20 Years On, How E-ZPass Pointed to the Future of Mass Transit

Of the E-ZPass program's many achievements and innovations, two stand out even today that represent how E-ZPass influenced the future of tolling and mass transit revenue systems —account-based customer relations and interoperability between multiple agencies.

Before electronic toll collection, toll patrons were completely anonymous. They just threw money into a coin basket or gave cash to a toll collector. When I paid my tolls, no one knew my name.

E-ZPass changed that with the introduction of an account-based payment system, creating the first true account-based "customer relations" in the toll industry. When I created an E-ZPass account and tied a payment source and tag to it, suddenly they knew my name and I became a real "customer."

That transition from anonymity to account-based customers followed not long after in the mass transit industry with the deployment of smart media. Transit agencies stepped up their one-to-one customer relationship efforts by enabling individuals to establish accounts and register their fare payment media, typically leveraging the advanced capabilities of closed-loop contactless smart cards systems. Two examples are the San Francisco Bay Area Clipper Card program and WMATA’s SmartTrip card.

The move benefits both riders, who get improved visibility into their fare payments and refunds on lost cards for example, and agencies, which gain opportunities for new revenues from targeted marketing and improved customer service from route alerts and other personalized communications.

Advances in payment card technology are accelerating that trend. Now it is possible to turn credit and debit cards into secure wireless payment devices. Bank-issued "tags," if you will. Now that the U.S. payments industry has committed to migrating to the EMV standard and putting a computer chip in all bankcards, it is likely that most if not all of these cards will include contactless payment capability.

Transit operators, already widely committed to contactless technology in their closed-loop fare payment systems, see this as an opportunity to significantly reduce or even exit the card issuance business by accepting contactless bank cards instead—the "open payment" model.

Moving to open payment, however, brings with it the need for account-based payment systems. Some transit agencies have already made this move, notably the Chicago Transit Authority’s new Ventra Card program. CTA, and its suburban bus operator partner Pace, have become the first large U.S. transit providers to accept open fare payment at rail turnstiles and on buses.

This trend, to use account-based systems, is the same threshold E-ZPass crossed 20 years ago.

Multi-agency interoperability is an equally enduring innovation. E-ZPass, while not the very first electronic tolling collection system in the United States, was the first multi-agency system covering a large geographic area.

Today, the opportunities for multi-agency interoperability are truly exciting for both tolling and transit operators. As the entire transportation industry moves into account-based systems, the possibilities for integrating payment accounts for different types of agencies and service providers across states or even regions is compelling. Linking multiple transportation providers together holds the potential to improve the quality of the customer experience, in part because all partners, large or small, can use the same customer relationship management tools. Financial risk is reduced, because a high level of security and auditing integrity can be built into the back office system, even while maintaining separate general ledgers and revenue apportionment rules for all parties. Implementation and operating costs can be reduced, and there is the potential for lowering transaction processing costs through aggregation and volume. Additionally, intermodal loyalty can be provided, where a toll customer could receive a discount if they use a transit park and ride, and use transit to complete their journey. The discount could be applied to the transit fare, the toll price, or both.

Achieving the necessary level of trust and cooperation across different organizations, however, is as hard today as it was 20 years ago. When E-ZPass first began, there were several engineers at the Triborough Bridge and Tunnel Authority testing an emerging technology called AVI, Automatic Vehicle Identification. They were in communication with staff at the Port Authority of NY and NJ, who were doing similar work. Those engineers could not imagine the two agencies cooperating on a single system. No one had ever done that before. They had the idea that two different systems would be installed, each with its own unique tag, but that tag communication with the lane would support both with no interference. At the time, I thought, “Wouldn’t it be a good idea if they cooperated with one another. How about just one tag for the entire region?”

I got Tom Downs, my boss, to assign the project internally to me and then I invited the other regional agencies to a meeting at the IBTTA International Symposium on AVI that was being held in New York City. Seven agencies showed up and agreed with me that we ought to work together for “one region, one tag.” E-ZPass was born.

