Payments

As the retail payment ecosystem goes contactless, transit struggles to keep up

  • Many city transit systems struggle to implement payment modernization.
  • Unlike other merchants, cities have the unique challenge of having to accommodate customers with varying degrees of comfort with technology and lengthy procurement processes.
close

Email a Friend

As the retail payment ecosystem goes contactless, transit struggles to keep up

A customer who can wave an NFC-enabled phone to purchase a coffee may wonder why they can’t do the same to board the subway.

Countries outside of North America are forging a path ahead in their embrace of contactless and mobile transit payments, with South Korea being one notable example. But transit payment systems for most cities across the U.S. lag behind, due to a combination of the challenge of updating aging infrastructure, getting the customer experience right, and a payments ecosystem where contactless cards have yet to reach mass adoption.

For urban transit systems that use legacy infrastructure, keeping up with technological advances while operating in the context of funding processes can halt the march to innovation.

“There’s no shortage of technology, but the challenge is in the procurement for the new system,” said Jerry Kane, senior program manager for the Key Fare Modernization Project for SEPTA, Philadelphia’s transit authority. “I don’t know if there’s any answer to that.”

In a major fare modernization move, from June 1, Philadelphia will stop selling legacy magnetic-stripe weekly and monthly passes and customers will have to purchase passes loaded onto a contactless SEPTA Key Cards. But as cities are made of populations with varying degrees of technological literacy, the city has opted to keep selling some legacy products, including tokens and weekly and monthly passes at some sales locations.

The need to accommodate users with varying levels of comfort with technology is a particular hurdle transit providers must overcome while updating transit payment systems, said one city transportation expert.

“Agencies have to make sure they’re providing service to all their customers,” said Joshua Martiesian, chief officer of fare payment programs at New York City’s MTA. “Most agencies are still going to need their own card — it’s important that the agency has a social goal, and that’s at the back of mind for most agencies.”

Regardless of customer accommodation needs, fare modernization is a goal transit providers can ill-afford to ignore, given legacy fare collection systems can be costly to operate  — up to 10 to 20 cents on the dollar, according to Kane.

U.S. cities’ slow transition to contactless and cardless transit payments is partly the consequence of the slow uptake of contactless cards in the U.S. banking system, which is less of an issue for transit planners outside of North America, where contactless cards became mainstream over the last five years. For transit planners working on London’s move to contactless payments, transit fare upgrades coincided with more widespread use of contactless cards.

“It was a long, slow game,” said Simon Laker, vice president of consulting at Consult Hyperion, a firm that advised Transport for London on its transition to contactless transit payments. “In 2012, Transport for London had a very simple offer on buses [to use contactless cards], it was when only two major issuers were onboard — it wasn’t until 2014 that all five issuers jumped on the contactless wave, and now contactless is everywhere.”

A Chase executive who requested anonymity said he agreed that the slow adoption of contactless cards in the U.S. payments ecosystem had an impact on slower transit fare system modernization. “We have at role to play on product side and on the education of the use of that card in new industry verticals,” he said.

On the banking side, Michael DeVitto, a former MTA executive and now chief strategy officer for payments startup Waltz, said one change that would cut costs for transit agencies and help consumers get a more seamless fare collection experience would be for transit agencies to get out of the fare collection business and leave that to banks. “Banks need to get into issuing the dual-interface cards and the transit agencies just need an acceptance infrastructure —  whether it’s dual-interface cards or phones,” said DeVitto.

0 comments on “As the retail payment ecosystem goes contactless, transit struggles to keep up”

Payments

With launch of cloud point of sale, Mastercard powers an ecosystem to take on Square

  • Mastercard deployed the first live pilot of its cloud point-of-sale technology.
  • The cloud program enhances the global payments ecosystem built by Mastercard’s Tap on Phone solution which could give Square’s POS technology a run for its money.
Rimal Farrukh | January 22, 2021
Member Exclusive, Payments

Contactless pay is here to stay: What about QR codes?

  • The use of QR codes is slowly growing in the US.
  • Their increased popularity may stick around even after the pandemic.
Rivka Abramson | January 11, 2021
Payments

The ins and outs of payment operations with Modern Treasury’s Dimitri Dadiomov

  • As fintech companies grow, payment flows and reconciliation get more complex.
  • Modern Treasury is a payments operation platform working across a variety of use cases and industries.
Zachary Miller | December 29, 2020
Payments

Payments in 2021: Experts weigh in with their perspectives on retail, financial inclusion, and contactless

  • Industry experts weigh in on upcoming payments trends in 2021.
  • We explore financial inclusion, the impact of contactless payments on payroll and more.
Rimal Farrukh | December 18, 2020
Member Exclusive, Payments

7-Eleven launches a mobile wallet

  • Customers can now use 7-Eleven’s mobile wallet for direct purchases within any of the chain’s U.S. stores.
  • Customers can fund their wallet both digitally and with cash
Rivka Abramson | December 04, 2020
More Articles