# Emerging Technologies in Transportation Casebook/Transit Payment Technologies

Transit payment technology has advanced from simple cash payments to tokens to magnetic strip cards, Radio Frequency Identification Technology (RFID) and microchips to mobile or e-payment technology. The emerging technology of contactless and integrated payment systems on open platforms is becoming a closer reality but hurdles of implementation remain.
There are four automated fare based collection systems that have evolved over the past two decades that have made RFID and e-payment methods possible. These methods have two dimensions: Closed or Open loop and Card or Transit Network. The early 1990s saw the introduction of contactless card technology such as smart cards that incorporated RFID technology and are currently in use by most of the major metropolitan transit systems including Washington DC, Boston, Chicago, New York City, and Los Angeles.
Compared to international implementation of integrated open system transit payment network the United States lags behind. Reasons for this include geographical fragmentation, lack of standardized interoperable platform, high cost of investment capital, and sparing stakeholder perspectives. Stakeholders include transit agencies, technology vendors, credit card companies, and community members. Policy issues that need to be addressed are financial inclusion of unbanked, underbanked persons, and non-smart phone users (for mobile payments), coordination with government human services programs, privacy and data concerns, and the development of open standards.

## Annotated List of Actors
##### Federal Agencies

US Department of Transportation Intelligent Transportation Systems Office of Joint Program (USDOT ITSJPO) – Automated collection fare (AFC) were initially put in motion by the Intelligent Transportation Systems (ITS) initiative.
Federal Transit Administration (FTA) – Rule maker.

##### Non-Governmental Organizations (NGOs)

ITS World Congress – An annual conference that focuses on Intelligent Transportation Systems consisting of ITS Europe, ITS Asia-Pacific, and ITS America (dedicated to advancing the research and deployment of Intelligent Transportation Systems (ITS)).
America Public Transport Association (APTA) - Tasked with developing standards.

##### State and Local Governments

Particularly those who have deployed smart card technology already: Atlanta, Baltimore, Boston, Chicago, Houston, Los Angeles, Miami, Minneapolis, Philadelphia, San Diego, San Francisco, Seattle, NY-NJ, Washington DC

##### Private Sector

Contactless card suppliers: MIFARE supplied by NXP Semiconductors (based in the Netherlands) has the largest market share (77 percent of transport ticketing industry)
Contact/Contactless Suppliers: Credit Card Companies Visa and Mastercard rolled out the first contactless systems in the US between 2004- 2006 based on RFID or Near Field Communication (NFC) technology. Visa, Mastercard, and American Express are the main US actors.
Mobile Phone Companies: Apple and Samsung are both developing mobile phone-based payment systems as part of their smart phones.

##### Non-Profit Sector

SmartCard Alliance: Trade association of governments, financial institutions, transportation agencies, and others involved in the smart card system.

##### Community/Users

Unbanked and underbanked persons.
Non-smartphone users.

## Timeline of Events

1991- Intermodal Surface Transportation Efficiency Act of 1991 – Mandated the development of the National ITS Architecture
1991 – Intelligent Transportation Society of America Founded
1993-1994 EMV (Eurocard, MasterCard, Visa) founded to develop technical standards for contactless bankcards
1995 - ITS World Congress a commitment was made to pursue universal standards for highway and transit electronic payment systems to encourage convergence of transit and retail payment systems
1996 - EMV Contact Specifications published
1996 – First contactless smart card system piloted by Washington Metropolitan Area Transit Authority (WMATA) with FTA funding
1998 – Transportation Equity Act – 21 (TEA-21) enacted
2001- ITS Architecture Final Rule issued by FHWA
2004 – Retail Point of Sale based micropayments piloted (PayPass, ExpressPay) through contactless cards or fobs
2007 – APTA becomes an American National Standards Institute (ANSI) certified Standards Development Organization via FTA contract to develop US transit ITS standards
2013 - Chicago become first major US city with an open payment platform
2015 October – Ventra, the Chicago Transit Authority and Pace’s mobile ticketing app is available for download
2015 November - The San Francisco Municipal Transportation Agency (SFMTA) officially launched MuniMobile, a new mobile ticketing app developed in partnership with GlobeSherpa, a subsidiary of the transportation technology company RideScout
2016 March – Los Angeles Metrolink launches mobile ticketing app

## Map: Smart Card Use in Transit Payments in US and Canada

Smart card use for transit payments is largely focused in the major metropolitan areas with mature transit systems. These areas are also at the forefront of open platform payment systems and mobile applications.

