The many ways contactless payments are transforming mass transit

August 7, 2023 10:47 AM

The pandemic caused fears of a doom loop in mass transit systems, which were largely shut down in the early days of the crisis, and were slow to recover as the rest of society opened. But many cities used the downtime to install some much-needed upgrades to entice riders to return.

Payment companies jumped into the fray, deploying ticketing systems that rely on contactless cards and mobile devices.

The idea was to reduce the traditional cards that could only be used in the transit networks, replacing them with a cleaner and more open method of ticketing that in theory would encourage digital payments at merchants near the transportation systems. It's a strategy that has outlived the crisis.

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"There is a great opportunity to extend payments if you can get people to use a payment mode twice per day," said Andres Polo, urban mobility lead for Visa in Latin America and the Caribbean.

The transit upgrades have continued as the pandemic has eased and ridership has recovered, albeit slowly. Here are some examples of recent developments and projects that are designed to boost the pace of recovery.

Mexico City's Metrobus has deployed contactless Visa technology.

Visa

Mexico City

Visa's Ready for Transit has collaborated with transit technology firm Conduent Transportation and digital payment company Getnet to install contactless transit payments on Mexico Citi's Metrobus.

About 1.8 million people use Metrobus daily, with prepaid cards traditionally used for payments. The upgrade enables commuters to use contactless credit and debit cards, smartphones and web-connected wearables.

The underlying technology includes QR code readers at boarding stations for the bus network.

About 56% of people in Mexico City use mass transit, according to MexicoBusiness.com, compared to 68% mass transit ridership across the rest of Latin America, according to a Visa Urban Mobility Study on Latin America.

"Mexico is progressing in upgrading transit payments but the penetration is still below other parts of Latin America," said Mario Garcia, vice president and head of merchant sales and acquiring for Latin America and the Caribbean for Visa.

Visa Ready for Transit has worked on about 700 projects globally. One of the goals for Visa, Mastercard and transit technology firms such as Cubic and Masabi is to reduce the amount of ticketing and payment management that transit agencies perform by moving ticketing functions outside of the networks and onto mobile devices.

"There's a lot of pain for the government, such as managing the cards, coins and bills, which brought security challenges and other issues," said Garcia. "We're hoping to create a way for the agencies to move away from that."

The Metrobus deployment will inform further use of the technology in Mexico City's metro system, which handles about 4.5 million riders daily, making it the second-largest subway system in North America after New York, which has about 5 million riders per day. Visa and its partners in Mexico City plan to expand the project to other parts of Mexico.

Jose Sarmento Matos/Bloomberg

Lisbon

The Lisbon Metro added an open-loop contactless fare payment system in July, enabling riders to pay with an NFC-enabled card or device (such as an iPhone with Apple Pay). The Lisbon Metro partnered with local merchant services firm Unicre and Visa's Cybersource. Other firms in the partnership include payment technology firm Littlepay and ticketing hardware firm Indra.

The new payment system enables riders to avoid prepayment and covers the entire Lisbon Metro, which includes 56 stations and carries about 500,000 people per day.

One of the goals of the Lisbon project is to reach tourists who do not have to navigate the local transit systems and can instead use their own payment preferences. Denver, for example, partnered with Uber to pair commuter train ticketing with ride sharing services.

Transit payment projects are also also designed to boost contactless payments at merchants that are near the system. The theory is that transit-payment methods are habit-forming and transferable.

"Once people pay for transportation with a card, they're using the same card they can use to make payments at other places," Garcia said. "It brings more automation to the way they work and live."

There's not a lot of specific data that ties the growth of transit payments technology to an increase in use of that technology for payments outside of the transit system. Transport for London reported overall contactless payments increased 30% in 2019 as contactless payments in the Metro increased by a similar amount, although the link was not direct.

The link is difficult to determine because of how payments are characterized, according to Peter Quadango, a transit consultant.

"It is not habit forming to the extent that more transactions will occur at other merchants because the card brands create a category code that serves transit operators," Quadrango said.

Visa analyzed transaction data over the course of a year in three cities that had enabled contactless payments on transit systems compared to those that had not, according to the card network. The data shows that cities with contactless payments on transit saw an increase in card-present transactions and a decrease in the transaction size, indicating that people tapping to ride on transit might be more comfortable with using their card to pay for more, smaller purchases. Notably, the increased activities were largely across categories including food and grocery, restaurants and transportation., Visa said.

Chile

Cubic, the firm that has powered transit upgrades in Chicago, made its first deployment in Latin America in April, adding its contactless payment system to Temuco's transit system. Commuters in the city of about 350,000 people can use contactless cards, Cubic's Umo Mobility app and tickets with prepaid QR codes. The city's transit system includes local and regional buses and colectivos (a shared taxi service). Cubic has deployed its Umo Mobility app in the U.S. and Canada.

