Open Payment for Regional Public Transportation Travel George Kocur Massachusetts Institute of Technology

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1 OpenPaymentforRegionalPublicTransportationTravel GeorgeKocur MassachusettsInstituteofTechnology PreparedforTheRudinCenter,NewYorkUniversity LeveragingTechnologyforTransportation June16,2010 1

2 TableofContents 1. Overviewofopenpayments Openpaymentsystems Openpaymentinpublictransportation Customerexperience:regionaltravelwithopenpayments Scenario Customerinteractionswithtransitagencies,paymentindustry Purchaseoptions Purchasebyriderswithoutcreditordebitcards Accountmanagement Interoperablepaymentmedia(cardsandphones) Paymentmeans Agency issuedcards:openversusclosedloop NFCphones Regionalpaymentprocessing Looselycoupledfarepolicies(rewards,loyalty,post processeddiscounts) Integratedfarepolicies Stationandvehicleoperationsinregionalpayment Railstationservicesandticketmachines Busservices Regionalrailservices Intercityrailandotherservices Costs Contactlesscredit,debitandprepaidcards Agencyissuedclosedandopenloopcontactlesscards NFCphones Equityissues Securityandprivacy

3 9. Benefitstocustomers,agencies,region Keyissuesinregionaladoption Summary Overviewofopenpayments 1.1 Openpaymentsystems Inopenpaymentsystems,contactlessbankcardsissuedbybanksandprocessedbybankcard networksareacceptedbytransitagenciesatgatesandfareboxesastheprimaryfarepayment medium.thesystemusesstandardmerchantreaders,andmerchantacquirers/banks,card networks,andtheissuingbanksprocessfaretransactions.thisisafive partysystem: Thecardholderuseshisorhercredit,debitorprepaidcardatagateorfarebox Thetransitagency sacquirercapturesthetransaction. o Eithertheagencyoritsacquirerperformstransit specificprocessingtohandle passes,prepaidvalue,aggregation,transfersandotherfeatures Thebankcardnetworkcarriesthetransactionfromtheagency sacquirertothebank thatissuedthepassenger scard Theissuingbankbillstheconsumerandisresponsibleformanytypesoffraudandmost non payment. Thetransitagencyreceivespaymentviaasettlementprocess.Themerchant(transit agency)isfinanciallyliableforsometypesoffraud. Cardholder Issuing Bank Payment Network (e.g. Visa/MasterCard) Merchant (transit agency) Acquiring Bank 3

4 Theuseofcontactlessbankcardsfordirectpaymentoftransitfaresdiffersfromtransitsmart cardpracticeintwosignificantways.first,novalueorpassesarestoredonthebankcard.the cardisusedonlyasanidentifierthattiesthepassengertoapaymentaccountstoredona server.second,thetransactiontoopenagateoracceptpaymentatafareboxisauthorizedby aserverconnectedtothegateorfareboxviaadatanetwork.theopenpaymentoption requiresahigh availability,high performancenetworkandservertoprocesstransactions.bus transactionsareprocessedonline,asbroadbandwirelessnetworkcostsandperformance appeartobeacceptable. Openpaymentsystemsarebasedonopenstandards,commodityproductssuchascontactless bankcardsandreaders,andpaymentindustryservicesprovidedtoretailmerchantsandother industriesoutsidetransportation.adoptionofanopenpaymentframeworkwillfundamentally reshapethewaypassengerspayforpublictransportationservices.inanumberofcitiesinthe U.S.andaroundtheworld,publictransitauthoritiesaremovinginthisdirection. Contactlessbankcardtechnologyisrelativelymature,buthasyettobecomeubiquitousamong merchantsandconsumers.itreliesonbankingstandards,unliketransitsmartcardtechnology, thoughsomevariationexistsindifferentcountriesandbankingnetworks.(theu.s.isnearly aloneinnotadoptingtheeuropay MasterCard Visa,orEMV,standard,forexample.)Inanopen system,thepaymentsindustrywouldprimarilymanagefarepayment,possiblyincluding nontraditionalparticipantssuchaspaypal,cellcarriers,orevenfacebook. 1.2 Openpaymentinpublictransportation Anopenpaymentapproachsatisfiesthemajorrequirementsofatransitfarepaymentsystem: Farepolicyflexibility.Farelogicresidesonservers,enablingavirtuallyunlimitednumber offarepolicies Faremodel.Thefaremodelisanaccount based,onlinemodelthatenablespre paid (pass)andpost paid(payasyougo)products.itenableswebpurchaseandotherselfservicechannels. Regionalinteroperability.Acommoncardallowsinteroperabilityanddoesnotrequire (butallows)coordinationbetweentransitagencies. Modalinteroperability.Contactlesscardsatgatesandfareboxesareproven technology;severaloptionsforopenpaymentsinun gatedregionalrailsystemsare beingexplored. 4