## Clear Identification of Policy Issues
##### Challenges to Implementation

Geographical fragmentation: Despite the federal role in supporting transit agencies, the localized nature of transit means that different transit systems may adopt differing approaches to the new technology. The development of individualized, locality based payment systems will also drive up costs. This produces both the lack of a standardized interoperable platform and high cost of investment capital.
Lack of a standardized interoperable platform: Because transit agencies maintain their local autonomy, they face coordination challenges in adopting a standardized system that would be used across multiple cities and their transit systems.
High cost of investment capital: Without universal standards, transit agencies will often turn to their own localized procurement process which may require "reinventing the wheel" instead of directly adopting the new transit payment system of another agency. This individualization reduces economies of scale and drives up investment costs.
Sparing stakeholder perspectives: Both vendors and transit agencies may have competing desires for what services and features they except from a transit payment system.

##### Social Equity

Financial inclusion of unbanked, underbanked persons, and non-smart phone users (for mobile payments), coordination with government human services programs, and privacy and data concerns.

##### Role of Government

Development of open standards, outreach to the concerns of the unbanked, underbanked, and non-smart phone users, and protection of data to maintain privacy.

## Narrative of the Case
#### Background

Transit payments have evolved from a cash based system to a cashless system. Traditionally transit payments and fare collection have either been direct payments onboard to the operator or pre boarding ticket purchasing. As RFID technology and mobile phones have become more ubiquitous in the market there is a growing trend toward a cashless system. A cashless system of transit payment collection involves using a RFID NFC enable credit/debit/or other bank card or a NFC enabled mobile phone. This technology began to enter the market with the development of smart cards - closed system cards for purchase from a transit agency that allowed the user to prepay via a fare collection machine, and "tap" the card to a sensor that would deduct the amount of fare from the card. These systems were created in part due to the US Department of Transportation Intelligent Transportation Systems (ITS) Initiative which laid the framework for the deployment of an interoperable systems that supported seamless intermodal travel by calling for the development of the National ITS Architecture. The architecture defines providing electronic payment services as "one of the nine major processes within the logical architecture" Toll collection systems have moved toward an open payment system, but transit systems have developed in closed-loop systems that prevent interoperability. One reason for this is that ITS Architecture did not address subway or metro systems.

#### Payment Models

There are four major contactless payment models:

#### Near Field Communication (NFC) Technology

NFC technology is available in credit/debit/prepaid cards and a growing number of NFC enabled smartphones. NFC allows short range wireless technology where the transfer of information can occur up to 4 cm or less utilizing electromagnetic radio fields.

##### Barriers to Adoption

Transit agencies can be hesitant to invest heavily in new technologies if they do not see guarantees of improvements. Some systems, such as WMATA, have only recently fully shifted away from paper transit cards to smart trip cards. Investing into a new transit system may incur significant costs with questionable benefits. WMATA had a 90-day trial of a new transit payment system with NFC technology in 2015 that did not impress the agency.
Privacy concerns may also raise consumer opposition to the shift to new payment models. Because smart cards can be purchased with cash payments, they represent an anonymous way to move about the transit system. Social equity concerns about how the unbanked and underbanked can access transit services without credit or debit accounts, or without smart phones entirely, may also raise challenges to adoption of new transit payment technologies.

##### Benefits of Adoption

Being able to link your phone to either a credit or debit card, or other financial account (such as PayPal) reduces the time wasted by transit users loading cash onto a fare card. According to a survey by Accenture Consulting, 52% of respondents to a global survey (which included American cities New York, Los Angeles, and Washington, D.C.) were willing to pay 10% more for transit if they could use a smartphone or other ticketless travel options. Compared to the popularity of Uber and Lyft, a 2014 study by UC Berkley found that the ease of payment was one of the top reasons people were adopting on-demand mobility services.
The ability to share information through the rider's smart phone or other mobile payment system with other behaviors, such as shopping patterns before or after transit usage, could help improve transit services by increasing understanding of the full travel of the rider, not just their transit between stops. Mobile transit payments could allow for systems to update travel information in real time. However this brings with it concerns about tracking riders and how the data being collected will be stored and protected.
Shifting away from cash can also reduce administrative costs for transit agencies. Micah Bergdale, chief executive of the New York City-based Bytemark Inc., cites that the administrative overhead of cash can equal 15 cents per dollar of fare revenue in processing expenses compared with 8 cents per dollar for a smart card. A mobile transit payment could reduce costs even further to 4 or 5 cents per dollar.

