open payment for regional public transportation … payment for regional public transportation...
TRANSCRIPT
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OpenPaymentforRegionalPublicTransportationTravel
GeorgeKocurMassachusettsInstituteofTechnology
PreparedforTheRudinCenter,NewYorkUniversityLeveragingTechnologyforTransportation
June16,2010
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TableofContents1. Overviewofopenpayments ..................................................................................................3
1.1 Openpaymentsystems.......................................................................................................3
1.2 Openpaymentinpublictransportation..............................................................................4
2. Customerexperience:regionaltravelwithopenpayments ..................................................5
2.1 Scenario...............................................................................................................................5
2.2 Customerinteractionswithtransitagencies,paymentindustry ........................................7
2.2.1 Purchaseoptions ......................................................................................................7
2.2.2 Purchasebyriderswithoutcreditordebitcards .....................................................8
2.2.3 Accountmanagement ..............................................................................................8
3. Interoperablepaymentmedia(cardsandphones)................................................................9
3.1 Paymentmeans...................................................................................................................9
3.2 Agency‐issuedcards:openversusclosedloop ...................................................................9
3.2 NFCphones .......................................................................................................................10
4. Regionalpaymentprocessing ..............................................................................................12
4.1 Looselycoupledfarepolicies(rewards,loyalty,post‐processeddiscounts).....................12
4.2 Integratedfarepolicies .....................................................................................................13
5. Stationandvehicleoperationsinregionalpayment............................................................14
5.1 Railstationservicesandticketmachines..........................................................................14
5.2 Busservices .......................................................................................................................14
5.3 Regionalrailservices .........................................................................................................15
5.4 Intercityrailandotherservices.........................................................................................15
6. Costs .....................................................................................................................................16
6.1 Contactlesscredit,debitandprepaidcards ......................................................................16
6.2 Agencyissuedclosedandopenloopcontactlesscards ....................................................16
6.3 NFCphones .......................................................................................................................17
7. Equityissues .........................................................................................................................17
8. Securityandprivacy .............................................................................................................18
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9. Benefitstocustomers,agencies,region ..............................................................................19
10. Keyissuesinregionaladoption .........................................................................................20
11. Summary ...........................................................................................................................21
1. Overviewofopenpayments
1.1 OpenpaymentsystemsInopenpaymentsystems,contactlessbankcardsissuedbybanksandprocessedbybankcardnetworksareacceptedbytransitagenciesatgatesandfareboxesastheprimaryfarepaymentmedium.Thesystemusesstandardmerchantreaders,andmerchantacquirers/banks,cardnetworks,andtheissuingbanksprocessfaretransactions.Thisisafive‐partysystem:
• Thecardholderuseshisorhercredit,debitorprepaidcardatagateorfarebox• Thetransitagency’sacquirercapturesthetransaction.
o Eithertheagencyoritsacquirerperformstransit‐specificprocessingtohandlepasses,prepaidvalue,aggregation,transfersandotherfeatures
• Thebankcardnetworkcarriesthetransactionfromtheagency’sacquirertothebankthatissuedthepassenger’scard
• Theissuingbankbillstheconsumerandisresponsibleformanytypesoffraudandmostnon‐payment.
• Thetransitagencyreceivespaymentviaasettlementprocess.Themerchant(transitagency)isfinanciallyliableforsometypesoffraud.
Cardholder Merchant (transit agency)
Acquiring Bank
Payment Network (e.g. Visa/MasterCard)
Issuing Bank
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Theuseofcontactlessbankcardsfordirectpaymentoftransitfaresdiffersfromtransitsmartcardpracticeintwosignificantways.First,novalueorpassesarestoredonthebankcard.Thecardisusedonlyasanidentifierthattiesthepassengertoapaymentaccountstoredonaserver.Second,thetransactiontoopenagateoracceptpaymentatafareboxisauthorizedbyaserverconnectedtothegateorfareboxviaadatanetwork.Theopenpaymentoptionrequiresahigh‐availability,high‐performancenetworkandservertoprocesstransactions.Bustransactionsareprocessedonline,asbroadbandwirelessnetworkcostsandperformanceappeartobeacceptable.Openpaymentsystemsarebasedonopenstandards,commodityproductssuchascontactlessbankcardsandreaders,andpaymentindustryservicesprovidedtoretailmerchantsandotherindustriesoutsidetransportation.Adoptionofanopenpaymentframeworkwillfundamentallyreshapethewaypassengerspayforpublictransportationservices.InanumberofcitiesintheU.S.andaroundtheworld,publictransitauthoritiesaremovinginthisdirection.
Contactlessbankcardtechnologyisrelativelymature,buthasyettobecomeubiquitousamongmerchantsandconsumers.Itreliesonbankingstandards,unliketransitsmartcardtechnology,thoughsomevariationexistsindifferentcountriesandbankingnetworks.(TheU.S.isnearlyaloneinnotadoptingtheEuropay‐MasterCard‐Visa,orEMV,standard,forexample.)Inanopensystem,thepaymentsindustrywouldprimarilymanagefarepayment,possiblyincludingnontraditionalparticipantssuchasPayPal,cellcarriers,orevenFacebook.
1.2 OpenpaymentinpublictransportationAnopenpaymentapproachsatisfiesthemajorrequirementsofatransitfarepaymentsystem:
• Farepolicyflexibility.Farelogicresidesonservers,enablingavirtuallyunlimitednumberoffarepolicies
• Faremodel.Thefaremodelisanaccount‐based,onlinemodelthatenablespre‐paid(pass)andpost‐paid(payasyougo)products.ItenablesWebpurchaseandotherself‐servicechannels.
• Regionalinteroperability.Acommoncardallowsinteroperabilityanddoesnotrequire(butallows)coordinationbetweentransitagencies.