JCB

Similar to the Portugal and Denver deployments that focus on out-of-town travelers, Japanese credit card company JCB launched a marketing program for cardholders in June that offered 50% cash back for foreign travelers who use contactless payments for transport in Japan. The card users can earn up to $7 through September, marking the first time JCB partnered with transit companies to encourage the use of new payment methods. Japan's transit and rail transport in general have struggled following the pandemic. Seventy percent of railway operators, which covers subways, commuter and regional rail, do not expect ridership to recover to pre pandemic levels, according to Nikkei.

The Netherlands

In June, the Netherlands became one of the first countries to adopt an open loop contactless transit payments system for the entire country. Travelers can use any debit, credit or digital wallet account on all buses, trains, metro systems, trams and ferries across all local networks. Translink, a national agency that develops transportation technology, partnered with Mastercard to build the national transit payments system. By enabling the same payments system for nearly all transport, it's possible to travel throughout the Netherlands without having to purchase a ticket, with in-app purchases available by using mobile wallets.

While there are navigation and other benefits to adding contactless payments, a lingering challenge is to ensure the technology is accessible to all riders.

"Whatever solution is implemented must be available to everyone and by everyone. If a smartphone is required, then everybody better have one. If one person doesn't have a smartphone, the system is not viable," Quadrango said

Elavon

Late last year, the payment processing subsidiary of U.S. Bank launched Mass Transit Payments, a service that enables transit agencies to support contactless payments from cards or mobile devices. The service is designed to be used by agencies and consumers who wish to avoid paper tickets or cards to pay for mass transit. Elavon also positions the program as a way to reduce carbon emissions by boarding passengers on buses faster, thus reducing idling time for buses. The program's adopters include Coast RTA, which covers parts of South Carolina, and Azienda Veneziana della Mobilità, the transit authority that serves Venice.

"It removes the need for specific, transit agency-supported cards by accepting any contactless-enabled card or mobile device," said Pari Sawant, chief product officer at Elavon, adding that this helps to lower the cost of payments acceptance and management for transit agencies and helps smaller agencies offer wider variety of payment options. "It also makes it easier for many users to track and manage transactions in a place they already use regularly, like an online bank account or monthly credit card statement."

Jacksonville

The Jacksonville Transportation Authority has added Cash App as an option for payments via the myJTA mobile app, which launched in late 2022. The JTA is one of the first transit systems to add Block's Cash App as an option for mobile ticketing (the aforementioned Coast RTA also offers Cash App for transit payments). Riders select "Cash App" as a method of payment, and are prompted to connect their myJTA account to their Cash App account. The riders can then pay for bus routes and special buses that are deployed for events at EverBank Stadium, the Jacksonville Jaguars' home stadium. The JTA is partnering with mobile technology firm Moovit and transit ticketing firm Token Transit to support the Cash App option. "We believe in meeting riders where they are and lowering barriers to transit," said Token Transit CEO Morgan Kikuchi-Conbere in a release.

New York

The Metropolitan Transportation Authority plans for all New York subway stations to have OMNY vending machines by September. OMNY supports contactless payments via an MTA-issued contactless card, smartphones or other web-connected devices. The MTA supports Apple Pay and all four major card networks support OMNY, providing an open loop transit option for New York. The city traditionally trailed other large metro systems in adopting new technology, but the OMNY project has allowed the U.S.'s largest transit system to catch up and become an early adopter of biometric technology to vet riders. Mastercard has also made New York's transit system a key part of its overall transit strategy. The MTA expects to discontinue support for Metrocards, the closed-loop cards introduced in the 1990s, by 2024.

Budapest

Mastercard is also part of a contactless payment pilot test in Budapest's public transport system. The pilot, which launched in June, includes the card network, Budapest's transit authority, Hungarian bank K&H and software company BKK. The test commenced on the city's airport shuttle with plans to add contactless payments to the metro network, buses and trains in the next few months. Payments can be purchased via an app or through a contactless card. In a release, BKK said the goal is to boost overall usage of digital transactions, which lag in Hungary.

Discover

The recovery of mass transit has been gradual. After falling to a 100-year low in 2020, U.S. mass transit ridership volume is at about 66% of early 2020's volume of 180 million, according to the American Public Transportation Association.

What is growing rapidly is the use of contactless payment methods on mass transit systems. Discover Financial Services recently reported mass transit volume has jumped 120% over the past three years, growth the financial institution attributes to more agencies adding open-loop and contactless payment options.

The financial institution notes that as riders use Discover more frequently for transit payments, the average transit payment size goes down — since riders are no longer using Discover to top up closed-loop cards.

"Discover cardholders that are transit riders are making more frequent transactions for lower-dollar amounts, illustrating that many mass-transit riders prefer a pay-as-you-go approach to purchasing long-term passes," said Emily Foshee, Discover Financial Services' vice president of core products, in an earlier interview.

-Kate Fitzgerald contributed to this item.