5 Future proofing.byusingmainstreampaymenttechnology,transitagenciesbenefit fromnewservicesandtechnologiessuchasnfcphonesandlower costproviders (PayPal,otheronlineservices)withouttheneedforcustomizationfortransit. Broadavailabilityofcontactlessmedia.Bankshaveissuedasubstantialnumberof contactlesscardsandindicatetheyplantoissuemoreastransitacceptsopenpayment. Coretechnology.Servers,wirelessdatanetworksandfiberopticnetworksareproven technology,usedascorecomponentsinopenpaymentsbybanks,cardnetworksand merchants. Performance.Cardorphonetransactionscanbecompletedin600millisecondsorless atgatesandfareboxes. Security.Paymentcardindustrydatasecuritystandards(PCI/DADSS)arefollowed. Equity.Prepaidcardoptionsareevolvingrapidlytoserveriderswithoutbankcards. Transitagenciesmaychoosebetweenclosedloop(butopenstandard)andopenloop cards.governmentbenefitcardsarealsopossiblepaymentmedia. Customerexperience.Existingholdersofbankcardsandyoungerridersarelikelytobe early,enthusiasticadopters.olderridersandpeoplewithoutbankcardswillbeserved wellbutareexpectedtousefewerinnovativefeaturesoftheopenpaymentsystem. Whatenablesthebankcard sfarepolicyflexibilityisthefactthatitsfarelogicisstoredona serverratherthanonthecardorcardreader.thisapproachalsomakesbankcardacceptance acrossmanyagencieseasier,sincecardsandreadersarestandardandallfarelogicisona server,notonacardorreader.futuretrendswilllikelymakethebankcardoptionmore favorableovertime,sinceitusescommodityserverandnetworktechnologywhosecostsare decreasing.byrelyingonthepaymentsindustrytoissuecardswhichcanbeusedtopaytransit fares,atransitagencycanalsorealizesavingsfromavoidingthecoststoproduce,distribute, andtrackitsownsmartcardorotherfaremedia.howeverconsumershavenotdemanded contactlessbankcardsand,whiletheirultimateadoptionishighlylikely,aperiodofyearsmay berequiredforthemtobewidelyaccepted.atransitagencywillneedtoissueitsown contactlesscards,probablyinlargenumbersatthestartofopenpaymentsadoption,lessening overtime. 2. Customerexperience:regionaltravelwithopenpayments 2.1 Scenario JaneinNewJerseydecidestovisitarestaurantinBrooklynonaFridayevening.Shechecks GoogleMapsorasimilarservicetofindtheexpectedtraveltimebyautoandbytransitand decidesthattransitwillbequicker.shealsoknowsthattransitwillbelessexpensiveand,with 5

6 regionalfarepayment,sheknowsshewillhavenodifficultypayingherfaresordecidingwhich fareproductstobuy. SheparksatanNJTrailstation,payingforparkingwithhercontactlesscreditcard.Shewalks ontothestationplatformandtapsavalidatorwithhercreditcard.thevalidatorindicatesher boardingstation,necessarysincenjtrailhasdistance basedfares.sheridestohobokenand tapsavalidatoronthestationplatformwhensheexitsthenjttrainandtapsatthepathgate toenterthatsystem.(ifsheforgottotaponthestationplatform,pathandnjtsharetapdata andherentrytaponpathfillsinastheexittapfornjt.) SheexitsPATHat33 rd StandenterstheNYCTsubwaysystembytappinghercreditcard,and sheridestoherfinaldestination.shedoesnotneedtobeawarethatsheisridingthree differenttransitsystemswiththreedifferentfarepolicies.ofcourse,sheisawarethatsheis changingmodes. IfJaneistakinganout of townguestwithher,shecanuseherowncardorphonetopaytwo fares.alternativelyherguestcanusehisorhercontactlesscardorphone,evenifheorshehas neverusedpublictransitinnewyorkbefore. OnherreturntriptoNewJersey,JanetapsattheNYCTsubwaygate,thePATHgate,theNJT validatorathobokenstationandatherdestination.finallyshecantaptoexittheparkinglotif thelotchargestime basedfees. Shereceiveshercreditcardbillattheendofthemonth,whichshowsthreetransactions,for NJT,PATHandNYCT,eachcoveringtwotrips,andafourthtransactionforparking.NJT,PATH andnycteachreceivepaymentviatheirmerchantbankovernightforjane stravel. Infutureyears,astheregionalfaresystemevolves,theopenpaymentapproachcanprovide additionalvalueandconvenience: Therestaurant,whichvalidatesparkingatanearbygarage,alsovalidatestransitfares. Janeusesthesamecreditcardtopaytherestaurantbill,andonepartofthetransaction isa$2credittowardhertransittrip.thecreditappearsthateveningonheronline creditcardsummary,alongwiththerestaurantandtransitcharges. NJT,PATHandtheMTAimplementafarepolicythatgivesa25centdiscountonthe secondandthirdlegsofatripwhenusingservicesfrommorethanoneagency.this policygivesjaneanother$1credit,whichalsoappearsonheronlinesummary. IfJaneisafrequenttransituserwhodoesn ttravelenoughtobuyamonthlypass,she obtainsrewardpointsfromthecreditcardissueraspartofitsnewyorkregionfrequent travelerprogram.shegetsmorepointswhenshetravelsoff peak,whichisthecasefor thistrip. 6

