Open loop is expanding in transport worldwide

The Paris-based EESTEL association regularly organizes meetings that provide a place for experts in a given technology field to talk, exchange ideas and build common knowledge about the secure transactions industry. This month, the association talks revolved around open loop payments in transport. Open loop consists in getting rid of the fare media in mass transit systems and to use contactless EMV cards, or apps such as Apple Pay or Samsung Pay, to complete payments.

The rationale is that a transport operator is just a merchant like any other, and traveling on a subway, tram or bus is just making a small amount payment. Actually, the devil is in the details: open payment means building up a complex system that takes into account the intricacies of contactless payments as well as variable fare plans according to locations, days, times, transport means, etc. Fare structures are often decided by a combination of politicians, transit authorities and transport operators, and often include numerous specific cases, such as social rates for some categories of passengers.

While open loop frees the transport operator from having to issue fare media, it also brings its own complexity. For instance, bus validators have to be online to be able to keep a journal of all transactions in real time. Also, the complexity of EMV may trigger transaction declines that may not be understood by end-users, leading the operators to have to provide additional customer service.

The world of mass transit has developed its own culture, thanks to a long history of demands by government stakeholders and transport operators. Consequently, while the payment world we are accustomed to is heavily standardized, every transit authority and transport operator have their own specifics, their own methods, their own idiosyncrasies, making it difficult for solution providers to develop a single system and replicate is everywhere. At the same time, the payment world is seen as extremely intrusive by the transport operators as it imposes its standards, methods and information exchanges. Open loop payment leads transport operators to have to face specificities of the payment industry such as risk management, authorization requests and transaction fees.

Open loop payment is extremely successful at its pioneer, Transports for London, with 1.8 million contactless transactions per day, while the TfL-owned Oyster card makes 4.8 million transactions. Other networks have all developed variations around the concept, such as using EMV-compliant transport cards issued by the operator, writing into a dedicated zone in the EMV cards or installing an EMV-dedicated reader aboard every bus.

Switching to open loop is undoubtedly beneficial to operators as they reduce their expenses in issuing and controlling fare media. Open loop also brings additional flexibility to transit passengers as they no longer have to waste time buying tickets, or other fare media. However, as mass transit has to provide a universal service and to accept a wide variety of payment means, open loop is bound to durably coexist with more traditional payment means such as cards and tickets, and there is little chance we will witness the end of cash in a foreseeable future.