NYC Subway’s Tap-to-Pay Launch Has Financial Giants Revved Up for the End of Cash
By: Tanaya Macheel
Tags: Transportation, Payments, Technology, Business

NYC Subway’s Tap-to-Pay Launch Has Financial Giants Revved Up for the End of Cash

Not so fast: the MetroCard isn’t going away just yet, and neither is cash.

Source: MTA

Nearly 30 years ago, New York’s subway turnstiles began a transition from tokens to MetroCards — what was then a cutting-edge technology for payment and fare collection. Now, in a sign of the times, the country’s oldest subway system is about to once again transition to a new form of fare payments for an increasingly cashless world.

The financial services industry is touting the New York City subway’s tap-to-pay pilot as the dawn of a new era, but the MetroCard isn’t going away yet, and for many commuters the benefits won’t take effect for some time.

On Friday, the Metropolitan Transportation Authority launched OMNY, which stands for One Metro New York. The system lets commuters tap their contactless debit and credit cards at the turnstile when they take the subway. It’s a 6-month pilot across 16 stations between Grand Central-42nd Street and Atlantic Avenue-Barclays Center on the 4–5–6 lines, as well as Staten Island buses.

“That’s where you capture a large base of consumers all at once,” said Dr. Shelle Santana, Harvard Business School professor. “If you think about all the ridership across the MTA, the millions and millions of people — if you can get them to convert into this new form of paying that’s a potentially huge tipping point.”

The MTA expects to have all 472 stations on OMNY by 2021, but the move will be gradual, according to Andrei Berman, an MTA spokesman. It only works on a full-fare pay-per-ride basis, but the MTA plans to add fare options when it’s available throughout the entire subway system including time-based passes, reduced fares and student fares. The yellow plastic MetroCard will remain an option until then. The MTA’s hope is that the implementation of OMNY will reduce lines at MetroCard vending machines, which often present problems for out-of-town visitors and regularly require maintenance.

“It’s going to be a transformational experience for New Yorkers going from having to swipe your MetroCard and having to manage your balance to now just using your card that you use to pay for your coffee and bagels,” Dan Sanford, Visa’s head of consumer products, said in an interview.

OMNY supports contactless payments from contactless Amex, Visa, Mastercard and Discover cards as well as from NFC (near field communication) -enabled digital wallets FitBit, Apple Pay, Google Pay and Samsung Pay. To use the new system, riders simply tap their card or phone at the new OMNY reader screens, which effectively function like point-of-sale terminals in coffee shops and other retail stores. The interfaces are located below the MetroCard readers at subway station turnstiles. The screen will either flash green indicating the person may enter or flash red if for any reason the reader can’t process the payment.

The contactless payments pilot is a step in the broader modernization of the MTA. The MetroCard has exceeded its shelf life, Berman said; its magnetic stripe technology, once innovative, is past its prime and the maintenance costs associated with it are high. A common sight at turnstiles is tourists fumbling to swipe their cards, a move which requires a bit of finesse that most New Yorkers have mastered over the years.

Of course, tap-to-pay is not exactly a brand new technology. Londoners have had the ability to load contactless transit cards known as Oyster cards and simply tap them to enter stations since 2003.

“There’s a ton of momentum in the transit space led by Transport for London,” Sanford said.

“That experience — so many other agencies saw it and are looking to mimic it, led here in the U.S. by New York. We’ve got more than 20 agencies in the U.S. working on active projects right now — Chicago and Portland are live — and we have 150 cities globally that are working on moving to open payments.”

One hurdle for wider adoption in the U.S. is that most people’s cards haven’t been upgraded for tap-to-pay and many are unaware of how to even identify one. The U.S. lags behind other major markets when it comes to tap-and-go payment adoption, though it is particularly prominent in a financial and tourism mecca like New York.

Chase, the largest U.S. bank by assets and the largest bank in New York, is making the biggest push of all the major banks; it November it committed to moving all of its cardholders to contactless cards by the end of this year.

“Almost 50 percent of transactions outside the U.S. are now contactless, 90 percent of those transactions are actually on the physical card,” said Sanford, the Visa executive. “Chase has really started to accelerate the issuance of contactless cards. When you get more of those cards in market you’re really going to see adoption accelerate in the U.S.”

OMNY payments through one of the digital wallets should work regardless of whether or not the physical cards have been upgraded, however.

Financial services firms are hoping OMNY will show consumers the speed, convenience and security of tap-to-pay and that it drives them to choose to tap at restaurants and retailers. There’s a $2.4 billion opportunity in incremental card-related earnings at the end of the next five years for banks, according to A.T. Kearney.

For merchants, tap-and-go payments improve efficiency at the point of sale by moving customers through lines faster and reduce their cash handling. Often their payments partners can also provide data analytics to better understand consumer spending habits. For consumers, tap-and-go payments generally allow them greater speed and convenience when transacting — though that’s perhaps even more true for launching in a major public transportation system, according to Liz Karl, global head of the payments consulting group at American Express.

“Transit gates have to open in less than half a second to allow for safe passenger entry and to prevent long lines from developing at the gates,” she said. “This is considerably quicker than the authorization rates required for a contactless transaction elsewhere.”

In 2021, the MTA plans to introduce a contactless transit card similar to London’s Oyster card that will initially be available at various retail locations until the following year when it begins installing OMNY kiosks. It will phase out the MetroCard by 2023, but cash will always be a payment option for MTA services, Berman said. Just not at the turnstile.