7 IfJaneregisteredheroriginanddestinationwiththeregionalWebsiteviahermobile phone,njtholdsheroutboundtrainathobokenifpathisrunningafewminuteslate. ThissavesJaneandherfriend(anprobablysomeotherpassengers)alongwaitforthe nextlateeveningdeparturetoherdestination.holdstrategiesareoftennotjustified sincethetransitoperatordoesn tknowifanypassengersareactuallytransferring,but openpaymentallowseasierintegrationoffareandservicecontrol. Janewillbeabletouseherpayment enabledmobilephoneinsteadofacontactless cardasthepaymentsindustryimplementsthisoption.thisdevelopmentallowsjaneto usethesameaccountandpaymentmanagementapplicationsonhermobilephonefor transitasforallherotherpurchases. IfJanedoesn tusetransitforaperiodoftime,oneoftheagenciescansendheramarketing ,invitingherbacktotransitandofferinga50percentdiscountonhernexttwotrips.this typeoftargetedmarketingwillhelpregionalagenciesbuildridership. 2.2 Customerinteractionswithtransitagencies,paymentindustry Inopenpayments,customersinteractwithamerchantbypurchasinggoodsandservicesand withthepaymentindustrybymanagingtheiraccount.withatransit onlycard,thetransit agencyprovidespartoftheaccountmanagementfunction,whilethepaymentindustryalso providespartifthetransitproductwasboughtwithacreditordebitcard.openpaymentswill changecustomerinteractions Purchaseoptions Inopenpayment,transitridersusebank issuedcredit,debitandprepaidcards,oragencyissuedcards,directlyatgatesandbusfareboxes.openpaymentsupportsthefollowing alternativesforpurchasingtravel: Individualtripscanbetakenwithoutpreregistrationorpurchasingaticketbefore enteringthesystem.theusertapshisorhercardonacontactlessreaderandischarged asingle tripfare.thetransactionisastandardmerchanttransaction. Single ormulti triptravelcanbepurchasedonline,viaacallcenter,ticketvending machineorusingamobilephonebeforeusetoobtainadiscountintheper tripprice andpossiblyotherbenefitssuchasfreeorreducedfaretransfers.theagencycanselect thefarepolicyrulesanddiscounts. Passescanbepurchasedonline,viaacallcenter,ticketvendingmachine,orusinga mobilephone. 7

8 Thetransitagenciesare justamerchant withopenpayments.riderspurchasetransitinthe samewaytheypurchaseothergoodsandservices Purchasebyriderswithoutcreditordebitcards AgencieswillalsoneedtoissueanMTACardorPATHCardorNJTCard,forexample,tounbankedorunder bankedusers.theagency issuedcardmeetsbankcardstandardsandis reloadablewithcashatretailreloadlocationsandpossiblybankatmmachines.anagencyissuedcardcanbeusedonanyotheragency sservicesinthenewyorkarea.metroarea agenciescouldissueasingle Tri statetransitcard ;itwouldhavehighvolumeandvisibility, andwouldprobablyhavelowercoststhanindividualagencycards.theretaildistributionand reloadnetworkwillusemerchants existingpointofsalesterminalsforreload;cardscanbeon J hooksalongwithprepaidcards,phonecards,andothers. CreditanddebitbankcardpenetrationintheNewYorkregionisabout85percent.Therefore, atleast15percentofnewyorktransitriderswouldrequireanalternativeagency orpayment industry issuedmediuminthelongrun.asmanyas50percentmayusetheagency issuedcard initially. Basedonfocusgroupsurveysinothercities,ridersusingtheagency issuedcardareexpected towantafamiliarfaremediumthatoperatesascloselyaspossibletocurrentmagneticstripe orpapermedia.theyarelikelytowantaclear,understandablecustomerexperiencethat requireslittlechangefromtoday sexperience.(riderswithcontactlesscreditanddebitcards arelikelytousenewfeatures,suchasmobileaccountmanagement;manywillbe early adopters.) Accountmanagement Riderspayfortransitontheirmonthlycreditcardbill,viadebittransactionsthattheytrackin thesamewayasotherspending,orviacashreloadsontheiragency issuedorgeneralpurpose prepaidcard.ifanaccountproblemoccurs,riderswillhavetounderstandwhethertocontact thetransitagencyorthebankthatissuedthecard.evidencefrompilotsandfocusgroups suggeststhatridersgenerallyapplythesameprinciplesasinothertransactions:iftheproblem iswiththegoodsorservices,customerscontactthemerchant;iftheproblemiswiththebilling orthecard,theycontactthebank.problemsarehandledthroughmainstreamdispute resolution,refundandothercustomerserviceprocesses. 8

9 3. Interoperablepaymentmedia(cardsandphones) 3.1 Paymentmeans ManycreditanddebitcardcustomersintheNewYorkregionalreadyhavecontactlesscreditor debitcards.bankshaveissuedover10millionsuchcardsintheregionandarelikelytoissue moreiftransitagenciesmovetoopenpayments.transitpaymentwouldbeadailyuseofa card,whichwouldcreatea topofwallet effect,meaningthatridersaremorelikelytouse thatcardforotherpurchases.issuingcontactlesscardswouldalsohelpbanksretainorincrease theirmarketshare. 3.2 Agency issuedcards:openversusclosedloop Inearlystagesofopenpayment,asubstantialnumberofriderswilluseagency issuedcards. Agencieshavetwoprimaryissuanceoptionsandmayalsoacceptgovernment/employeeIDs: 1. ClosedLoopPrepaidCards:Closedloopcardscanonlybeusedatasinglemerchantorchain ofretailers.closedloopcards(oftencalledgiftcards)havetraditionallytargetedlarger valuetransactionssuchasdepartmentstorepurchases,althoughmerchantswithlowvalue transactions,suchasstarbucks,nowalsoissuethem. 2. OpenLoopPrepaidCards:Openloopcardsarealsoknownasnetworkbrandedprepaid cardsorgeneralpurposeprepaidcardsandcarrythelabelofacardnetwork,suchasvisaor MasterCard.Theyareacceptedatretailersthatacceptcreditpaymentsandcangenerally beusedtowithdrawcashfromatms.openloopcardsareusedbyconsumergroupsthat cannotorwillnotuseatraditionalprepaidcard,suchastheunbankedorteenagers.some examplesofgeneralpurposereloadablecardsincludegreendotmastercardandvisa ReadyLink. 3. GovernmentandEmployeeCards:Prepaidcardsforgovernmentbenefitsprogramsare issuedinsteadofmailingchecks.forexample,thedirectexpresscardisusedforsocial securitypaymentsforrecipientswithoutbankaccounts,andmanystatesissuesimilar cards.thefederalgovernmentisalsoissuingpersonalidentityverification(piv)cardsthat arebankcardstandards basedandmaybeusedfortransitbenefits.pivcardsareissuedto Federalemployeesandcontractors,andthestandardisavailabletostateandlocal governments.bankcardstandarduniversityandemployeeidsmaybeacceptedbytransit agenciesaswell.pivandotheridcardscouldbeacceptedforprepaidtransitproducts.the employerwouldtransmitthelistofidsandfundstotheagencyatthestartofeachmonth. Aclosedloopcardcouldbeissuedonbehalfoftheagencybyapaymentindustrypartner;the agencywouldbearthecostsofcardissuance,management,reload,transactions,account management,andriskmanagement.this whitelabel cardwouldusethesamereaders, networkandprocessingasotherpaymentcards.thetransitagencywouldbenefitfromlower 9

