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Wider adoption of transit cards on its way

Week 43, 2006

Smart cards promise seamless travel, reduced operating costs, and improved information and planning. According to Innovision, the market for transport tickets is expected grow from 277 million units in 2005 to 8.6 billion units in 2009. Smart card advantages are well known: maintenance cost reduction for readers (when compared to magstripe solution), fare policy flexibility, higher throughput at fare collection barriers, reduction of fraud and cash handling, data security and privacy improvements, better data allowing a better resource allocation. Smart ticketing also allows to build multi application schemes in which the same card is used as a ticket and as a means of payment for other goods and services.

Some issues remain before the generalization of smart card based tickets:

  • Cost: British Department for Transport established the system is viable if the cost for a card is lower than  EUR 0.25, and provides a positive return on investment if the cost of the medium is below EUR 0.15.
  • Standardization:  Even if contactless communication is standardized, there is a variety of communication protocols, and application setup is not standardized yet.

Another issue is building up a global consensus about the solution adoption between multiple stakeholders: Governments and national associations, Transport operators and authorities, financial institutions, systems integrators, ticket manufacturers, consultants, …

In the first implementation type, transit agencies issue smart cards, that are typically stored-product implementations where the card holds the fare product or cash value that is updated with each use of the card. Another implementation mode is converged systems where cards are used for variety of payments regardless of whether they are issued by a transit operator or a financial institution. This option creates an opportunity for the financial payments industry to expand its share of the micro payments market. This way, the transit operator is no longer in charge of issuing its own payment media, and becomes just another merchant in a global payment system. It can work the other way round, a transit operator can see in an improved ticketing system an opportunity to become a financial institution devoted to micropayments.

Once contactless payment systems become a widely accepted means of payment, transit operators will be compelled to adopt them, and won't be able to support their old magstripe systems any more.  We are talking about huge amounts here: just in the USA, 10 billion transactions annually could be concerned by this technology evolution.

There are many ongoing applications as well as trials and announcements. For instance:

  • The New York City Transit Authority launched a trial of standard, contactless bank-issued smart card devices to pay transit fares directly at the point of entry without the need to purchase fare media, in partnership with MasterCard and Citibank (cf. Smart Insights #06-28).
  • In San Francisco, the BART (Bay Area Rapid Transit) will start shortly to test a prepaid smart card system with 250 test users.
  • In Atlanta, MARTA, the local operator, is starting the rollout of a system using contactless cards for subscriptions, and contactless payment tickets for single fare users
  • The Thai government is considering setting up a system where a single smart card will allow to pay for trips on the country's trains, buses and boats.
  • In Seoul, in South Korea, the T-money transit cards, used on Seoul's buses and subways, have been running for years. Now the Seoul Metropolitan Government is starting a pilot to test card acceptance in taxis.

The technology is ready. Now the implementation is in the hands of transit authorities and operators, and of financial institutions.

Thierry Spanjaard

Chief Editor

Smart Insights