A VIX GUIDE TO ACCOUNT-BASED TICKETING AND OPEN PAYMENTS

2A VIX GUIDE TO ACCOUNT-BASED TICKETING AND OPEN PAYMENTS

The global payments landscape is radically and swiftly changing. Advancements in technology and mobile communications are simplifying payments to a tap of a bankcard or smart device at the cashier. The customer payment experience is now quicker and  easier, and creates opportunities for new engagement models with consumers. As adoption of new banking and mobile technology grows at the consumer level, more and more businesses in every sector are beginning to see the benefits of opening their payments channels.

Retail, FMCG and fast food businesses that have naturally low value, high-volume payments have been amongst the quickest to roll out these new systems. However, these speed and cost efficiencies could have the biggest positive impact in the one sector where payments systems have historically been a disproportionate drain on resources and a source of frustration for customers – passenger transport.

Historically, transport authorities have not been early adopters of new technology and have tended to be slow to evolve their systems. However, in recent years, forward-thinking transport authorities and operators from Salt Lake City to London have piloted and launched new transit payment and ticketing systems that allow passengers to use contactless credit or debit cards, student cards or other ID cards, or even their mobile phone to pay for their journeys.

These new automated fare collection (AFC) solutions are commonly called “open-loop” or account-based systems. They can provide a greater degree of flexibility than previous transit “closed-loop” or cash based payments and ticketing schemes.

This paper examines the benefits of introducing open payments systems for passengers and operators. It also reviews some of the challenges and provides examples of where various schemes are already working well around the world.

3A VIX GUIDE TO ACCOUNT-BASED TICKETING AND OPEN PAYMENTS

WHAT’S THE DIFFERENCE BETWEEN AN OPEN AND CLOSED-LOOP PAYMENT SYSTEM?

CLOSED-LOOP PAYMENTS SYSTEMThese more traditional AFC schemes often use a proprietary payments system that allows for commuters to pay a fare and validates their access to travel using smart cards or tokens that are only valid within that scheme.

A second feature of these schemes is that data is predominately stored on the cards. This increases the complexity of functions required on both validators and fare media.

These types of solutions have become the de-facto standard for transit payments systems because they have a number of advantages over older paper-based and magnetic ticketing systems. Smart cards are more flexible,

secure, easy to use and have reduced operating costs compared with paper tickets.

But closed-loop systems lack flexibility. Commuters are forced to use a smart card that is specific and only valid on that transit system. For the commuter this means that their funds are locked up and dormant until needed to pay for a ticket, as well as requiring them to top-up and remember their smartcard for travel.

For the operator, these schemes generally require a significant up-front infrastructure investment and can have relatively expensive ongoing operational costs owing to the need to maintain proprietary reload infrastructures, as well as issuing and managing dedicated cards or tokens for the schemes.

OPEN-LOOP TICKETING SYSTEM With the advent of more flexible, standards-based payments schemes and solutions such as contactless EMV and mobile payments in retail, there is now a greater opportunity to use these readily available payments technologies in transit schemes.

Open-loop ticketing systems allow the user to pay for their travel using their existing credit, debit or pre-paid cards, mobile devices or any other enabled payment media. There is no need for commuters to carry a transit specific card.

A number of different operation models have been investigated as organisations look at how open-loop payments schemes could be integrated into transit systems. The model becoming most prevalent is one where information around the journeys and fares is stored in a back office account, and fare calculations occur in a back office system. This back office account-based fare calculation model is becoming common in open payments ticketing implementations. This allows for fares to be calculated in the back office after the trip has taken place. It also enables fare capping or other incentive schemes to be applied, creating more flexibility in the transit payments scheme.

One of the earliest adopters of account-based ticketing in passenger

transport was Utah Transit Authority in Salt Lake City Utah, which

worked with Vix Technology to deploy the Vix eO UTA system in 2009.

Processing more than 42 million passenger rides per year, the account-

based system can accept bank-issued contactless credit and debit

cards, institutional contactless cards (such as university student cards

and ski passes), as well as NFC mobile wallets such as ApplePay.

CASESTUDY:eO UTA SYSTEM, SALT LAKE CITY

eO UTA SYSTEM

PHOTO:GETTING AROUND IS EASIER USING CONTACTLESS EMV

4A VIX GUIDE TO ACCOUNT-BASED TICKETING AND OPEN PAYMENTS

WHAT IS AN ACCOUNT-BASED PAYMENTS SYSTEM?

