Discover: Contactless payments make mass transit more inclusive

Jeenah Moon/Bloomberg

Global mass transit ridership has gradually returned to about 80% of pre-pandemic levels, but a full rebound is not yet in sight, with fewer workers commuting daily to city centers. Instead, newfound contactless payment capabilities are helping attract different riders.

One reason is that the massive surge in consumer contactless payment adoption that accompanied COVID-19 lockdowns four years ago — helped by broad support from banks and merchants — enabled many transit agencies to modernize fare-collection systems to be more accessible to a wider audience, including hybrid and temporary workers, tourists, underbanked and low-income riders and students.

As those who only occasionally rode public transportation before the pandemic now demonstrate their preference for contactless methods of paying for bus and train rides, they create a stronger business case for transit agencies to upgrade their payment systems to support contactless fares.

Hundreds of transit agencies support mobile contactless payments through a proprietary app where users load funds to a virtual card, but a growing number are building full open-loop systems where riders simply tap a credit or debit card or the digital wallet in a phone or a wristwatch, said Emily Foshee, vice president of core products at Discover Financial Services.

"When you don't have to go to a kiosk and figure out how to pay for a ticket or load funds that you may not even fully use, but instead you can just pay as you go with your phone, it's a lot easier to use mass transit," Foshee said. 

In a recent survey Discover conducted among 100 global transit agency executives, 70% of those whose fare-collection systems already support open-loop payments are seeing both an increase in different types of riders and a reduction in fraud. Three in four of those surveyed said transit agency operating costs decline where open-loop payments are applied.

"We're still in the early stages of the U.S. moving broadly to open-loop transit payments, but the worldwide momentum is building, so we're nearing a tipping point where many major cities are looking at it, even if they haven't yet made the investment," Foshee said.

Since London launched its groundbreaking open-loop Oyster payment system a decade ago, certain large urban zones including Hong Kong, Singapore, New York, Chicago, San Francisco and the Tampa Bay region have added open-loop payment options, with dozens more in the pipeline. The Netherlands last year became the first country to adopt open-loop payment technology on all public transit.

Recent research from Visa suggests that among global transit agencies that do not currently have open-loop technology, 83% plan to eventually implement it, and 70% hope to do so within the next two years. More than 750 public transit systems around the world support contactless payments in some form, or are in the process of doing so, Visa said.

Contactless transit payment technology is also coming to the smallest cities and rural areas.

San Diego-based Cubic Transportation Systems, which supports hundreds of contactless payment fare systems globally, on Tuesday announced a new contactless-enabled handheld transit payment-collection device designed for smaller or rural transit systems, paratransit and on-demand transit services.

The Umo Handheld Reader, which works with Cubic's proprietary Umo fare-collection platform, enables public transit drivers or other transit personnel to collect fares when riders tap using the Umo mobile app, a contactless fare card or a special token, a Cubic spokesperson said.

A key advantage of the handheld unit, based on a Samsung Galaxy mobile device, is its relatively low cost, enabling transit agencies to collect fares electronically without installing hardware in vehicles, according to Cubic.

"We expect to see demand from all [sizes] of transit agencies, but initially the focus is for on-demand transit, paratransit services and special events," the spokesperson said. 

Overall, modernizing fare-collection technology improves the rider experience, and will gradually help public transit expand usage to wider audiences, according to Discover's Foshee. 

In Discover's survey of transportation agency professionals, 45% said they wanted to upgrade fare-collection technology to improve the experience for riders, and 12% said modernizing their payment systems could expand service to unbanked and reduced-fare riders. Another 12% said new payments technology could help transit systems integrate payment systems with other transit or public-service agencies, and 10% said they hoped to lower operating costs and decrease risks associated with handling cash.

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"Open-loop payment systems and contactless approaches that let riders pay as they go has the biggest potential to expand overall transit ridership, because it's the most convenient for commuters and also for students, visitors and people on a budget who don't want to tie up a bunch of their money on a fare card," Foshee said.

Despite the convenience credit and debit card-based open-loop transit payment systems provide for users, some observers are doubtful whether the majority of bus and train riders worldwide will be using open-loop systems in the foreseeable future.

"Due to a variety of pricing-model factors, broad adoption of open-loop fare systems will be at bay for another decade or so," said Peter Quadagno, a longtime mass transit payments consultant and CEO and co-founder of Vality Corp., based in West Chester, Pennsylvania.

Open-loop transit payments systems will likely evolve gradually and in partial areas of large and small cities in coming years, he said.

Small cities are actually returning to pre-pandemic public-transit ridership faster than other urban areas, according to the Washington, D.C.-based American Public Transportation Association. As of September 2023, the smallest U.S. cities had recovered to 86% of 2019 transit ridership levels, while large cities hovered at about 79% of pre-pandemic levels, the organization said.