• Modalinteroperability.Contactlesscardsatgatesandfareboxesareproventechnology;Severaloptionsforopenpaymentsinun‐gatedregionalrailsystemsarebeingexplored.
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• Future‐proofing.Byusingmainstreampaymenttechnology,transitagenciesbenefitfromnewservicesandtechnologiessuchasNFCphonesandlower‐costproviders(PayPal,otheronlineservices)withouttheneedforcustomizationfortransit.
• Broadavailabilityofcontactlessmedia.Bankshaveissuedasubstantialnumberofcontactlesscardsandindicatetheyplantoissuemoreastransitacceptsopenpayment.
• Coretechnology.Servers,wirelessdatanetworksandfiberopticnetworksareproventechnology,usedascorecomponentsinopenpaymentsbybanks,cardnetworksandmerchants.
• Performance.Cardorphonetransactionscanbecompletedin600millisecondsorlessatgatesandfareboxes.
• Security.Paymentcardindustrydatasecuritystandards(PCI/DADSS)arefollowed.• Equity.Prepaidcardoptionsareevolvingrapidlytoserveriderswithoutbankcards.
Transitagenciesmaychoosebetweenclosedloop(butopenstandard)andopenloopcards.Governmentbenefitcardsarealsopossiblepaymentmedia.
• Customerexperience.Existingholdersofbankcardsandyoungerridersarelikelytobeearly,enthusiasticadopters.Olderridersandpeoplewithoutbankcardswillbeservedwellbutareexpectedtousefewerinnovativefeaturesoftheopenpaymentsystem.
Whatenablesthebankcard’sfarepolicyflexibilityisthefactthatitsfarelogicisstoredonaserverratherthanonthecardorcardreader.Thisapproachalsomakesbankcardacceptanceacrossmanyagencieseasier,sincecardsandreadersarestandardandallfarelogicisonaserver,notonacardorreader.Futuretrendswilllikelymakethebankcardoptionmorefavorableovertime,sinceitusescommodityserverandnetworktechnologywhosecostsaredecreasing.Byrelyingonthepaymentsindustrytoissuecardswhichcanbeusedtopaytransitfares,atransitagencycanalsorealizesavingsfromavoidingthecoststoproduce,distribute,andtrackitsownsmartcardorotherfaremedia.Howeverconsumershavenotdemandedcontactlessbankcardsand,whiletheirultimateadoptionishighlylikely,aperiodofyearsmayberequiredforthemtobewidelyaccepted.Atransitagencywillneedtoissueitsowncontactlesscards,probablyinlargenumbersatthestartofopenpaymentsadoption,lesseningovertime.
2. Customerexperience:regionaltravelwithopenpayments
2.1 ScenarioJaneinNewJerseydecidestovisitarestaurantinBrooklynonaFridayevening.ShechecksGoogleMapsorasimilarservicetofindtheexpectedtraveltimebyautoandbytransitanddecidesthattransitwillbequicker.Shealsoknowsthattransitwillbelessexpensiveand,with
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regionalfarepayment,sheknowsshewillhavenodifficultypayingherfaresordecidingwhichfareproductstobuy.
SheparksatanNJTrailstation,payingforparkingwithhercontactlesscreditcard.Shewalksontothestationplatformandtapsavalidatorwithhercreditcard.Thevalidatorindicatesherboardingstation,necessarysinceNJTrailhasdistance‐basedfares.SheridestoHobokenandtapsavalidatoronthestationplatformwhensheexitstheNJTtrainandtapsatthePATHgatetoenterthatsystem.(Ifsheforgottotaponthestationplatform,PATHandNJTsharetapdataandherentrytaponPATHfillsinastheexittapforNJT.)
SheexitsPATHat33rdStandenterstheNYCTsubwaysystembytappinghercreditcard,andsheridestoherfinaldestination.Shedoesnotneedtobeawarethatsheisridingthreedifferenttransitsystemswiththreedifferentfarepolicies.Ofcourse,sheisawarethatsheischangingmodes.
IfJaneistakinganout‐of‐townguestwithher,shecanuseherowncardorphonetopaytwofares.Alternativelyherguestcanusehisorhercontactlesscardorphone,evenifheorshehasneverusedpublictransitinNewYorkbefore.
OnherreturntriptoNewJersey,JanetapsattheNYCTsubwaygate,thePATHgate,theNJTvalidatoratHobokenStationandatherdestination.Finallyshecantaptoexittheparkinglotifthelotchargestime‐basedfees.
Shereceiveshercreditcardbillattheendofthemonth,whichshowsthreetransactions,forNJT,PATHandNYCT,eachcoveringtwotrips,andafourthtransactionforparking.NJT,PATHandNYCTeachreceivepaymentviatheirmerchantbankovernightforJane’stravel.
Infutureyears,astheregionalfaresystemevolves,theopenpaymentapproachcanprovideadditionalvalueandconvenience:
• Therestaurant,whichvalidatesparkingatanearbygarage,alsovalidatestransitfares.Janeusesthesamecreditcardtopaytherestaurantbill,andonepartofthetransactionisa$2credittowardhertransittrip.Thecreditappearsthateveningonheronlinecreditcardsummary,alongwiththerestaurantandtransitcharges.
• NJT,PATHandtheMTAimplementafarepolicythatgivesa25centdiscountonthesecondandthirdlegsofatripwhenusingservicesfrommorethanoneagency.ThispolicygivesJaneanother$1credit,whichalsoappearsonheronlinesummary.
• IfJaneisafrequenttransituserwhodoesn’ttravelenoughtobuyamonthlypass,sheobtainsrewardpointsfromthecreditcardissueraspartofitsNewYorkregionfrequenttravelerprogram.Shegetsmorepointswhenshetravelsoff‐peak,whichisthecaseforthistrip.
