescher, director of the Chicago-based Center for Financial Services Innovation.
"The notion that public transportation could be a solid distribution channel for reaching the unbanked is a really smart idea," says Tescher, whose organization, a nonprofit affiliate of Chicago's ShoreBank Corp., offers programs to assist financial companies to understand and serve underbanked consumers.
In a trial in Chicago, the transit authority is supporting automated fare top-ups of prepaid cards, which typically provide a fare discount and are a valuable benefit to riders, Tescher says. "The people who are the biggest users of public transportation are unable to take advantage of the fare break."
ReadyCards Designed For Convenience
ReadyCard will be accepted for train, subway and bus rides, just like LA Metro's existing contactless fare card, known as Tap, and for purchases anywhere Visa is accepted, Walsh says. The card will have a magnetic stripe and a radio frequency identification chip.
Ready Credit plans to install at least 20 ReadyStation kiosks in or near transit stations around Los Angeles County by the beginning of the trial in the second quarter to dispense cards, Walsh says.
Those basic "ride, pay and reload cards" will let riders load up to $500 at the kiosks.
As long as the rider uses the card only for transit, no prepaid card fees apply, Walsh says. But for riders who use the card outside the transit system, such as making a purchase at a merchant, ReadyCard fees, such as a 25 cent signature transaction fee, kick in. The transit Tap account can be managed separately from the open-loop payWave account so riders can qualify for fare discounts, he says.
However, the companies see greater opportunity in a higher-value personalized card, described by Visa as "ride, pay, reload and ATM cash-access cards," which will be embossed with the cardholder's name and account number and carry a $10,000 limit.
A cardholder would have to show valid identification to qualify for the personalized card, Thaw says.
That card would enable the transit rider to provide a card serial number to an employer, which could then load value to that card for direct deposit, Thaw says. "It's not their Visa card number," he emphasizes.
Unlike most prepaid payroll cards in use today, the employee will control this one instead of the employer, making the card a portable credential that workers could continue to use even if they change jobs, Thaw says.
"They are now able to engage in the broader electronic-payment environment that the rest of us take for granted," Thaw says. "Combining these products adds a lot of value" for transit riders.
Different transit systems have a variety of legacy payment systems in place, but LA Metro presented an attractive opportunity for Visa, he says.
"They already have an existing contactless infrastructure," Thaw says. "We're putting out a more-sophisticated card that will work within the existing acceptance infrastructure."
Evolving technology also offers transit agencies a greater opportunity to capture business from casual riders, who may not carry dedicated tokens or fare cards for the different transit systems but who might use a general-purpose card for the occasional ride.
The 2009 trial in the New York and New Jersey area will include the New York City Metropolitan Transit Authority, New Jersey Transit, and the Port Authority of New York and New Jersey's Path system, Thaw says. "Interagency interoperability is ultimately going to be the driver," he says.
Ready Credit is among a variety of entrepreneurs taking advantage of alternative payment strategies to attract the underbanked. In January the company announced an alliance with Fiserv Inc. to provide bill-payment capabilities through its kiosks by connecting with the CheckFreePay network, which is used primarily for walk-in bill payment.
Kiosks can be expensive, however. Large financial companies including, U.S. Bancorp, have voiced confidence in such multipurpose devices but have struggled in the market.
Most notably, 7-Eleven Inc. of Dallas, the nation's largest convenience-store chain, sold its fleet of 5,500 ATMs, including 2,000 Vcom kiosks, in July 2007 to Cardtronics Inc. of Houston, the nation's largest merchant ATM owner and operator.
After the Los Angeles deployment, Ready Credit will have just more than 100 ReadyStation kiosks in 10 states, mostly in conjunction with such retailers as Macy's Inc., Best Buy Co. Inc. and the Cub Foods grocery chain owned by SuperValu Inc., Walsh says.
Bill payment has been well received, and "Ready Credit believes the whole transit industry is an opportunity," he says.