GLOBAL PAYMENTS TRENDS

Account-based payments systems are becoming a popular alternative to card centric closed-loop systems owing to the acceptance of open payments standards within the transit model.

Along with this, the post-billing model (where the fare processing is moved off devices onto host systems) is now being extended to support a variety of other payments products, not just EMV cards, as we have previously seen. Other appropriately secured tokens can also be linked to a back office or cloud-based account.

With this model, a variety of different payments models can be introduced including: 1. Direct billing to a cardholder’s bank

account via a pre-paid or regular billing model (similar to mobile phone billing);

2. Linked accounts where families may have a single account for all their family members paid for through a single payments interface;

3. Extending the linked account model to institutions, such as a company

that may provide travel cards to employees as part of their salary package, and the institution is billed monthly by the transit operator. One of the benefits of an account-based system for transit operators or authorities is the ability to create a variety of attractive products and partnership opportunities. Account-based ticketing and payments schemes can link a variety of appropriately secured “travel rights” or tokens to a single account. This can enable the introduction of innovative new models of linked transport modes such as park-n-ride, where your car licence plate might be linked to your account and recognised through an ANPR (Automatic Number Plate Recognition) system, thus allowing for integrated parking and travel discounts.

The shift to EMV contactless card and chip and PIN payments technology globally is continuing to accelerate, overcoming two major hurdles to open payments in transit:1. Creating a clear global standard

for developers to design ensures worldwide interoperability.

2. Building trust in contactless payments – which helps with acceptance of their use in transit.

The USA is the last of the G20 nations to commit to EMV, joining more than 80 other countries including Australia, Brazil, Canada and much of Europe and Asia. It’s estimated more than 45 percent of the world’s payment cards now use the EMV standard (around 1.62 billion cards) and that 76 percent of payment terminals are also EMV enabled (around 24 million terminals).

The world’s biggest smartphone companies have invested heavily in their own NFC/EMV payment platforms, with the launch of Apple Pay, Google Pay, and Samsung Pay in the US in the last 12 months.

The push from these tech giants could mean the long awaited mobile payments revolution will occur sooner rather than later.

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Twitter:#NFC #mobile & #EMV #card #payments the latest in account-based #transit #ticketing @Vix_Technology Guide: http://www.vixtechnology.com

PHOTO:APPLE PAY, GOOGLE PAY AND SAMSUNG PAY HAVE ALL LAUNCHED NFC/EMV PAYMENT PLATFORMS IN THE LAST 12 MONTHS.

5A VIX GUIDE TO ACCOUNT-BASED TICKETING AND OPEN PAYMENTS

There are a number of specific customer and operator benefits in adopting open payments and account-based ticketing for passenger transport listed below. Over and above these specific benefits, there is the growing consumer demand to be able to pay for travel as they are increasingly paying for other daily expenses – using their contactless payment card or mobile device. Being able to adapt and meet growing passenger expectations is a singularly powerful force for change for most transit operators. However, for some, there is a bigger, proactive desire to be able to use this change to provide value-added services by integrating with other service or retail companies.

THE KEY BENEFITS OF OPEN PAYMENTS FOR CUSTOMERS

1. OPEN PAYMENTS Open payments schemes offer the convenience of using a single bankcard or mobile device as both a ticket and payment method. This means the customer doesn’t need to worry about carrying cash, having the right smart card or ticket, or that their account is topped up.

Passengers who are new to the network have no cards to purchase or complex ticketing machines to navigate - they can simply tap the card or device that’s already in their purse or pocket.

2. INTEROPERABILITY BETWEEN VARIOUS TRANSPORT NETWORKS AND RETAILERS The benefit of a global standard like EMV is that the more widely it is accepted, the more consumers can rely on their EMV cards and devices as their main payment method. The ability to use one card or device for multiple transportation services takes the hassle out of having to carry multiple cards, or understand various fare offers prior to starting your journey.

3. STREAMLINED BILLINGA well-designed scheme with account-based post-billing can support complex and equitable fare calculations, such as charging riders only for the trips they make, or capping the maximum fee charged on any single day, week or month. This means the customer doesn’t need to worry about buying the correct ticket and can rely on the system to charge them the lowest possible fare.