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• IfJaneregisteredheroriginanddestinationwiththeregionalWebsiteviahermobilephone,NJTholdsheroutboundtrainatHobokenifPATHisrunningafewminuteslate.ThissavesJaneandherfriend(anprobablysomeotherpassengers)alongwaitforthenextlateeveningdeparturetoherdestination.Holdstrategiesareoftennotjustifiedsincethetransitoperatordoesn’tknowifanypassengersareactuallytransferring,butopenpaymentallowseasierintegrationoffareandservicecontrol.
• Janewillbeabletouseherpayment‐enabledmobilephoneinsteadofacontactlesscardasthepaymentsindustryimplementsthisoption.ThisdevelopmentallowsJanetousethesameaccountandpaymentmanagementapplicationsonhermobilephonefortransitasforallherotherpurchases.
IfJanedoesn’tusetransitforaperiodoftime,oneoftheagenciescansendheramarketingemail,invitingherbacktotransitandofferinga50percentdiscountonhernexttwotrips.Thistypeoftargetedmarketingwillhelpregionalagenciesbuildridership.
2.2 Customerinteractionswithtransitagencies,paymentindustryInopenpayments,customersinteractwithamerchantbypurchasinggoodsandservicesandwiththepaymentindustrybymanagingtheiraccount.Withatransit‐onlycard,thetransitagencyprovidespartoftheaccountmanagementfunction,whilethepaymentindustryalsoprovidespartifthetransitproductwasboughtwithacreditordebitcard.Openpaymentswillchangecustomerinteractions.
2.2.1 PurchaseoptionsInopenpayment,transitridersusebank‐issuedcredit,debitandprepaidcards,oragency‐issuedcards,directlyatgatesandbusfareboxes.Openpaymentsupportsthefollowingalternativesforpurchasingtravel:
• Individualtripscanbetakenwithoutpreregistrationorpurchasingaticketbeforeenteringthesystem.Theusertapshisorhercardonacontactlessreaderandischargedasingle‐tripfare.Thetransactionisastandardmerchanttransaction.
• Single‐ormulti‐triptravelcanbepurchasedonline,viaacallcenter,ticketvendingmachineorusingamobilephonebeforeusetoobtainadiscountintheper‐trippriceandpossiblyotherbenefitssuchasfreeorreducedfaretransfers.Theagencycanselectthefarepolicyrulesanddiscounts.
• Passescanbepurchasedonline,viaacallcenter,ticketvendingmachine,orusingamobilephone.
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Thetransitagenciesare“justamerchant”withopenpayments.Riderspurchasetransitinthesamewaytheypurchaseothergoodsandservices.
2.2.2 PurchasebyriderswithoutcreditordebitcardsAgencieswillalsoneedtoissueanMTACardorPATHCardorNJTCard,forexample,toun‐bankedorunder‐bankedusers.Theagency‐issuedcardmeetsbankcardstandardsandisreloadablewithcashatretailreloadlocationsandpossiblybankATMmachines.Anagency‐issuedcardcanbeusedonanyotheragency’sservicesintheNewYorkarea.Metroareaagenciescouldissueasingle“Tri‐stateTransitCard”;itwouldhavehighvolumeandvisibility,andwouldprobablyhavelowercoststhanindividualagencycards.Theretaildistributionandreloadnetworkwillusemerchants’existingpointofsalesterminalsforreload;cardscanbeonJ‐hooksalongwithprepaidcards,phonecards,andothers.
CreditanddebitbankcardpenetrationintheNewYorkregionisabout85percent.Therefore,atleast15percentofNewYorktransitriderswouldrequireanalternativeagency‐orpaymentindustry‐issuedmediuminthelongrun.Asmanyas50percentmayusetheagency‐issuedcardinitially.
Basedonfocusgroupsurveysinothercities,ridersusingtheagency‐issuedcardareexpectedtowantafamiliarfaremediumthatoperatesascloselyaspossibletocurrentmagneticstripeorpapermedia.Theyarelikelytowantaclear,understandablecustomerexperiencethatrequireslittlechangefromtoday’sexperience.(Riderswithcontactlesscreditanddebitcardsarelikelytousenewfeatures,suchasmobileaccountmanagement;manywillbe“earlyadopters”.)
2.2.3 AccountmanagementRiderspayfortransitontheirmonthlycreditcardbill,viadebittransactionsthattheytrackinthesamewayasotherspending,orviacashreloadsontheiragency‐issuedorgeneralpurposeprepaidcard.Ifanaccountproblemoccurs,riderswillhavetounderstandwhethertocontactthetransitagencyorthebankthatissuedthecard.Evidencefrompilotsandfocusgroupssuggeststhatridersgenerallyapplythesameprinciplesasinothertransactions:iftheproblemiswiththegoodsorservices,customerscontactthemerchant;iftheproblemiswiththebillingorthecard,theycontactthebank.Problemsarehandledthroughmainstreamdisputeresolution,refundandothercustomerserviceprocesses.
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3. Interoperablepaymentmedia(cardsandphones)
3.1 PaymentmeansManycreditanddebitcardcustomersintheNewYorkregionalreadyhavecontactlesscreditordebitcards.Bankshaveissuedover10millionsuchcardsintheregionandarelikelytoissuemoreiftransitagenciesmovetoopenpayments.Transitpaymentwouldbeadailyuseofacard,whichwouldcreatea“topofwallet”effect,meaningthatridersaremorelikelytousethatcardforotherpurchases.Issuingcontactlesscardswouldalsohelpbanksretainorincreasetheirmarketshare.