Getting seven independent public agencies to work in concert was no easy task. I often thought that the award that was most appropriate for the project was the Nobel Peace Prize. Every issue was debated and a consensus was miraculously agreed upon. Even now 20 years later I marvel at how it came together.

Some of the issues are not only of historic interest, but offer lessons for emerging payment systems. Some that we tackled were: procurement method, tag features, technology selection, financial transaction processing and settlement, tag placement on windshield, and even the name of the tag.

Procurement Method

How do seven agencies buy the same thing? They can’t have a single, seven-agency procurement, and they may not all have the legal ability to buy against each other’s contract. We needed to invent a procurement approach, so we created the Irrevocable Offer. One agency conducted the procurement under its rules, and all seven agencies participated in the selection process. The lead agency issued a contract, but as a part of that contract the technology provider agreed to make an irrevocable offer to all current and future E-ZPass agencies.

The offer contained some interesting clauses. E-ZPass would determine who was a member and able to use the contract. The provider had to offer E-ZPass its best price and if they subsequently offered lower prices to a new customer anywhere they had to make those prices available to E-ZPass. They needed to provide a guaranteed second source to avoid monopoly pricing. This clause was negotiated away after I left and I still think it was a bad idea to do so.

Tag Features

The big debate at the time was between read-only versus read-write technology. Read-only tags would just identify a vehicle with calculation of toll rates to occur at the back end. Read-write tags would be able to capture entry and exit data on toll roads and allow the patron to see their toll when leaving a tolled highway, but they were more expensive.

I never believed that read-write was necessary but since I saw my role as managing the process and not necessarily getting my own way, I deferred to read-write. The trend over these past years has been for the processing to move from the lanes to the back office and so today all tags, even though they are read-write, function as read-only devices.

Financial Transaction Processing

This is one that we did not get right. We were unable for political reasons to contract with a single back office provider. Consequently agencies needed to settle up bilaterally with each other’s agency. To facilitate this an interface specification was developed so that everybody recorded transactions in the same way, but since there was no automated clearing house function, agencies were only able to settle every 30 days. Today’s multi-agency systems clear and settle every night.

Fortunately for transportation industries moving toward account-based interoperable systems today, the payment technology and industry has matured significantly, creating very attractive capabilities to get the financial transaction processing component right in new implementations.

Tag Placement

This was the only easy one. We had a meeting with Department of Motor Vehicle representatives from three states to determine where on the windshield to place the tag. One state used the upper left for registration stickers, another the lower right; however, in a mere 20 minutes they all agreed that the center line from the roof to the bumper was clear. Done and done.

The E-ZPass Name

We had a “name that tag” contest among Port Authority employees and the two best suggestions were E-ZPass and By Pass. I really liked By Pass but the group wisely thought that the association with coronary heart disease was too close for comfort so they chose E-ZPass. Again I deferred to their wisdom and they were right on this one.

Looking Ahead 20 years later

Twenty years ago electronic toll collection created customers, the people with a direct and personal connection to their toll authority. E-ZPass allowed those customers to access services from a multitude of toll facilities using the same tag and account.

Today other modes of transportation have adopted and are adopting the account-based system approach. The most prominent transit system, called Ventra, is rolling out in Chicago. We are seeing other modes also adopt this model: On street parking, airport parking, Zipcars and others. With the proliferation of paid transportation services in cities there is a need for a simplified payment mechanism. Nobody wants to manage a dozen or more transportation payment accounts.

The tolling industry is going through a modernization phase to update its back office systems, improving the quality of their customer relationship management as well as the financial security and integrity of their back-office systems, among other things. Interest in interoperability is very strong in the tolling industry, where many see an opportunity to leverage advances in technology and open systems.

Surprisingly, given the trends toward account-based payment and interoperability, both of these industries have a great deal of commonality in their infrastructure requirements, even though their actual point-of-payment applications are quite different.

So 20 years after E-ZPass helped to set these trends in motion, what does the present and near future offer? Enormous customer convenience, operational savings, and the enhanced ability to manage an urban transportation network.

Larry Yermack is a strategic advisor with Cubic Transportation Systems