4. LESS QUEUEING With no ticket to buy or balance to top up with a cashier or reload machine, transit passengers can board a vehicle far more quickly and move much more efficiently through a station. Less queues and delays means happier passengers.

5. MORE WAYS TO PAY By extending the infrastructure and approach that the use of open payments has promoted around account-based services, it is possible to use these same frameworks to include other identifiers such as student cards, business ID cards or mobile tokens in the fare collection system. Little change is needed to open up the fare collection infrastructure in order to offer a wider choice of payments options.

WHY SHOULD TRANSIT OPERATORS EMBRACE OPEN PAYMENTS AND ACCOUNT-BASED TICKETING?

PHOTO:OPEN PAYMENTS MEAN LESS QUEUEING WHICH LETS PASSENGERS MOVE QUICKLY AND EFFICIENTLY THROUGH A STATION.

6A VIX GUIDE TO ACCOUNT-BASED TICKETING AND OPEN PAYMENTS

The future of account-based ticketing and payments could

see major cities providing a framework that allows multiple

organisations to link their own cards or apps into a single, seamless

scheme. For example, major venues and transit operators could

integrate to create a combined access, travel and in-venue

payment experience.

Vix Technology partnered with Australian Rugby League team,

Melbourne Storm, in 2014, to create an in-stadium payments

system linked to the Club’s fan loyalty programme. The

membership cards are not only enabled to work at AAMI Park, the

home ground stadium, but are also enabled for other major city

venues, institutions like Universities, and retailers to link up to the

same scheme and utilise the same access and payments system.

ACCOUNT-BASED TICKETING

THE KEY BENEFITS OF OPEN AND ACCOUNT-BASED PAYMENTS FOR TRANSIT OPERATORS

1. LOWER OPERATIONAL COSTS The costs of AFC can be significantly reduced by decreasing, or even eliminating the processes required for both cash handling and those associated with the process of ticketing and handling an operator’s own fare media. While there have been no detailed investigations, anecdotal feedback suggests that the reductions in fare collection costs, as a percentage of the total ticket processing and handling costs, could fall from around 15-20 percent, to less than 10 percent.

2. LOWER CAPITAL COSTS The move to open payments forces the need to simplify fare collection and ticket devices. This drives standardisation of devices, which in turn allows for hardware purchasing to feel more commodity based and opens up a greater ability to multi-source devices. Add to that the reduction in ticket vending machines and kiosks required, because fewer passengers will need to purchase tickets before riding, and you start to lower the cost and volume of the hardware required.

3. LESS CONGESTION AND IMPROVED PERFORMANCEThe advantages of contactless cards in improving throughput at stations and buses is well understood in terms of the ability to reduce the time taken to pass through gates or barriers – these same dwell time savings apply largely to open payments and account-based payments tokens.

This means faster boarding and better station flows, reducing passenger and service congestion – particularly where the switch is

from cash payments. In addition, fewer queues at ticket vending machines and kiosks also improves flows in busy stations and terminals, leading to improved punctuality and efficiency. This is the case, especially in bus networks, by reducing the time that a driver spends at bus stops manually processing cash fares. Introducing more efficient payment methods has the effect of reducing delays on transit routes and thus provides the potential to reduce the number of buses required on particular routes.

4. TIGHTER SECURITYOpen payments systems limit the possibilities for physical and

cyber-security breaches because any scheme processing contactless payments cards and devices needs to meet the global EMV and PCI standards, which have the highest levels of electronic security and encryption.

5. IMPROVED ACCESSIBILITY AND CONVENIENCEReducing the barriers for new passengers and improving the customer experience for regular commuters through simple and convenient ticketing and payments can be a key driver for growing passenger numbers in an  increasingly competitive transport market.

CASESTUDY:ACCOUNT-BASED TICKETING,MELBOURNE

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Twitter:#Transit operators accepting #ApplePay, #GoogleWallet & #SamsungPay with open #payments - @Vix_Technology Guide: http://www.vixtechnology.com

7A VIX GUIDE TO ACCOUNT-BASED TICKETING AND OPEN PAYMENTS

ADOPTIONThe shift to open payments, like every other major technological change, has its own unique set of challenges and complications.