3.2 Agency‐issuedcards:openversusclosedloopInearlystagesofopenpayment,asubstantialnumberofriderswilluseagency‐issuedcards.Agencieshavetwoprimaryissuanceoptionsandmayalsoacceptgovernment/employeeIDs:
1. ClosedLoopPrepaidCards:Closedloopcardscanonlybeusedatasinglemerchantorchainofretailers.Closedloopcards(oftencalledgiftcards)havetraditionallytargetedlargervaluetransactionssuchasdepartmentstorepurchases,althoughmerchantswithlowvaluetransactions,suchasStarbucks,nowalsoissuethem.
2. OpenLoopPrepaidCards:Openloopcardsarealsoknownasnetworkbrandedprepaidcardsorgeneralpurposeprepaidcardsandcarrythelabelofacardnetwork,suchasVisaorMasterCard.TheyareacceptedatretailersthatacceptcreditpaymentsandcangenerallybeusedtowithdrawcashfromATMs.Openloopcardsareusedbyconsumergroupsthatcannotorwillnotuseatraditionalprepaidcard,suchastheunbankedorteenagers.SomeexamplesofgeneralpurposereloadablecardsincludeGreenDotMasterCardandVisaReadyLink.
3. GovernmentandEmployeeCards:Prepaidcardsforgovernmentbenefitsprogramsareissuedinsteadofmailingchecks.Forexample,theDirectExpressCardisusedforsocialsecuritypaymentsforrecipientswithoutbankaccounts,andmanystatesissuesimilarcards.TheFederalgovernmentisalsoissuingPersonalIdentityVerification(PIV)cardsthatarebankcardstandards‐basedandmaybeusedfortransitbenefits.PIVcardsareissuedtoFederalemployeesandcontractors,andthestandardisavailabletostateandlocalgovernments.BankcardstandarduniversityandemployeeIDsmaybeacceptedbytransitagenciesaswell.PIVandotherIDcardscouldbeacceptedforprepaidtransitproducts.TheemployerwouldtransmitthelistofIDsandfundstotheagencyatthestartofeachmonth.
Aclosedloopcardcouldbeissuedonbehalfoftheagencybyapaymentindustrypartner;theagencywouldbearthecostsofcardissuance,management,reload,transactions,accountmanagement,andriskmanagement.This“whitelabel”cardwouldusethesamereaders,networkandprocessingasotherpaymentcards.Thetransitagencywouldbenefitfromlower
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costsandadegreeofcompetitioninprocuringtheseservices.Closedloopcardsdonotrequireregistrationtoidentifytheuser.
Anopenloopcardcouldalsobeissuedonbehalfoftheagencybyapaymentindustrypartner;theagencyandpartnerwouldtypicallysharethecostsbutwouldalsosharetherevenuesfromoff‐transitsystemuseofthecardatgeneralmerchants.Thetransitagencywouldbetheissuer,whichisthepartythattypicallyretainsthelargefractionofrevenue:perhaps2percentinterchangeontransactions,plusissuanceandotherfees.However,thepartnerwouldtakeasubstantialfraction,perhapshalf,oftheissuerrevenueinexchangeforitsmanagementservices,includingriskmanagement.Iftheagencyissuedcardwaswidelyused,theagencymightearnsignificantrevenuestooffsetagency‐issuedcardcosts.Openloopprepaidcardscarrysomereputationalriskforanagencybecausetheyareassociatedwithhighfees.Substantialcareisrequiredinnegotiatinganopenloopcard.LosAngelesMTAhasissuedanopenloopcard,asanexample.
Reloadableopenloopcardsrequireregistration,whichlimitstheirusabilityfortransitsystemsthatmustserveadiversepopulation,notallofwhomcanmeetidentityrequirements.HoweverVisahasproposedanopenloopcardthatisreloadableuptoalimitof$1000,doesnotrequireregistration,mustbeco‐brandedwithatransitagency,anddoesnotallowcashwithdrawals.Thiscardispotentiallyviablefortransituse.Visachargesaverylowreloadfee;merchantssettheirreloadfeeforcustomers.Themerchantfeecurrentlyrangesfrom$2to$5,butitislikelythatmerchantsreloadingtransitcardswillacceptlowerfees.
Closedandopenloopcardsrequireareloadnetworkwherecustomersmayusecashtoloadvalueintotheiropenpaymentaccounts.Reloadatmerchantssuchaspharmacies,gasstationsandconveniencestoresviaexistingpoint‐of‐salesterminalsisthemostlikelymeansbecauseitprovidesafairlylargenetworkofreloadpoints,thoughatacost.Envelope‐lessATMmachinesatbankbranchesorrailstationsareanotherpotentialoption.Userscould“deposit”cash,whichisscannedinrealtimeandplacedintotheircardaccountforimmediateuse.
AcceptanceofgovernmentandemployerIDcards,especiallyforpasspurchasesandtransitbenefits,offersthepotentialtosharplyreducepaymentindustryfeesbyobtainingelectronicfundstransfersdirectlyfromgovernmentsandemployers.Italsooffersthepotentialtoreduceagency‐issuedcardcostsandassociatedeligibilitydeterminationprocesses.
3.2 NFCphonesAnotherpossiblemediumisNearFieldCommunication(NFC)payment‐enabledphones.ThemobilephonepenetrationrateintheNewYorkregionisover100percent,andsmartphonepenetrationisrisingrapidly(aboutone‐thirdofcellphonesaresmartphonesintheU.S.).ThisstatisticsuggeststhatthepenetrationforNFCphones,whentheybecomebroadlyavailable—likelyin2012—maydevelopquickly,sincephoneswithdatacapabilitiesarelikelytohaveNFCalso.(TheaveragelifeofacellphoneintheU.S.isabout18months.)Mobilenetworkoperators,handsetmanufacturers,SIMmanufacturers,trustedsystemmanagers,variouspaymentsindustryplayers,andothersaredebatingtheshareofrevenuesreceivedfromNFC
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payment.Thisdebateistheprincipalfactorslowingdownintroductionofphone‐basedpayment.
