Washington’s Metro, for instance, has about 220,000 persons in its SmartBenefits programs and the Massachusetts Bay Transportation Authority (MBTA) has more than 112,000 in its corporate pass program. The Chicago Transit Authority has about 273,000 U-Pass enrollees. Seattle, too, is heading in that direction with advance payments.
At these agencies this represents between 20 to 30 percent of the total rider base. All this is money banked in advance of using the transit service — this is often referred to as the “float.” It can be an appreciable amount.
Tier 2 – The Pay in Advance for Weekly Passes & 10-Trip Tickets
This market suits those who can afford to budget for a weekly pass or buy a 10-trip commuter ticket. They typically may not be daily riders but ride frequently and wish to get a deal. This fare product typically results in two to four “buy” transactions per month.
Commuter rail 10-trip ticket purchases at two major agencies in the Northeast indicate that about 15 to 20 percent of riders select this fare product.
Tier 3 – The Pay As You Go Riders
The remainder of the population is split into two components:
- Those who continue to pay cash on a daily basis — two times a day with cash drop in the farebox. Recent surveys indicate that cash is used on the buses for 20 to 35 percent of boardings.
- The remaining riders use their credit/debit cards at a station vending machine to buy a ticket.
The overall financial operating principle is pay before you ride.
Moving Targets and Technical Issues
At the heart of this open payment system matter is the desire to minimize cash collection and to improve customer convenience with acceptance of contactless bank cards for transit payments. Making this work requires a sound business plan with estimates of the risk and rewards for all parties. Additionally, there is an increase in complexity with scope creep if management starts adding new technologies and/or applications. Some of the considerations are:
NFC/smart phones: In the near future, it appears many smart phones will be equipped with a variant of contactless smart card technology known as near field communication (NFC). It would allow payment with the wave of the handset. But many details remain to be addressed as that industry is in a flux with huge buyout/dropout and intellectual property rights challenges. Within the past six months, Microsoft bought Nokia’s rights and Google is working toward new IP arrangements with Motorola. It indeed is a moving target with blazing shifts in business partnerships. Technical and pricing factors are moving targets.
Getting Out of the Cash Handling Business: This matter is often debated in transit circles — Should transit get out of the cash handling and fare media sales business? Perhaps so, but it may take a long time — maybe decades? Cash is here to stay, but it can be encouraged to be reduced with pricing disincentives as in Boston, London and recently proposed toll hikes for New York.
Bus Data System Issue: The bus system brings a big challenge. It is not connected “live” and it requires an associated backend transaction aggregating system with an account-based system. It has to manage the business rules to process transit vagaries such as timed transfers, stop-and-go privileges, round-tripping rules and so on.
Additionally, most city routes operate with “canyon” effects due to tall buildings. Even with 3G/4G wireless connections, there are technical/reliability issues for near-live checks.
Finally, there are other cost drivers such as the backend data sorting/parsing engine. This becomes expensive, particularly in the context of processing say $3 to $4 fare transactions. Some clever approaches have been proposed — but their merit remains to be assessed in full revenue operation — tested under daily stress conditions.
Legacy System Integration: Finally, if a bank card-based open payment system is to be considered, it is not just the transaction cost. One needs to address the cost associated with migration of the old system to a new system. There are many information technology (IT) related issues for the path forward. At the same time, one must allow for backward compatibility, letting the system operate with the old method of fare payment in tandem with the new method over a fairly long transition period.