Modernized transit fare systems brace for commuters' return

As more people resume their commutes after a year in lockdown, they will test the scalability of the transit fare systems that were upgraded during the pandemic.

If the new fare systems, built to accept contactless cards and mobile wallets, create a preference for that transaction type, it could affect payment habits in other venues as well.

During its recent earnings call, Visa CEO Al Kelly noted a tie between transit technology uptake and consumer behavior at nearby merchants. One in 10 face-to-face transactions in the U.S. are now contactless payments, which is double the rate from March 2020, just before the pandemic hit. And contactless payments penetration in New York has reached 30%.

"That shows the impact that transit has on contactless payments," Kelly said, adding Visa is working with 250 transit systems globally to install ticketing and payment portals that are contactless and open. Visa reports merchants in close proximity to transit stations or stops have a rate of contactless adoption that's 15% higher than other merchants.

Contactless payment projects at transit systems have accelerated during the pandemic, with cities often using the lull in ridership to expedite work. Los Angeles, for example, has pushed up a project to extend its subway to Beverly Hills; and New York's OMNY open-loop ticketing system has progressed faster than anticipated.

John Taggart/Bloomberg

There are also signs that transit ridership is recovering in some areas. New York subway ridership in April neared half of its pre-pandemic levels, up from a 90% drop-off in 2020. That increases contactless payments. That number should grow as more companies return to office work. JPMorgan Chase, for example, expects most staff to be working in offices on a flexible rotation by July.

But the office work model is expected to change, as more people work from home permanently or rotate between remote and in-office work. That may break the connection between retailers that serve commuters near transit systems, making it harder for systems to replicate the performance of London's transit system, which was adding more than 55,000 general adopters of contactless payments per day in 2019. The shopping habits formed by using contactless technology to board a train ten times per week at nearly the same times won't be as reliable in the future for retailers, payment companies or transit systems.

"Historically transit has been a major driver for adoption of contactless/digital payments," said Thad Peterson, a senior analyst at Aite, adding the Octopus card in Hong Kong, the Oyster Card in London and the Suica card in Japan all jump-started contactless in their respective markets.

The new habits that encourage adoption of payment technology may come from outside transit, according to Peterson, saying the main accelerator of mobile or contactless payments may instead be the nearby retailers, given the new digital shopping patterns, such as e-commerce, that have emerged in the year when most people have worked away from offices.

"While people may soon be returning to their offices, it’s likely that a significant percentage will either only go to the office periodically or continue to work at home, so demand on transit may be less," Peterson said. "But with contactless being accepted across the retail ecosystem, we may have already jumped over the need for contactless at the transit turnstile to get contactless going in the U.S."

Visa did not return a request for comment on changes to its transit strategy resulting from post-pandemic work patterns. During PaymentsSource's recent CardForum: Contactless event, Josh Martiesan, senior direct of transit in North America for Visa, said the contactless adoption habit doesn't flow in a single direction — and it's likely usage in stores will impact transit, as well as incentive marketing that ties transit and in-person shopping together.

Using an open payment system, which also connects to mobile wallets since the transaction takes place outside of the transit network, allows flexibility for incentives to use transit in different ways than in the past, said James Gooch, head of marketing for Masabi, a transit ticketing technology company with offices in New York and London.

"As people come back into transit systems, they will want different options, such as charges based on how much you use the system," Gooch said. "The pandemic has changed habits for a lot of people, and an open-loop digital system can support new habits."

Dayton's Regional Transit Authority recently started deploying Masabi's contactless technology for its bus fleet. Brandon Policicchio, chief customer and business development officer for the transit agency, says the emergence of contactless and general mobile technology for transit systems contributing to a larger trend toward financial inclusion as people access apps for both commuting, shopping and nearby payments. The relationship between contactless transit payments and retail as larger than scheduled commutes for a traditional workday, he said.

"We carry a lot of essential workers who are using transit as a part of their day, and there are a lot of transactions that they need to make," Policicchio said.

In India, Fime began collaboration with the government in April to test infrastructure for India's National Common Mobility Card, which is designed to provide a single automated fare collection experience for the dozens of transport operators that manage transit systems, along with payment and financial services tie-ins to local vendors and banks. The single access will form habits for shopping and travel, according to Fime.

"Any consumer can use this at any metro system, retail or online for shopping," said Angaj Bhandari, country manager for India at Fime, adding adoption in one venue automatically creates adoption in another, regardless of pre-existing shopping or travel habits. "One card should be able to solve all problems."