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TRANSIT

The race for convenience: what happens when consumers lose

Vishaal Chudasama profile photo

Vishaal Chudasama

Manager, Product Management

5 min read · 2024

 

Man with headphones using his phone

Open and closed loop payment systems for mass transit

Working in the payment industry, we focus on payments going right — being frictionless and fast. Which is why, when I experienced a real-life payment comedy of errors, it was so jarring that I thought it would be worth sharing.



On a recent trip abroad, my wife and I had the opportunity to take a public train. We walked up to the kiosk to purchase our tickets only to find out they were out of order. I tried downloading their mobile app but I had poor phone service, and it wouldn’t load. Luckily a public transport ticketing office was round the corner but closing in five minutes. I ran and made it in the door just in time to annoy the unfortunate public transport worker with google translate on hand and my 100 questions on how many tickets do I need? Is there peak pricing? What about return tickets? Finally, out of the office, we raced to the platform, still not convinced that we had purchased the correct tickets. On the return leg, we realised that the tickets were indeed not valid. The search for the ticket office began again!



As frustrating as that was, imagine this scenario instead:



My wife and I walk up to the turnstiles, pull out my phone loaded with my everyday debit or credit card, tap it onto the payment terminal and walk onboard. In contrast that process would take less than five seconds and we’d be on our way sightseeing. Is it wishful thinking or is it a real-life possibility?

But after years of optimizing its digital experiences, the eCommerce team was ready to move beyond recommending additional products of interest to those predicted to drive engagement. And after running a test against its traditional machine learning-based recommendations on the homepage, GlassesUSA.com discovered Dynamic Yield’s sophisticated deep learning algorithm was able to yield a 68% uplift in purchases and an 88% increase in revenue, all from a single widget.

Happy girl using her phone

Seamless transit payments

Taking public transport in new places can be exciting. Yet, if you talk to general riders, they’ll tell you a different story. A survey from the University of California at Berkeley and Ohio State University indicated that almost half of commuters surveyed across 19 countries found transit systems where you need different tickets for different modes of travel inconvenient. Many riders also share the same frustration we experienced with long dwell times meaning that it takes too long to pay and board. As an alternative, closed and open loop transit payment systems can both offer a contactless and seamless way for riders to pay for their transportation.

A closed loop payment system is where the transit operator or authority issues a payment card or ticket using their private ticketing system which requires more infrastructure and maintenance. Closed loop systems may require their own devices to validate, secure and manage the payment card ticket value and can only be used for that transit authority.



However, there may be some drawbacks for transit agencies. Closed loop payment technology has limited interoperability since the payment network is only for that one transit authority. Additionally, since closed loop payments store the payment data on the specific card, riders have a higher risk of losing all funds if they misplace their card or ticket. Also challenging for riders is if they’ve loaded the right amount of funds. Too little could send them scrambling to a ticketing kiosk. Too much that isn’t used immediately could impact discretionary spend.

Since 2020 and the need for contactless payments became acute, more transit authorities have been moving to open-loop payment technology to power their public transportation. Open-loop payment technology is built upon international EMV standards meaning any rider can use their everyday bank issued contactless EMV credit or debit card or their smart device to pay for their travel. No more fumbling for cash, touching ticketing devices, losing your prepaid transportation card and funds or in my case, running through a busy city to get to a ticketing office.



An article from Enghouse Transportation citing American Public Transit Association (APTA) said as many as 150 major cities across the globe are considering switching from legacy closed loop payment systems to open loop systems. This is in line with growth of open-loop EMV cards used for public transport in the U.S. to grow to 13 million by next year.

For each audience, open loop payment technology for transit offers advantages:



For transit authorities, open loop payment technology can be flexible and require less maintenance since there is no longer a need to issue and maintain tickets or transit cards. From an operational perspective, it simplifies fare collection and can reduce management costs.



Local city governments can also benefit from open loop transit payment systems. There may be cost savings from their local transit and cities can appreciate a more accessible and inclusive way that locals and visitors alike can navigate their city. Also, as the city adopts open loop transit, they may benefit from a more sustainable solution than privately issued cards or tickets. There are also long-term environmental benefits for cities to rely on more public transportation than individual vehicles.



For riders, I can tell you firsthand the benefits to your user journey. With an open-loop payment solution you can avoid ticketing offices or kiosks, you don’t have to download a special app or fumble entering in your card details onto their ticketing website. You also have peace of mind knowing you don’t have to calculate exactly how much funds you need for your ride if you’re short or leaving money on a card after your trip is done. Instead, public transport riders can simply tap their cards or smart devices at the terminal and go.

Thankfully both contactless closed loop payments and open loop transit payments are starting to become a reality for many transit authorities and their riders now across the globe. These advances in seamless transit payment technology are being adopted across large cities and tourist destinations.



Take for instance the Maldives Transport and Contracting Company Plc (MTCC) which is the longest serving public company in the Maldives. MTCC recognized the need to make its public transport services more convenient and simpler for its citizens and tourists.



After researching the landscape, MTCC rolled out the first multi-model, open loop transit payment and digital ticketing system in South Asia thus giving riders in this region a safe, convenient and simple way to pay and go. Since its release, the new transit payment system has driven digital transformation in the region by enabling contactless and online transport payments as an alternative to cash.



Sounds like we’ll be booking our next holiday.

Vishaal Chudasama

Manager, Product Management

 

Vishaal Chudsama is the global lead for Merchant Cloud’s solutions for mass transit, mobility and airline vertical payment solutions. His decades of experience span across several leading payment and Fintech companies.

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