10 costsandadegreeofcompetitioninprocuringtheseservices.closedloopcardsdonotrequire registrationtoidentifytheuser. Anopenloopcardcouldalsobeissuedonbehalfoftheagencybyapaymentindustrypartner; theagencyandpartnerwouldtypicallysharethecostsbutwouldalsosharetherevenuesfrom off transitsystemuseofthecardatgeneralmerchants.thetransitagencywouldbetheissuer, whichisthepartythattypicallyretainsthelargefractionofrevenue:perhaps2percent interchangeontransactions,plusissuanceandotherfees.however,thepartnerwouldtakea substantialfraction,perhapshalf,oftheissuerrevenueinexchangeforitsmanagement services,includingriskmanagement.iftheagencyissuedcardwaswidelyused,theagency mightearnsignificantrevenuestooffsetagency issuedcardcosts.openloopprepaidcards carrysomereputationalriskforanagencybecausetheyareassociatedwithhighfees. Substantialcareisrequiredinnegotiatinganopenloopcard.LosAngelesMTAhasissuedan openloopcard,asanexample. Reloadableopenloopcardsrequireregistration,whichlimitstheirusabilityfortransitsystems thatmustserveadiversepopulation,notallofwhomcanmeetidentityrequirements. HoweverVisahasproposedanopenloopcardthatisreloadableuptoalimitof$1000,does notrequireregistration,mustbeco brandedwithatransitagency,anddoesnotallowcash withdrawals.thiscardispotentiallyviablefortransituse.visachargesaverylowreloadfee; merchantssettheirreloadfeeforcustomers.themerchantfeecurrentlyrangesfrom$2to$5, butitislikelythatmerchantsreloadingtransitcardswillacceptlowerfees. Closedandopenloopcardsrequireareloadnetworkwherecustomersmayusecashtoload valueintotheiropenpaymentaccounts.reloadatmerchantssuchaspharmacies,gasstations andconveniencestoresviaexistingpoint of salesterminalsisthemostlikelymeansbecauseit providesafairlylargenetworkofreloadpoints,thoughatacost.envelope lessatmmachines atbankbranchesorrailstationsareanotherpotentialoption.userscould deposit cash, whichisscannedinrealtimeandplacedintotheircardaccountforimmediateuse. AcceptanceofgovernmentandemployerIDcards,especiallyforpasspurchasesandtransit benefits,offersthepotentialtosharplyreducepaymentindustryfeesbyobtainingelectronic fundstransfersdirectlyfromgovernmentsandemployers.italsooffersthepotentialtoreduce agency issuedcardcostsandassociatedeligibilitydeterminationprocesses. 3.2 NFCphones AnotherpossiblemediumisNearFieldCommunication(NFC)payment enabledphones.the mobilephonepenetrationrateinthenewyorkregionisover100percent,andsmartphone penetrationisrisingrapidly(aboutone thirdofcellphonesaresmartphonesintheu.s.).this statisticsuggeststhatthepenetrationfornfcphones,whentheybecomebroadlyavailable likelyin2012 maydevelopquickly,sincephoneswithdatacapabilitiesarelikelytohavenfc also.(theaveragelifeofacellphoneintheu.s.isabout18months.)mobilenetwork operators,handsetmanufacturers,simmanufacturers,trustedsystemmanagers,various paymentsindustryplayers,andothersaredebatingtheshareofrevenuesreceivedfromnfc 10

11 payment.thisdebateistheprincipalfactorslowingdownintroductionofphone based payment. OneNFCoptionmaybedeployableandusablequicklyinNewYorkonceNFChandsetsare available:annfchandsetcansenditshardwareidentifiersecurelytothegateorfarebox reader.nopaymentapplicationisinvolved;thephoneisusedstrictlyasanidentifier. Atransitagencywouldhaveadatabaseofregisteredphoneusersandwouldbeableto associatethetriptakenwiththecorrectregistereduser.theuserwouldprovideapayment means,suchasbankaccount,credit,debit,prepaid,achoragencycard,whenregistering.. Becausetransitagencieshavealarge,stableuserbase,aregistrationoptionforNFCphoneuse maybeviable. Phonepaymentisexpectedtobeamajorconsumerconvenienceformanypurchases,andit offerssomeuniquepotentialbenefitsforpaymentofdistance basedfaresonregionalrail, describedbelow. ThefiguresbelowshowanNFCphoneanditsuseatacontactlesscardreader. NFCphone 11