OneNFCoptionmaybedeployableandusablequicklyinNewYorkonceNFChandsetsareavailable:anNFChandsetcansenditshardwareidentifiersecurelytothegateorfareboxreader.Nopaymentapplicationisinvolved;thephoneisusedstrictlyasanidentifier.Atransitagencywouldhaveadatabaseofregisteredphoneusersandwouldbeabletoassociatethetriptakenwiththecorrectregistereduser.Theuserwouldprovideapaymentmeans,suchasbankaccount,credit,debit,prepaid,ACHoragencycard,whenregistering..Becausetransitagencieshavealarge,stableuserbase,aregistrationoptionforNFCphoneusemaybeviable.
Phonepaymentisexpectedtobeamajorconsumerconvenienceformanypurchases,anditofferssomeuniquepotentialbenefitsforpaymentofdistance‐basedfaresonregionalrail,describedbelow.
ThefiguresbelowshowanNFCphoneanditsuseatacontactlesscardreader.
NFCphone
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NFCuseatacontactlessreader
4. Regionalpaymentprocessing
4.1 Looselycoupledfarepolicies(rewards,loyalty,post‐processeddiscounts)
Earlyintheuseofopenpayments,agenciesarelikelytohaveseparatefarepoliciesandtariffs.Evenwithoutintegrationoffarepoliciesacrossagencies,someformsofcoordinationcanbeadoptedquickly:
Rewardsorloyaltyprograms.Agenciescancooperateona“NewYorkregion”rewardsprogramthatawardspointsfortravelonanyoftheparticipatingagencies.Additionalpointscanbegiventocustomersusingmultipleagenciesasapartialoffsettothelackofintegratedfares.Cardissuersmayfundafractionoftheserewardsbenefits.
Post‐processeddiscounts.Discountscanbeappliedbytheacquirertocreatealimitedleveloffareintegrationforinter‐agencytrips.Asanexample,therewardsprogramcouldapplyamaximumdailycaponsingleridefaresacrossagencies.Thecapcouldinitiallybeappliedonlytoflatfareservicessuchassubway,PATH,andlocalbusroutes.Ifthispilotweresuccessful,theapproachcouldbeextendedtoregionalrailroutes,wherethecappingruleswouldbemorecomplexduetodistanceandtime‐basedfares.Itcouldalsobeextendedtoweeklyorothertimeperiods.Therewardsprogrammanagerwouldperformthecalculationsusingtripdatafromalltheagenciesforregisteredusers.Theagencieswouldneedtoagreeonrevenue
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apportionmentintheseoptions,butthiscooperationmaybemoreeasilyachievedthanafullyintegratedfarepolicy.
4.2 IntegratedfarepoliciesBecausetheystorenodataonthecardandcontainnofareslogiconthereader,openpaymentsystemsprovideessentiallylimitlessflexibilityinfarepolicy.Possiblefarepoliciesincludepre‐purchasedfaresatadiscountacrossagencies(includingautomatictop‐up),periodpassesofanylength,freeorreducedfaretransfersbetweenmodesoragencies,reducedfaretickets,time‐of‐daypricing,associatedservicessuchasparking,andbestvaluecalculations(thatguaranteethatthesumofsingleticketswillnotexceedaone‐dayorone‐weekcap,typicallythepassprice).Thesepoliciescanbeimplementedacrossagencies.Thechangesrequiredare:
• Farepoliciesandassociatedfarecalculationsmustbeestablishedandprogrammedintheservers.Thetechnicalaspectofthisisstraightforward.
• Revenueallocationmechanismstodeterminetheamountofrevenueeachagencyreceivesfromjointfaresmustbeestablished.Reachingthisagreementisoftenadifficultstep.
• Thesesharesarethenprogrammedintothesettlementprocess.Theprogrammingisstraightforward.
• Marketing,consumerandstaffinformationmustbecreatedtoexplainthenewfarepolicies.
Openpaymentcansupportfarepoliciesthatotheroptionscannot,especiallymarketinginitiativesthatarecommonlyemployedinotherindustries,including:
• Route‐andtime‐specificfares,aspromotions
• Introductoryfaresforcustomeracquisition.Havingpromotionssuchas‘firstmonth50percentoff’isfeasible,sincetheycanbetiedtotheuser’sbankcard(andcannotbetransferredtoanotheruser)andthereisnocardissuancecost.
• Pricecaps,regionalfaresandotherfarepoliciesthatinvolvemultiplemodesandagenciesandmultipletrips,forwhichthefarelogiccouldexceedthecapacityofcardsandreadersintraditionaltransitfaresystems.
• Validatedtransitfares.Theseareanalogoustovalidatedparking,whereamerchantpaysthetransitfareifthesamebankcardispresentedthatwasusedtopurchasemerchandise.Thesecancover,completelyorpartially,thecostofaone‐wayfareorcanbeappliedasacreditifapassengerhasapass.
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• Frequenttravelerorrewardplansthatprovidediscountsbasedonthefrequencyortotalvalueofuse.Theseplanscanbeespeciallyattractiveforlong‐termtransitriderswhotravellessthan5daysperweekandwhoarenotwellservedbyexistingpassproducts.
• Jointpromotionswithevents,wherethetransitrideisfreeorreducedpriceifthesamebankcardispresentedthatwasusedtopurchasetheticket.
• Commuterrailpricingonaper‐trainbasis,similartoairlineyieldmanagement.Thisconceptisradicalbutfeasiblewiththeflexibilityofserver‐basedtransactions.Itisdiscussedinmoredetailbelow.
