What's next for transit payments in 2024?

Bloomberg

Projects designed to make transit ticketing and payments less reliant on limited-purpose cards are taking hold at hundreds of transit networks. But there are still major hurdles to seamless commuting and combining transit with other components of urban mobility.

Ninety-four percent of transit riders expect public transit to offer contactless payments, according to new research from Visa. And of the transit agencies that do not have open-loop technology, 83% expect to implement it, according to the card network. 

This comes as overall transit ridership increases. In the U.S., transit ridership was about 1.81 billion in the third quarter, up from 1.6 billion the prior year, according to the American Public Transportation Association. Contactless payments are also up. Discover reported that more than half of transit payments are contactless, up from just over 10% in 2020, a boost that has led Discover to export its transit payments technology outside of the U.S. 

"We've moved past the world of 'whether' and 'if' transit systems will adopt contactless payments to one of 'when' and 'how,'" said Nick Mackie, global head of urban mobility for Visa.

Visa has contributed to more than 750 contactless public transit projects worldwide by selling its own technology services. It also established the Visa Acceptance Platform, which is similar to an app store for payment technology, enabling the card network's transit and other clients to select and consume as needed.

Transit delays

Visa's reported adoption of contactless payments suggests progress toward the yearslong goal of making transit payments open loop, or less reliant on card or token-based fare systems that are contained inside transit networks that are unusable anywhere else. 

But while there has been progress toward enabling contactless payments on metro systems and buses, the goal of a full open-loop transportation or urban travel network is still far off, since the contactless payment systems on different transit networks mostly cannot work together. The projects underway at Visa and transportation technology firms such as Cubic are progressing with the ultimate goal of interoperability. 

"An open-loop transit system makes it easier for commuters to use other modes of mobility." said Peter Torrellas, senior vice president of the Cubic Corporation.

Torrellas joined Cubic in October following stints leading connected communities strategies at Parsons Corporation, an engineering firm that sells to travel, traffic management, aviation and other industries. Connected communities refers to using multiple digital channels to access transit, manage access to buildings and other facilities and facilitate transactions such as parking, fueling, ordering taxis or purchases at local businesses. 

Cubic, which has worked on payments automation projects for transit systems in Chicago, Chile and other regions, has had a mixed bag recently. The Metropolitan Transportation Authority, which serves the New York area, expanded its work with Cubic to include OMNY vending machines in subway stations. Cubic additionally is a technology supplier for the Massachusetts Bay Transportation Authority's migration to an open loop payments system, which has begun its testing phase. 

But Cubic also lost out on a recent bid to migrate Melbourne's transit network to mobile wallets. Conduent, a firm with a similar business model, won that contract. And Atlanta's transit network moved its open loop contract from Cubic to digital fare company INIT.  

One of Torrellas' tasks is to improve Cubic's momentum, which will enable it to connect with mobile wallets and other payment systems to make transit payments more transferable to other transactions. 

Inertia will still be a challenge. Most transit systems have operated the same way for years, and introducing a new payment method requires a learning curve, even if that new method is the same that employees and riders use in other settings.

"If you're working with an area where ridership is down, to get people back you have to make it easier, not put something that has frictions or have something to learn," Torrellas said.

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One of Cubic's largest ongoing projects is in New Zealand, where Cubic is working with other transportation firms such as Thales and a mix of local government agencies to build the National Ticketing System, which will open for all of the country's transit systems by the end of 2026. 

"New Zealand is an example of that vision … to make transportation as easy as possible no matter where you are," Torrellas said. 

Other counties that are building interoperable transit payment systems include The Netherlands, which in early 2023 introduced a system that enables any debit, credit or digital wallet on trains, buses, metros and trams. Translink, a national agency, built the system in collaboration with Mastercard. Mastercard has also worked with New York and other cities to enable connections to mobile wallets such as Apple Pay on transit systems. A transit pass on a mobile wallet would place it in the same app that could support a digital identity. 

A common goal

The challenge to build such a system is daunting, Torrelles said, noting that transit agencies in a single metropolitan area have used their own non-interoperable payment systems for decades. New York's Metro North, for example, is not transferable to New Jersey Transit, even for contactless payments. 

"Different operators have different operating rules. For some systems there is a gate, where with some you have someone collecting fares on the train, which often happens with a [commuter rail]," Torrellas said. By contrast, "a subway is underground and more connected." 

Creating a seamless experience for people riding public transit is key to boosting ridership and use of new payment technology, Mackie said. 

"And right now it can still be a bit of a fragmented experience," Mackie said, adding that Visa's research found that the majority of public transit riders are using four or more payment methods a month. "Apps are going to continue to digitize mobility experiences, making it easier for passengers to plan and take their journeys and for transit operators to use that information and technology to better service their customers effectively and efficiently." 

The next step is figuring out how transit agencies that have already adopted contactless payments can refine their technology and ensure everything is as seamless and secure as possible, Mackie said. 

"How can the agencies that are just coming around to implement contactless payments to meet that consumer demand future-proof their tech?" Mackie asked.

One option is combining payments for multiple forms of travel. Visa and Mastercard have both developed mobility as a service programs, which link different modes in different locations. Early adopters include agencies in Nordic cities, such as Helsinki and Stockholm, where consumers use the same app to pay for transit, cabs, bike-sharing and other services. 

"By embracing MaaS, cities and mobility providers will be able to offer personalized, flexible, and on-demand mobility options that cater to individual needs," Mackie said. 

Transit agencies are embracing digital technology as "mobility" in general becomes more app-driven, said Zil Bareisis, head of retail banking research at Celent. Transactions are not just becoming contactless to avoid change or paper money, but are migrating to a centralized experience on a phone, Bareisis said. It's a trend that is happening within and outside of transit systems. 

"There are payments for parking, tools, fuel, electric vehicle charging and others," Bareisis said. "It's thinking through the customer needs upstream." 

The broader trend can aid in financial inclusion, Mackie said. Visa, for example, uses prepaid cards for underbanked consumers to access urban mobility. There are also opportunities to schedule and pay for entire trips in advance.  

"When we develop MaaS to its full potential, riders can leverage their favorite app to plan their multimodal travel: want to take the greenest route? Quickest route? Punch in your needs, pay and plan in one place and off you go," Mackie said.