12 NFCuseatacontactlessreader 4. Regionalpaymentprocessing 4.1 Looselycoupledfarepolicies(rewards,loyalty,post processed discounts) Earlyintheuseofopenpayments,agenciesarelikelytohaveseparatefarepoliciesandtariffs. Evenwithoutintegrationoffarepoliciesacrossagencies,someformsofcoordinationcanbe adoptedquickly: Rewardsorloyaltyprograms.Agenciescancooperateona NewYorkregion rewardsprogram thatawardspointsfortravelonanyoftheparticipatingagencies.additionalpointscanbe giventocustomersusingmultipleagenciesasapartialoffsettothelackofintegratedfares. Cardissuersmayfundafractionoftheserewardsbenefits. Post processeddiscounts.discountscanbeappliedbytheacquirertocreatealimitedlevelof fareintegrationforinter agencytrips.asanexample,therewardsprogramcouldapplya maximumdailycaponsingleridefaresacrossagencies.thecapcouldinitiallybeappliedonly toflatfareservicessuchassubway,path,andlocalbusroutes.ifthispilotweresuccessful,the approachcouldbeextendedtoregionalrailroutes,wherethecappingruleswouldbemore complexduetodistanceandtime basedfares.itcouldalsobeextendedtoweeklyorother timeperiods.therewardsprogrammanagerwouldperformthecalculationsusingtripdata fromalltheagenciesforregisteredusers.theagencieswouldneedtoagreeonrevenue 12

13 apportionmentintheseoptions,butthiscooperationmaybemoreeasilyachievedthanafully integratedfarepolicy. 4.2 Integratedfarepolicies Becausetheystorenodataonthecardandcontainnofareslogiconthereader,openpayment systemsprovideessentiallylimitlessflexibilityinfarepolicy.possiblefarepoliciesincludeprepurchasedfaresatadiscountacrossagencies(includingautomatictop up),periodpassesof anylength,freeorreducedfaretransfersbetweenmodesoragencies,reducedfaretickets, time of daypricing,associatedservicessuchasparking,andbestvaluecalculations(that guaranteethatthesumofsingleticketswillnotexceedaone dayorone weekcap,typically thepassprice).thesepoliciescanbeimplementedacrossagencies.thechangesrequiredare: Farepoliciesandassociatedfarecalculationsmustbeestablishedandprogrammedin theservers.thetechnicalaspectofthisisstraightforward. Revenueallocationmechanismstodeterminetheamountofrevenueeachagency receivesfromjointfaresmustbeestablished.reachingthisagreementisoftena difficultstep. Thesesharesarethenprogrammedintothesettlementprocess.Theprogrammingis straightforward. Marketing,consumerandstaffinformationmustbecreatedtoexplainthenewfare policies. Openpaymentcansupportfarepoliciesthatotheroptionscannot,especiallymarketing initiativesthatarecommonlyemployedinotherindustries,including: Route andtime specificfares,aspromotions Introductoryfaresforcustomeracquisition.Havingpromotionssuchas firstmonth50 percentoff isfeasible,sincetheycanbetiedtotheuser sbankcard(andcannotbe transferredtoanotheruser)andthereisnocardissuancecost. Pricecaps,regionalfaresandotherfarepoliciesthatinvolvemultiplemodesand agenciesandmultipletrips,forwhichthefarelogiccouldexceedthecapacityofcards andreadersintraditionaltransitfaresystems. Validatedtransitfares.Theseareanalogoustovalidatedparking,whereamerchant paysthetransitfareifthesamebankcardispresentedthatwasusedtopurchase merchandise.thesecancover,completelyorpartially,thecostofaone wayfareorcan beappliedasacreditifapassengerhasapass. 13

14 Frequenttravelerorrewardplansthatprovidediscountsbasedonthefrequencyor totalvalueofuse.theseplanscanbeespeciallyattractiveforlong termtransitriders whotravellessthan5daysperweekandwhoarenotwellservedbyexistingpass products. Jointpromotionswithevents,wherethetransitrideisfreeorreducedpriceifthesame bankcardispresentedthatwasusedtopurchasetheticket. Commuterrailpricingonaper trainbasis,similartoairlineyieldmanagement.this conceptisradicalbutfeasiblewiththeflexibilityofserver basedtransactions.itis discussedinmoredetailbelow. Alloftheseoptionscanbeimplementedonasingle ormulti agencybasis.coordinatedfare policiesandmarketingacrosstheregionmayincreasetheeffectivenessofthesemeasures. 5. Stationandvehicleoperationsinregionalpayment Thissectionbrieflyhighlightsnoveloptionsforusingopenpaymentsforsubway,busandrail servicesintheregion. 5.1 Railstationservicesandticketmachines Becausebankswill,inthelongterm,issuethemajorityofthecardsinanopenpayment system,thenumberofticketvendingmachinesinstationscanbereduced.envelope lessatm machinesthatacceptcashandreloadcardaccountsforticketvendingmachinesmaybeused toservetheremainingdemandbyriderswithoutcreditordebitcards.thisapproachmayturn acostitemintoarevenueitemorreducethecostofticketvendingatrailstations.fewerticket machinesreducesstationqueuing. 5.2 Busservices BusesmusthavebroadbandwirelessconnectionstouseopenpaymentseffectivelyinNorth America.Typicalcommercialwirelessservicecostsofabout$40permonthperbusappear affordableinthecontextoffarecollection.thewirelessmodemandfarereadercanalsobe usedtoprovidebuslocationinformation,sincegpsunitsarecommonlyincludedincommercial wirelessmodems.thislocationinformationalsoprovidesdetaileddataonpassengertrip originsonbusroutes. 14

