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March 16, 2009

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IN DEPTH: FARE COLLECTION TECHNOLOGIES

Integrating Systems and Services to Enable Next-Generation Fare Payment
By DAVID deKOZAN, Vice President, Business Development, Cubic Transportation Systems

Fare collection practices for public transit have evolved from collecting cash to accepting tokens to validating magnetic tickets to processing contactless smart cards. With each step, and in response to this evolution, the operating models that support the management of patron flows, capital assets, fare media distribution, enforcement, and revenues have changed. These changes also reflect the significant advancements in multi-modal, inter-agency ticketing strategies and the technologies that enable them.

It’s a theme we have seen over the last 10 years as regional operators have made greater strides toward allowing patrons to connect seamlessly between independent operators. The result in linked journeys across subway, bus, and commuter rail is both more convenient and more practical, and for the patron this convenience comes in the form of the contactless smart card.

In metropolitan areas such as Washington, Atlanta, Los Angeles, and Boston, passengers are tapping their cards as they access transit services while, invisible to them, the calculation of fares and distribution of revenues are happening automatically behind the scenes. In 14 U.S. cities, contactless fare systems are either operational or nearing launch with more than 40,000 terminals installed at entrances to stations, buses, and parking facilities. These accomplishments have established the transit industry as a leader in a growing trend across various market segments that have adopted contactless payment technology.

With transit leading the way, international standards bodies have published open specifications, and other business categories such as banking, access control, vending, security, and identification have adopted technologies compatible with that now used for transit fares. Perhaps the most noteworthy is the banking sector, which is now issuing tens of millions of contactless credit and debit cards and is steadily upgrading its retail base with the terminals needed for processing them.

For transit, the implications are that riders may not need to buy a separate farecard or ticket, and instead may be able to use a credit card or other open payment system card or device that allows them to tap on to any properly equipped transit service. This convenience will likely yield an uptick in impulse transit trips and drive down the costs associated with transit card procurement and distribution.

Several agencies are speaking of a shift from “ticketing” to “acceptance.” In this context, transit operators begin to more closely emulate big retailers in their payments practice. Such retailers employ a variety of techniques to manage their customers’ payment behavior and drive them toward the products that are least costly to process while preserving the benefits of impulse purchases enabled by branded payment cards.

Merchant branded prepaid cards, co-branded credit cards, PIN prompting, and electronic check acceptance are all used to control the incidence and fees associated with credit and debit usage, while point-of-sale solutions are constantly updated to support the latest offerings from the “big four” payment brands (VISA, MasterCard, American Express, Discover). With this approach, sophisticated retailers are establishing a “best of all worlds” environment where fees are controlled and sales lift is maximized.

In transit, strategies like these will require an integrated approach to systems and operational services while embracing the open standards necessary to accept the broadest possible range of card and payment products. Patrons entering stations or boarding buses may or may not have a bank account, may or may not have a university ID, may or may not participate in transit employee benefit programs, and may or may not be regular users of the service. As such, the user may have no access to a smart card outside of the transit network or may have any one of a number of card products that could be used. Even mobile phones are being introduced that can support contactless ticketing and payment functions.

Accordingly, the system must be extremely flexible, both in what products it supports and in having a back office capable of processing and routing the transactions derived from the products used. Customer service models also must be designed to deal with the fact that the first call may not come to the transit authority but to the issuer or carrier sponsoring the payment product.

As a merchant class, transit is unique in its processing demands, with a wide variety of fare products and policies applied in a very demanding physical environment. Terminals not only must support tremendous transaction volumes, but equipment specifications frequently are more challenging than what is required in a commercial retail environment. These factors are compounded by the extremely high availability rates demanded of transit terminals that must perform a variety of access control, flow management, and informational functions.

What is needed is an integrated solution that incorporates highly robust purpose-built equipment and an asset management/maintenance regime designed to meet the availability needs. Next-generation fare systems are designed to support these requirements, to integrate with electronic payment networks, and to provide a broad range of customer service and financial tools that enable those operating the system to efficiently manage the data and provide responsive support to the various user groups including patrons, agencies, and commercial partners.

Increasingly, agencies are coming to the conclusion that these duties fall outside their core business focus as network standards, data protection requirements, customer service demands, and overall marketing and support activities are far more comprehensive in scope and create new risks and liabilities. As a result, outsourcing models that emulate the financial card industry are taking shape whereby back office processing, customer support, and field services are contracted to consortiums comprised of best-in-class service providers. Such consortiums will see innovative partnering relationships between the core suppliers to the transit market and those serving the electronic payments industry.

As these models proliferate, agencies will benefit from an expanded focus on transportation service provision and fare schemes that provide more options for patrons, better accessibility, new sources of revenue, and lower operating costs.

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