Alloftheseoptionscanbeimplementedonasingle‐ormulti‐agencybasis.Coordinatedfarepoliciesandmarketingacrosstheregionmayincreasetheeffectivenessofthesemeasures.
5. StationandvehicleoperationsinregionalpaymentThissectionbrieflyhighlightsnoveloptionsforusingopenpaymentsforsubway,busandrailservicesintheregion.
5.1 RailstationservicesandticketmachinesBecausebankswill,inthelongterm,issuethemajorityofthecardsinanopenpaymentsystem,thenumberofticketvendingmachinesinstationscanbereduced.Envelope‐lessATMmachinesthatacceptcashandreloadcardaccountsforticketvendingmachinesmaybeusedtoservetheremainingdemandbyriderswithoutcreditordebitcards.Thisapproachmayturnacostitemintoarevenueitemorreducethecostofticketvendingatrailstations.Fewerticketmachinesreducesstationqueuing.
5.2 BusservicesBusesmusthavebroadbandwirelessconnectionstouseopenpaymentseffectivelyinNorthAmerica.Typicalcommercialwirelessservicecostsofabout$40permonthperbusappearaffordableinthecontextoffarecollection.Thewirelessmodemandfarereadercanalsobeusedtoprovidebuslocationinformation,sinceGPSunitsarecommonlyincludedincommercialwirelessmodems.Thislocationinformationalsoprovidesdetaileddataonpassengertriporiginsonbusroutes.
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5.3 RegionalrailservicesTwobroadoptionsareavailableforacceptingcontactlesscardsorNFCphonesinanopenpaymentsystemonregionalorcommuterrailservices:
• Gatesandvalidatorsatstations.Inthemostcommonconfiguration,gatesareplacedatmajorterminalsandvalidatorsatsuburbanstations.Sincethelargemajorityofridersuseoneofthemajorterminals,thegatesprovideahighdegreeofrevenuecontrol.Riderswhodonotvalidateonthesuburbanplatformarechargedamaximumorpenaltyfare.Intermediateridersmustbeinspectedonboard,eithertargeting100percentinspectionorusingaproof‐of‐paymentsystem.
• Onboardself‐validationbyriders.ThisnewpossibilityisbasedonNFCphones.o TherailroadinstallspassiveRFIDtagsoneachseatineverycar.Thetagsare
inexpensive(50cents);theyrequirenopowerorcommunications.Theycanbeplacedinaholderattachedtoaseatbackthatalsoshowstheseatnumber.
o Arider,uponboarding,tapshisorherNFCphoneontheseattag.ThephonehasanapplicationtosendtheNFCphoneIDandtheRFIDtagnumbertotheserver.Thetagnumberisassociatedwiththeseatnumberandcarnumberintheserverdatabase.Thephoneisassociatedwiththepaymentcardandpassproductbought.
o SingletripriderswouldentertheiroriginanddestinationzonesinanapplicationontheirNFCsmartphonebeforetapping.IftheyhaveaGPSphone,itcandisplaytheircurrentzoneandzonesforeverystation.IfariderdoesnothaveanNFCphone,heorshecancontinuetouseaflashpassorothercurrentmedia,orheorshecanShortMessageService(SMS)textthecarandseatnumbertoarailroad800numbertoself‐validate.
o Conductorswillhaveanapplicationonamobiledevicethatdisplaysvalidatedseatsoneachcar.Heorsheonlychecksseatsthathavenotself‐validated.Thisapproachreducesthecheckingload,whichotherwisemightincreasesincecheckingelectronicmediatakeslongerthanflashpasses,forexample.
o Thisoptionavoidscapitalinvestmentinvalidatorsandgates.o Sincevalidationispertrain,train‐specificfarescanbecharged.Servicessuchas
reservedseatscanbeprovided,possiblyforapremiumfare.Auserreservesaseatonlineforasingletriporforthedurationofapass,orchangesthereservationtoadifferenttrainifneeded.
5.4 IntercityrailandotherservicesAmtrakandintercitybusoperatorscouldacceptthesameticketmediaasurbanoperators,eitherbyhavingstaffuseahandhelddevicetocheckorvalidateelectronicticketsboughtonacontactlesscard,orbytheriderusinghisorhermobilephonetodisplaytheticket,possiblywithabarcodeorviaNFC(anexistingelectronicreceiptstandardinNFCcouldpotentiallybeused).Theticketpurchaseandcollectionmethodsusedbyintercityoperatorsaredifferent
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fromthoseusedforpublictransit,butthesamemediacanbeused,allowingforfutureinteroperabilityandjointfares.
6. Costs
6.1 Contactlesscredit,debitandprepaidcardsCardtransactionsissuedbythepaymentsindustryrequireauthorizationbyapaymentsindustryserver.Thepaymentsindustryprovidesthemajorityofthebackofficefunctions,asitdoestoallmerchants.Thesecostsarebornebytheinterchangeandotherfeescollectedbytheindustry.
Transitagenciescurrentlyhaveextensiveinteractionswiththepaymentsindustry,sincebankcardsareacceptedforpurchaseoftransitandcommuterrailtickets.Auditandotherfinancialcontrolprocessesareinplacetomanagethesefinancialarrangements.IntheLexingtonLinefarepilot,NYCTfoundthatthebackofficeneededtosupportpurchasesofMetroCardswithcreditanddebitpaymentsatvendingmachineswasvirtuallythesameneededforanopenpaymentsolution.
Creditanddebitcardsareusedalreadyforhalformoreoftransitpurchasesinmanyagencies,andthepercentageisincreasingovertime.Transitagenciesarealreadypayingsignificantfeestothepaymentsindustry.Byadoptingopenpaymentsandeliminatingasecondlevelofmediaissuance,enhancedtransactionprocessing,improvedcustomerservice,andmeaningfulcostsavingsappearpossible.