15 5.3 Regionalrailservices TwobroadoptionsareavailableforacceptingcontactlesscardsorNFCphonesinanopen paymentsystemonregionalorcommuterrailservices: Gatesandvalidatorsatstations.Inthemostcommonconfiguration,gatesareplacedat majorterminalsandvalidatorsatsuburbanstations.sincethelargemajorityofriders useoneofthemajorterminals,thegatesprovideahighdegreeofrevenuecontrol. Riderswhodonotvalidateonthesuburbanplatformarechargedamaximumorpenalty fare.intermediateridersmustbeinspectedonboard,eithertargeting100percent inspectionorusingaproof of paymentsystem. Onboardself validationbyriders.thisnewpossibilityisbasedonnfcphones. o TherailroadinstallspassiveRFIDtagsoneachseatineverycar.Thetagsare inexpensive(50cents);theyrequirenopowerorcommunications.theycanbe placedinaholderattachedtoaseatbackthatalsoshowstheseatnumber. o Arider,uponboarding,tapshisorherNFCphoneontheseattag.Thephone hasanapplicationtosendthenfcphoneidandtherfidtagnumbertothe server.thetagnumberisassociatedwiththeseatnumberandcarnumberin theserverdatabase.thephoneisassociatedwiththepaymentcardandpass productbought. o Singletripriderswouldentertheiroriginanddestinationzonesinanapplication ontheirnfcsmartphonebeforetapping.iftheyhaveagpsphone,itcan displaytheircurrentzoneandzonesforeverystation.ifariderdoesnothavean NFCphone,heorshecancontinuetouseaflashpassorothercurrentmedia,or heorshecanshortmessageservice(sms)textthecarandseatnumbertoa railroad800numbertoself validate. o Conductorswillhaveanapplicationonamobiledevicethatdisplaysvalidated seatsoneachcar.heorsheonlychecksseatsthathavenotself validated.this approachreducesthecheckingload,whichotherwisemightincreasesince checkingelectronicmediatakeslongerthanflashpasses,forexample. o Thisoptionavoidscapitalinvestmentinvalidatorsandgates. o Sincevalidationispertrain,train specificfarescanbecharged.servicessuchas reservedseatscanbeprovided,possiblyforapremiumfare.auserreservesa seatonlineforasingletriporforthedurationofapass,orchangesthe reservationtoadifferenttrainifneeded. 5.4 Intercityrailandotherservices Amtrakandintercitybusoperatorscouldacceptthesameticketmediaasurbanoperators, eitherbyhavingstaffuseahandhelddevicetocheckorvalidateelectronicticketsboughtona contactlesscard,orbytheriderusinghisorhermobilephonetodisplaytheticket,possibly withabarcodeorvianfc(anexistingelectronicreceiptstandardinnfccouldpotentiallybe used).theticketpurchaseandcollectionmethodsusedbyintercityoperatorsaredifferent 15

16 fromthoseusedforpublictransit,butthesamemediacanbeused,allowingforfuture interoperabilityandjointfares. 6. Costs 6.1 Contactlesscredit,debitandprepaidcards Cardtransactionsissuedbythepaymentsindustryrequireauthorizationbyapayments industryserver.thepaymentsindustryprovidesthemajorityofthebackofficefunctions,asit doestoallmerchants.thesecostsarebornebytheinterchangeandotherfeescollectedbythe industry. Transitagenciescurrentlyhaveextensiveinteractionswiththepaymentsindustry,sincebank cardsareacceptedforpurchaseoftransitandcommuterrailtickets.auditandotherfinancial controlprocessesareinplacetomanagethesefinancialarrangements.inthelexingtonline farepilot,nyctfoundthatthebackofficeneededtosupportpurchasesofmetrocardswith creditanddebitpaymentsatvendingmachineswasvirtuallythesameneededforanopen paymentsolution. Creditanddebitcardsareusedalreadyforhalformoreoftransitpurchasesinmanyagencies, andthepercentageisincreasingovertime.transitagenciesarealreadypayingsignificantfees tothepaymentsindustry.byadoptingopenpaymentsandeliminatingasecondlevelofmedia issuance,enhancedtransactionprocessing,improvedcustomerservice,andmeaningfulcost savingsappearpossible. Amajorareaofpotentialcostsavingsisintheacceptanceofgovernment,employerand universityidcardsfortransituse.washingtonandbostonreceiveover50percentofpass revenuethroughfundstransfersfromemployersatverylowcost.region wideacceptanceof IDcardswouldmakethisoptionevenmoreattractivebecauseitwouldlowerprocessingfees significantlyandavoidcardissuanceandmanagementcosts. 6.2 Agencyissuedclosedandopenloopcontactlesscards Controllingthecostofagency issuedcardswillrequirecarefulattentiontoseveralitems: Cardchurn.Afeeordepositislikelytoberequiredsothatridersretainthecardforas longaperiodaspossible,preferablyoneortwoyears.nfcphones,whenavailable,can emulatebankcards,includingtheagency issuedcard,tolowercardissuancecosts. Reloadfees.Settingthereloadamounttothehighestvaluethatisreasonableforthe lowerincomeusersmostlikelytousetheagencycardwilllowerreloadfees.agencies 16