One of the first issues to be considered is whether customers in a specific region or market have sufficient adoption rates of contactless EMV payments cards and NFC devices to benefit from an open payments system. Successful schemes often refer to the need to have at least 30 percent penetration of contactless cards prior to rolling out an open payments  ticketing scheme.

While penetration might be a driving factor in a pure EMV payments model, there are clear benefits for early adopters of open payments by way of an account-based architecture, such as those experienced by Salt Lake City’s Farepay system launched in 2009. UTA utilized existing personal credentials such as student identity cards as a valid travel token with great success.

EDUCATIONAnother major challenge to adopting open payments is gaining the trust of customers that the system will deduct the correct fare from their account every time. While this issue is still present in closed-loop systems, the issue is compounded in open payments systems as the validator does not know when the rider will exit the system and therefore can’t display the fare upon entry. This leaves the rider to trust the transport operators to charge them the correct fare later.

Successful implementations of these new forms of ticketing solution have relied heavily on a crisp, well-managed message. Transit authorities with smooth and easily adopted roll-outs have worked hard to build trust with clear customer communications around fare structures and price capping as well as implementing automatic refund safety nets. The schemes have also created transparency through providing online (mobile and web based) resources for customer

account management and enquiries, and supported customer service with self-service, as well as access to trained customer service staff.

READER DESIGN AND CERTIFICATION BECOMES MORE COMPLICATEDReaders will be required to support numerous types of card and other fare media, so the software for each one – be it card detection, payment card applications such as Visa, MasterCard, AMEX, Discover or a proprietary application – needs to be developed and supported. In addition, it is costly to achieve the necessary certification of these applications against card standards, which then becomes an on going cost during the life of the fare collection scheme as it evolves. This is a catalyst, which leads hardware suppliers to minimise the variants of their devices and any changes required during its lifecycle. This, in effect, should standardise devices across transit fare collection schemes.

PHOTO:OPEN PAYMENTS SYSTEMS ARE ALREADY HELPING SALT LAKE CITY.

WHAT ARE THE CHALLENGES INVOLVED IN TRANSITIONING TO ACCOUNT-BASED TICKETING AND OPEN PAYMENTS ?

Twitter:#Tech standardisation & customer education are key open #payments challenges in #transit @Vix_Technology Guide: http://www.vixtechnology.com

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8A VIX GUIDE TO ACCOUNT-BASED TICKETING AND OPEN PAYMENTS

ADDITIONAL SECURITY COMPLIANCE REQUIREMENTS Given these schemes are handling scheme payments data as well as customer personal data, there is a critical requirement that the system and its components comply with PCI-DSS (Payment Card Industry Data Security Standard) and local data protection standards.

These security requirements affect the entire solution including the design and the on-going operations of everything from the on-board devices to the back office processing systems.

These increased security and data protection requirements create a need for a much higher level of operational security, something

typically beyond the skills or experience of a typical transport operator (especially those smaller operators who do not run a full IT department).

TRANSITIONA further consideration for transport operators is how to transition to open payments. History has shown that large-scale system refreshes and replacements can suffer some initial problems such as delays, increased costs or a failure to meet expectations.

A suggestion of a well-managed transition to an open payments and account-based solution could include consideration at the initial design stage to allow for the open

scheme to co-exist alongside the existing closed ticketing scheme. This can be done by introducing a simple reader upgrade, if necessary, to support new payments media. This has the advantage of allowing for an extended transition period or continued support of specialist products on closed-loop cards for local needs.

CONCLUSIONOne thing is clear, the entire transit industry and ecosystem is part of a seismic shift to enable more cost efficient and easier ways for passengers to pay and operators to process fare collection. This transition evolves and adapts with a varied pace around the world but it’s undeniably changing the landscape for all.

Vix Technology is a leader in smart booking, ticketing, payments,

real-time information and data management solutions for large-

scale transport networks working with more than 200 customers

worldwide. Vix leverages over 25 years’ industry experience in

designing, operating and maintaining proven next-generation

solutions. We manage around five billion transactions a year and

create new ways to connect with customers. Harnessing the latest

technologies, Vix enables transit and non-transit customers to

boost engagement, save resources and enable powerful data-

driven loyalty and reward schemes through simple solutions that

achieve measurable growth and increase customer satisfaction.

ABOUT VIX TECHNOLOGY

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For more information about open next generation

AFC  solutions please contact Vix Technology:

info@vixtechnology.com

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