Amajorareaofpotentialcostsavingsisintheacceptanceofgovernment,employeranduniversityIDcardsfortransituse.WashingtonandBostonreceiveover50percentofpassrevenuethroughfundstransfersfromemployersatverylowcost.Region‐wideacceptanceofIDcardswouldmakethisoptionevenmoreattractivebecauseitwouldlowerprocessingfeessignificantlyandavoidcardissuanceandmanagementcosts.
6.2 AgencyissuedclosedandopenloopcontactlesscardsControllingthecostofagency‐issuedcardswillrequirecarefulattentiontoseveralitems:
• Cardchurn.Afeeordepositislikelytoberequiredsothatridersretainthecardforaslongaperiodaspossible,preferablyoneortwoyears.NFCphones,whenavailable,canemulatebankcards,includingtheagency‐issuedcard,tolowercardissuancecosts.
• Reloadfees.Settingthereloadamounttothehighestvaluethatisreasonableforthelowerincomeusersmostlikelytousetheagencycardwilllowerreloadfees.Agencies
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willalmostcertainlyabsorbreloadfeesforclosedloopcardsandfortransituseofopenloopcards.Thesefeesrangefrom$2‐$5atamerchantcurrently;theywillalmostcertainlybelowerfortransitusebutmaywellbeinthe$1‐$2range.A$10orhigherminimumreloadamountmaybeneededtocontrolthesecosts.Incentivestoriderstousetheirownbankcards,government‐issuedbenefitscards,ortouserailstationmachinescanreducetheuseofthereloadnetwork.Bonusesordiscountscanbelimitedwithreloads,totheextentconsistentwithequity.
• Accountmanagement.Automatingcustomerservicesothataccountbalanceinquiriesandotherroutinequestionsareansweredonline,orviaIVRoremailortextmessages,isimportanttolimitcosts.
• Off‐systemrevenues.Openloopcardissuancemaygainrevenuesfromoff‐transitsystemusetooffsetcardcosts.
6.3 NFCphonesMerchantsstatethattheywillnotpayapremiumforNFCpayments,buttheNFCindustrymaystillbehopingthatconsumerswillforcemerchantstoacceptNFCpaymentsatahigherpaymentfeebecauseconsumerswillfindNFCsoconvenient(andmerchantswillgetsomeliftinspending).TransithasanopportunitytouseNFCwithoutadditionalfeesduetoitslargebaseofrepeatcustomers,byusingthephonejustasanidentifierforregisteredcustomers.TransitwillbeinthesamesituationasothermerchantswithrespecttobroaderacceptanceofNFCinthefuture,andtheremaybesomecostrisk.
7. EquityissuesEquityissuesfocusontheimpactsofusingprepaidoragency‐issuedcardsontheirusers,whoarelikelytobeunbankedorunder‐bankedindividuals:• Unbanked:Individualswhodonothaveabasiccheckingaccount,savingsaccount,orother
typeoftransactionalaccountatabankorcreditunion.• Underbanked:Individualswhohaveabasiccheckingorsavingsaccountbutdonothave
othercommonfinancialinstrumentssuchascreditordebitcards.
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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‐issuedorprepaidcardreloadablewithcashatasufficientnumberofreloadanddistributionpointswithnotransactionorotherfees.Thesamefareandpassproductsmustbeavailableonthesecardsasoncreditordebitcards,perhapswithexceptionssuchasrewardsprogramsoronlinepromotions.Asnotedabove,theuseofgovernmentissuedbenefitscontactlesscardswouldbeaneffectivepolicy.
8. SecurityandprivacyAgenciesadoptingopenpaymentaresubjecttoPaymentCardIndustry(PCI)DataSecurityStandards(DSS).Thisevolvingstandardisusedbytheentirepaymentsindustryandsupportedbyabroadgroupofvendorsandserviceproviders.Measurestoensurephysical,network,data,processandapplicationsecurityarerequired.Thesesecuritymeasuresappearappropriatefortransitagenciesandareessentiallyrequiredtodayforagenciesthatacceptbankcardsatticketmachinesoronline.DirectacceptanceofcardsatgatesandfareboxesrequiresthosepiecesofequipmenttobePCIDSScompliant.Complianceiscommonpracticesincethisequipmentissimilartomerchantpoint‐of‐salesdevicesunattendedmerchantterminals.
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Agencieshavealreadyadoptedprivacystandards.Whilethesestandardsshouldbereviewed,themovetoopenpaymentsdoesnotappeartocreatesubstantialnewprivacyissues.Moreuserswillbeusingregisteredmediatopayfaresinopenpaymentsandmoretripdetailwillbeavailable,buttheseprivacyissuesexistnow.
9. Benefitstocustomers,agencies,regionThetablebelowbrieflysummarizesthepotentialbenefitsofopenpaymentstocustomers,agenciesandtheregion.Thesebenefitsareincreasedthroughthe“networkeffect”whenopenpaymentisadoptedbymultipletransitagenciesandintercityoperatorsinaregion.Thesamebenefitsthatcustomersreceivewithinasingleagencywouldthenbeavailableformulti‐agencytrips.Likewise,agencybenefitsalsoincreasewithadoptionbymultipleagencies:Asingleagency‐issuedcardcanbeacceptedatallagencies,reloadnetworkscanbeshared,etc.