17 willalmostcertainlyabsorbreloadfeesforclosedloopcardsandfortransituseofopen loopcards.thesefeesrangefrom$2 $5atamerchantcurrently;theywillalmost certainlybelowerfortransitusebutmaywellbeinthe$1 $2range.A$10orhigher minimumreloadamountmaybeneededtocontrolthesecosts.incentivestoridersto usetheirownbankcards,government issuedbenefitscards,ortouserailstation machinescanreducetheuseofthereloadnetwork.bonusesordiscountscanbe limitedwithreloads,totheextentconsistentwithequity. Accountmanagement.Automatingcustomerservicesothataccountbalanceinquiries andotherroutinequestionsareansweredonline,orviaivror ortextmessages,is importanttolimitcosts. Off systemrevenues.openloopcardissuancemaygainrevenuesfromoff transit systemusetooffsetcardcosts. 6.3 NFCphones MerchantsstatethattheywillnotpayapremiumforNFCpayments,buttheNFCindustrymay stillbehopingthatconsumerswillforcemerchantstoacceptnfcpaymentsatahigher paymentfeebecauseconsumerswillfindnfcsoconvenient(andmerchantswillgetsomelift inspending).transithasanopportunitytousenfcwithoutadditionalfeesduetoitslargebase ofrepeatcustomers,byusingthephonejustasanidentifierforregisteredcustomers.transit willbeinthesamesituationasothermerchantswithrespecttobroaderacceptanceofnfcin thefuture,andtheremaybesomecostrisk. 7. Equityissues Equityissuesfocusontheimpactsofusingprepaidoragency issuedcardsontheirusers,who arelikelytobeunbankedorunder bankedindividuals: Unbanked:Individualswhodonothaveabasiccheckingaccount,savingsaccount,orother typeoftransactionalaccountatabankorcreditunion. Underbanked:Individualswhohaveabasiccheckingorsavingsaccountbutdonothave othercommonfinancialinstrumentssuchascreditordebitcards. 17

18 BankingStatusofUSHouseholds(FDIC2009) Thefollowingtypesofhouseholdsaremorelikelytobeunbanked: Minorities:Black,Hispanic,orAmericanIndian/Alaskanhouseholds; Noncitizens:Thosewhereahouseholderisaforeign bornnoncitizen; Language:HouseholdswhereSpanishistheonlylanguagespokenathome; Single:Unmarriedfemaleormalehouseholds; LowerIncomes:Thosewithanannualincomelessthan$30,000; LowerEducation:Thoseholdinglessthanahighschooldegree; LowerAges:Thoseunderage45; Tomeetequitygoals,agencieswillneedtoissuethesecustomersanagency issuedorprepaid cardreloadablewithcashatasufficientnumberofreloadanddistributionpointswithno transactionorotherfees.thesamefareandpassproductsmustbeavailableonthesecardsas oncreditordebitcards,perhapswithexceptionssuchasrewardsprogramsoronline promotions.asnotedabove,theuseofgovernmentissuedbenefitscontactlesscardswouldbe aneffectivepolicy. 8. Securityandprivacy AgenciesadoptingopenpaymentaresubjecttoPaymentCardIndustry(PCI)DataSecurity Standards(DSS).Thisevolvingstandardisusedbytheentirepaymentsindustryandsupported byabroadgroupofvendorsandserviceproviders.measurestoensurephysical,network,data, processandapplicationsecurityarerequired.thesesecuritymeasuresappearappropriatefor transitagenciesandareessentiallyrequiredtodayforagenciesthatacceptbankcardsatticket machinesoronline.directacceptanceofcardsatgatesandfareboxesrequiresthosepiecesof equipmenttobepcidsscompliant.complianceiscommonpracticesincethisequipmentis similartomerchantpoint of salesdevicesunattendedmerchantterminals. 18

19 Agencieshavealreadyadoptedprivacystandards.Whilethesestandardsshouldbereviewed, themovetoopenpaymentsdoesnotappeartocreatesubstantialnewprivacyissues.more userswillbeusingregisteredmediatopayfaresinopenpaymentsandmoretripdetailwillbe available,buttheseprivacyissuesexistnow. 9. Benefitstocustomers,agencies,region Thetablebelowbrieflysummarizesthepotentialbenefitsofopenpaymentstocustomers, agenciesandtheregion.thesebenefitsareincreasedthroughthe networkeffect whenopen paymentisadoptedbymultipletransitagenciesandintercityoperatorsinaregion.thesame benefitsthatcustomersreceivewithinasingleagencywouldthenbeavailableformulti agency trips.likewise,agencybenefitsalsoincreasewithadoptionbymultipleagencies:asingle agency issuedcardcanbeacceptedatallagencies,reloadnetworkscanbeshared,etc. Benefitsofopenpayment TransitRiders TransitAgencies Region Bustraveltimesavings Reducedcard&ticketissuance Networkeffectmultiplier Easyforvisitors Reducedretailcommissions Loweragencycardissuance Interoperablebetween Reducedcustomersupport Sharedreloadnetwork Onecard&billing cities Morestandardizedequipment costs Sharedintercitypayment Reducedqueuinginstations statement Revenueupliftopportunities Agencytransferpointsbetter Additionalcardsecurity Co branding&rewardsprogram Broadermarketingoptions Positivepublicrelations Thekeyissuestobeaddressedinregionalopenpaymentsarelistedbelow.Theyinclude developingfareprocessingsoftwaretotranslatetapsintomerchanttransactions,integration andtestofcomponentsfrommultiplesuppliersinsteadofasingleturnkeyvendor,choosing themeanstocollectdistancebasedfares(primarilyonrailroadvalidators/gatesoronboard), servingunbankedriders,andnegotiatingwiththepaymentsindustry.transitrequiresfaster transactionspeedsthanothermerchants,anditrequiresinspection/revenueprotection devices,primarilyonregionalrailvehicles.managingpaymentindustryfeesmayinvolve negotiatingaspecialsetoffeesandrulesforpublictransportationtomeetspecific requirements. Transit specificdifferencesinopenpaymentsystems Transactionspeed 19 Distanced basedandzonalfares