#### Trending Toward Open Payment Platforms

Open payment platforms are becoming a reality for transit agencies due the NFC technology. Proprietary systems developed due to need to move passengers quickly through gantries in high volumes. Closed loop systems create high capital and maintenance costs for transit agencies. Through an open payment system costs are reduced for both the passenger and the agency. Open standards for open payment fare platforms, however, have not been formalized. Credit card companies came together in the early 1990s to develop open bankcard standards that allow for use of bankcards fairly ubiquitous across the globe, but standards for open payment with transit fares have not been written. ISO standards do outline how cards and other devices can interact with hardware such as readers and can be extended to the a mobile or smart card application.
Benefits:
* Cost savings - Built infrastructure needed to issue tickets and fare collection are removed.
* New revenue streams - A transit branded card that operates on multiple locations can allow the transit agency to share in the spending attributed to the card, similar to a department store branded credit card.
* Improved customer convenience - The use of credit cards or mobile phones allow the customer to not have to purchase a separate card.
* Easier integration - Interoperability exists across multiple systems and allows easy access for users.
* Facilitates innovation partnerships - Partnerships can achieve greater benefits with increased stakeholder involvement.
Limitations:
* Cashless system can exclude unbanked persons - Even though prepaid card use is high amongst unbanked and underbanked persons it is still a salient issue for access to transit systems that target these populations as users.
* Not all credit cards are accepted everywhere.
* Speed of transactions - Current standard in the transit payment collection space is 300 milliseconds. Credit card transactions can take much longer due to no stored value and approval mechanisms built into the card.

##### Open Payment Platforms in Use

* Salt Lake City: Electronic fare collection system allows the use of multi-ride passes, such as student and employer sponsored passes, one time use passes, contactless debit/credit cards and mobile wallet services such as Apple Pay and Google Wallet.
* Chicago: the Ventra system is based on open payment standards and can accept contactless cards issued by banks for payment.
* Washington DC: WMATA ran a 90-day test program of a new payment system that would allow for NFC, but board members have been resistant to commit to the transition to a new system and ultimate phasing out of the SmarTrip cards without clear indication that the new system would offer improvements to services.

#### Mobile Payment Technology: Your phone as your ticket

As open platforms and NFC technology evolve it allows a mobile device to become the ticket. Transit agencies are rolling out programs and apps that have mobile ticketing available to the users. Mobile deployment increases customer choice and engagement with the system and allows transit agencies to replace or eliminate aging infrastructure that has reached the end of its useful life. Currently, mobile apps allow users to purchase tickets and be scanned electronically. The combination of open payments and mobile apps are slow to enter the market and many of the mobile apps that are currently available do not allow for open payment.

###### Mobile Ticketing Apps in Use

* Boston MBTA: Can be used on commuter rail and ferries but is not yet available to be used on Metrorail and city buses.
* Los Angeles Metrolink: Barcode readers installed on the Metro Rail fare gates in Los Angeles enable passengers to buy tickets and continue their commute on dozens of city bus, shuttle bus, light rail and subway lines seamlessly, and at no additional cost. Metrolink is also working with Amtrak to allow mobile tickets to be scanned by Amtrak conductors.
* Portland TriMet: Tickets can be purchased online and display a barcode to be scanned or shown to operator of the vehicle. Does not allow for open payments.
* NJ Transit: Tickets can be purchased for bus, light rail and rail in the form of daily, monthly or weekly passes
* San Francisco SFMTA: MuniMobile lets you buy tickets instantly through a credit/debit card or PayPal account, both individually and for groups.

## Discussion Questions

What are alternatives to independent municipal app development?
How does smart card technology differ from a mobile ticketing app?
Are there privacy concerns about the ability to track a person through cashless transit movements tied to their phone?