Benefitsofopenpayment
TransitRiders TransitAgencies Region
Bustraveltimesavings Reducedcard&ticketissuance Networkeffectmultiplier
Easyforvisitors Reducedretailcommissions Loweragencycardissuance
Interoperablebetweencities
Reducedcustomersupportcosts
Sharedreloadnetwork
Onecard&billingstatement
Morestandardizedequipment Sharedintercitypayment
Reducedqueuinginstations Revenueupliftopportunities Agencytransferpointsbetter
Additionalcardsecurity Co‐branding&rewardsprogram Broadermarketingoptions
Positivepublicrelations
Thekeyissuestobeaddressedinregionalopenpaymentsarelistedbelow.Theyincludedevelopingfareprocessingsoftwaretotranslatetapsintomerchanttransactions,integrationandtestofcomponentsfrommultiplesuppliersinsteadofasingleturnkeyvendor,choosingthemeanstocollectdistancebasedfares(primarilyonrailroadvalidators/gatesoronboard),servingunbankedriders,andnegotiatingwiththepaymentsindustry.Transitrequiresfastertransactionspeedsthanothermerchants,anditrequiresinspection/revenueprotectiondevices,primarilyonregionalrailvehicles.Managingpaymentindustryfeesmayinvolvenegotiatingaspecialsetoffeesandrulesforpublictransportationtomeetspecificrequirements.
Transit‐specificdifferencesinopenpaymentsystems
Transactionspeed Distanced‐basedandzonalfares
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Bus‐basedtransactions Revenueprotection
Fareprocessing Riderswithoutcontactlessbankcards
Systemsintegration Managingpaymentindustryfees
10. KeyissuesinregionaladoptionThekeyissuesinassessingwhethertoadoptaregionalsystemofopenpaymentsand,ifadopted,thekeydecisionstobemadeinclude:
1. Policy:Agreementtoadoptopenpaymentsamongallormostagenciesintheregionisthecentraldecision.Thismaybedonefortransit,highwaytolls,orboth.
2. Policy:Ifopenpaymentsareadopted,theycanbeimplementedatdifferenttimesandwithdifferentfarepoliciesbyeachagency,aslongasthemediaacceptedarethesame.Regionalcoordinationintheintroductionofopenpaymentswillimproveutilitytousers,andharmonizationoffarepolices,evenpartially,maybeaneffectiveelementinimprovingthecustomerexperienceandperhapsincreasingusage.
3. Policy:Havingasharedagency‐issuedcardforunbankedusersmayprovidebenefitstoridersandagencies.Adecisiononopenversusclosedloopcardsmustbemadebyeachagencyorperhapsacrossagencies.
4. Policy:Sharingpaymentservicesacrossagenciesispossible.ThesharedEZPasscustomerservicecenterisamodelthatcanbeconsidered.Sharedmarketing,asharedWebsiteandcallcenter,andsharedpaymentprocessingelementsarepartofthecurrentMasterCardphase2farepilot.Sharedretailreloadpointsareanotherpossibilityinthefuture.Agenciescouldoptoutofsharedarrangementswhencontractswererenewed.
5. Technical/policy:Developmentofregional/commuterrailfarecollectionsystemsbasedonelectronicmedia.Theissuesarethesamewhetheraproprietarysmartcardsystemoropenpaymentsystemisused.Theexpectedtimeforon‐trainstafftoinspectelectronicmediaisaboutdoublethatforvisualinspection.Anincreaseinon‐trainstaffingisalmostcertainlynotacceptable,sorailoperatorsmustmoveeithertoproof‐of‐paymentsystemswithrandominspections,ortoself‐servicevalidationbypassengers,possiblyusingNFCphones.Whileopenpaymentscanbeimplementedacrossbusandgatedrailenvironmentsinitially,atrulyregionalsystemwillincludecommuter/regionalrailsystemsaswell.
6. Technical:Verificationthatwirelessconnectivityissufficientlygoodforbustransactions.Thisisnotexpectedtobeasignificantissue,butfeasibilitymustbeassured.
7. Cost:Theinterchangeandotherfeeschargedbybanksareacostelementthatmustbenegotiatedatthestartofanopenpaymentsstrategy;itmaybepossibletonegotiate
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thesedown.Substantialpaymentfeesarealreadybeingpaidbyagencies,butthesewillincreaseinopenpayments;thisshouldbeoffsetbysavingsinnolongeroperatingatransit‐specificticketingsystem.ItmayalsobepossibletoacceptemployerandotherIDcardsfortransitpayment,furtherloweringpaymentfees.AcoordinatedapproachtoacceptingIDcardswouldhavegreaterbenefitsthanindividualagencyefforts.
11. SummaryLondonandNewYorkareimplementingopenpaymentsystems,andSaltLakeCityandKaohsiung,Taiwanhavealreadyimplementedthem.Philadelphia,ChicagoandWashingtonDCarestronglyconsideringtheiruse.Whiletheuseofopenpaymentsintransitisnotanestablishedpractice,mostopenpaymentelementsarethesameintransitastheyareforretailmerchants.Thelistofchallengespresentedaboveisalistofthedifferencesbetweentransitandastandardmerchant.Asindividualsystemsworkthroughopenpaymentimplementationissues,theywill,withlittleadditionaleffort,bepositionedtoparticipateinabroaderregionalfaresystem.Thecards,readers,transactions,communications,andpaymentindustrycomponentswillbecommonacrossopenpaymentsystems.Userswillseethesamecustomerexperienceatallsystems,thoughwithexistingvariationsinfarepolicyandcollectionmeans(gates,fareboxes,validators).
Theuseofopenpaymentstandardsallowsfareinteroperabilityacrossasetoftransitsystemswithoutrequiringasingledesignorasinglevendor.Eachsystemcanproceedonitsownscheduleandwithitsownfarepoliciesandprocesses.Interoperabilityisprovidedprimarilybyacceptanceofacommoncardorphone,withwhichcustomerspayformanyothergoodsandservicesinafamiliarprocess.ThegreaterNewYorkregion,withasetoflargeandinterconnectedtransitsystems,mayobtainsubstantialfuturebenefitsfromadoptingopenpaymentsacrosstheregion.