20 Bus basedtransactions Fareprocessing Systemsintegration Revenueprotection Riderswithoutcontactlessbankcards Managingpaymentindustryfees 10. Keyissuesinregionaladoption Thekeyissuesinassessingwhethertoadoptaregionalsystemofopenpaymentsand,if adopted,thekeydecisionstobemadeinclude: 1. Policy:Agreementtoadoptopenpaymentsamongallormostagenciesintheregionis thecentraldecision.thismaybedonefortransit,highwaytolls,orboth. 2. Policy:Ifopenpaymentsareadopted,theycanbeimplementedatdifferenttimesand withdifferentfarepoliciesbyeachagency,aslongasthemediaacceptedarethesame. Regionalcoordinationintheintroductionofopenpaymentswillimproveutilitytousers, andharmonizationoffarepolices,evenpartially,maybeaneffectiveelementin improvingthecustomerexperienceandperhapsincreasingusage. 3. Policy:Havingasharedagency issuedcardforunbankedusersmayprovidebenefitsto ridersandagencies.adecisiononopenversusclosedloopcardsmustbemadebyeach agencyorperhapsacrossagencies. 4. Policy:Sharingpaymentservicesacrossagenciesispossible.ThesharedEZPass customerservicecenterisamodelthatcanbeconsidered.sharedmarketing,ashared Websiteandcallcenter,andsharedpaymentprocessingelementsarepartofthe currentmastercardphase2farepilot.sharedretailreloadpointsareanotherpossibility inthefuture.agenciescouldoptoutofsharedarrangementswhencontractswere renewed. 5. Technical/policy:Developmentofregional/commuterrailfarecollectionsystemsbased onelectronicmedia.theissuesarethesamewhetheraproprietarysmartcardsystem oropenpaymentsystemisused.theexpectedtimeforon trainstafftoinspect electronicmediaisaboutdoublethatforvisualinspection.anincreaseinon train staffingisalmostcertainlynotacceptable,sorailoperatorsmustmoveeithertoproofof paymentsystemswithrandominspections,ortoself servicevalidationby passengers,possiblyusingnfcphones.whileopenpaymentscanbeimplemented acrossbusandgatedrailenvironmentsinitially,atrulyregionalsystemwillinclude commuter/regionalrailsystemsaswell. 6. Technical:Verificationthatwirelessconnectivityissufficientlygoodforbustransactions. Thisisnotexpectedtobeasignificantissue,butfeasibilitymustbeassured. 7. Cost:Theinterchangeandotherfeeschargedbybanksareacostelementthatmustbe negotiatedatthestartofanopenpaymentsstrategy;itmaybepossibletonegotiate 20

21 thesedown.substantialpaymentfeesarealreadybeingpaidbyagencies,butthesewill increaseinopenpayments;thisshouldbeoffsetbysavingsinnolongeroperatinga transit specificticketingsystem.itmayalsobepossibletoacceptemployerandother IDcardsfortransitpayment,furtherloweringpaymentfees.Acoordinatedapproachto acceptingidcardswouldhavegreaterbenefitsthanindividualagencyefforts. 11. Summary LondonandNewYorkareimplementingopenpaymentsystems,andSaltLakeCityand Kaohsiung,Taiwanhavealreadyimplementedthem.Philadelphia,ChicagoandWashingtonDC arestronglyconsideringtheiruse.whiletheuseofopenpaymentsintransitisnotan establishedpractice,mostopenpaymentelementsarethesameintransitastheyareforretail merchants.thelistofchallengespresentedaboveisalistofthedifferencesbetweentransit andastandardmerchant.asindividualsystemsworkthroughopenpaymentimplementation issues,theywill,withlittleadditionaleffort,bepositionedtoparticipateinabroaderregional faresystem.thecards,readers,transactions,communications,andpaymentindustry componentswillbecommonacrossopenpaymentsystems.userswillseethesamecustomer experienceatallsystems,thoughwithexistingvariationsinfarepolicyandcollectionmeans (gates,fareboxes,validators). Theuseofopenpaymentstandardsallowsfareinteroperabilityacrossasetoftransitsystems withoutrequiringasingledesignorasinglevendor.eachsystemcanproceedonitsown scheduleandwithitsownfarepoliciesandprocesses.interoperabilityisprovidedprimarilyby acceptanceofacommoncardorphone,withwhichcustomerspayformanyothergoodsand servicesinafamiliarprocess.thegreaternewyorkregion,withasetoflargeand interconnectedtransitsystems,mayobtainsubstantialfuturebenefitsfromadoptingopen paymentsacrosstheregion. 21