## Suggested Reading

First Data. (2010 May) Transit Payment Systems: A Case for Open Payments
Tavilla, E. (2015 February) Transit Mobile Payments: Driving Consumer Experiences and Adoption. Federal Reserve Bank of Boston
Quibria, N. (2008 June) The Contactless Wave: A Case Study in Transit Programs, Emerging Payments Industry Briefing. Federal Reserve Bank of Boston
Smart Card Alliance. (2008 June) Serving Unbanked Customers in the Transit Industry with Prepaid Cards.

## References

* ↑ MIFARE. About. https://www.mifare.net/en/about-mifare/
* ↑ Utah currently has pilot program using credit cards contactless cards for transit payments read more here https://www.firstdata.com/downloads/thought-leadership/transit-payment-systems_wp.pdf
* ↑ Thomas, E. and Global Mass Transit Report (2011 March 1) AFC in the US: Progressing to open-payment systems. Global Mass Transit Report http://www.globalmasstransit.net/archive.php?id=5786
* ↑ EMVCo. About EMV. https://www.emvco.com/about_emv.aspx
* ↑ McGean, Thomas. (2004, April 15). Transit Industry Interface with International Standards. Prepared for the National Academy of Science http://www.modernstreetcar.org/pdf/Transit%20Industry%20Interface%20with%20International%20StandardsFINAL.pdf p.4
* ↑ Nichols. C.M. ( 2012 October) Talking Transit: Chicago gets open payment platform. http://www.metroplanning.org/news/6548/Talking-Transit-Chicago-transit-gets-open-payment-system
* ↑ Clewlow, R. (2015, November) Three ways mobile transit payments will change cities. Plantizen. http://www.planetizen.com/node/82353/three-ways-mobile-transit-payments-will-change-how-we-move-cities
* ↑ ITSJPO. Key Concepts of the National ITS Architecture. p. 3http://www.iteris.com/itsarch/documents/keyconcepts/keyconcepts.pdf
* ↑ Global Mass Transit Report. (2011 March 1) AFC in the US: Progressing to an open-payment systems. http://www.globalmasstransit.net/archive.php?id=5786
* ↑ Quibria, N. (2008 June) The Contactless Wave; A Case Study in Transit Payments. Emerging Payments industry Briefing. Federal Reserve Bank of Boston. http://www.bostonfed.org/economic/cprc/publications/briefings/transit.pdf
* ↑ nearfieldcommunication.org. Welcome to Near Field Communication. http://www.nearfieldcommunication.org/ Accessed 4/9/2016
* 1 2 Di Caro, Martin. (2015, July 13). "Metro may dump new fare gate payment system after lacklsuter trial." WAMU. http://wamu.org/news/15/07/13/metro_may_dump_new_fare_gate_payment_system_after_lackluster_trial
* ↑ Accenture (2013). What travelers want from public transport providers. Retrieved from https://www.accenture.com/us-en/insight-acn-public-transport-survey.aspx
* ↑ Rayle, L. et al. (2014). App-Based, On-Demand Ride Services: Comparing Taxi and Ridesourcing Trips and User Characteristics in San Francisco University of California Transportation Center (UCTC). UCTC-FR-2014-08.
* ↑ Daly, Jim. (2016, February 1). "Why Transit is Boarding the Mobile-Payments Train." Digital Transactions. http://www.digitaltransactions.net/news/story/Why-Transit-Is-Boarding-the-Mobile-Payments-Train
* 1 2 3 First Data Government and Transit Task Force. (2010 May) Transit Payment Systems: A Case for Open Payments.
* ↑ Tavilla, Elisa. (2015 February) Transit Mobile Payment: Driving Customer Experience and Adoption. Federal Researve Bank of Boston. https://www.bostonfed.org/bankinfo/payment-strategies/publications/2015/transit-mobile-payments.pdf
* ↑ MBTA.com. mTicketingFAQ. http://www.mbta.com/fares_and_passes/mticketing/?id=25903
* ↑ Metrolink launches first version of mobile ticketing app http://www.metro-magazine.com/rail/news/711034/metrolink-launches-first-version-of-mobile-ticketing-app
* ↑ San Fransico Metropolitan Transit Agency. About MuniMobile. https://www.sfmta.com/getting-around/transit/munimobile