‘Tap-and-ride’: How public transportation is making room for contactless payments

Like other industries, public transportation is becoming more dependent on contactless pay. The mobile ticketing market size is predicted to go from $350 million in 2018 to $1.7 billion in 2025. In the US, 80% of the cities with plans to implement mobile payment methods in public transportation are doing so for the first time.

The public transportation industry is undergoing digital transformation at lightning speed, said Tokhir Abdukadyrov, director of O-City, an automated fare collection solution that operates in 130 cities globally. The pandemic has made people more nervous around crowds and less trustful of public transportation. Implementing contactless forms of payment could be the only way to make passengers feel comfortable again.

“Beyond the various lockdowns around the world, which have greatly reduced traffic and thus had a significant impact on revenue, passengers have further restrained their movement due to a lack of trust in public transport, with passengers wanting to avoid crowds and any kind of touch point when it comes to ticketing and hopping on a train or metro, all in line with hygiene concerns,” said Abdukadyrov. “For these reasons, many public transport operators and ministries of transport around the world have come to realize that contactless payments are no longer just nice to have but are actually vital to their industry.”

And just like restaurants are turning to QR codes to become more contactless, public transportation is turning to open loop payments to become more contactless.

NMI is a payment infrastructure company. A portion of the merchants it works with is in public transportation. The company is seeing a shift from closed loop purchases to open loop. Previously, things like city cards were the go-to payment methods for public transportation, said Nick Starai, chief strategy officer at NMI. Now though, card companies are giving the go-ahead to start paying with contactless.

“Recently, the card associations have given the thumbs up to this concept of open loop,” said Starai. “[So] if you have a contactless card, then you can just go into the transit system and tap with a real card to get on the bus and not have to mess with any of the closed loop stuff.”

Visa is one card company that’s giving a contactless thumbs up. Visa’s digital ticketing solution allows for tap-and-go payments.

“We’ve been launching programs all over the world from New York MTA, which completed their migration in December of last year, to TfL in London, which completed a migration four years ago, to new and emerging cities like Mexico City,” said Dan Sanford, senior vice president of corporate strategy and development at Visa. “We’ve got public transit operators that are looking at the experience of open payments and looking at the cost of managing a closed loop payment and saying, ‘This case is closed and shut, it just makes so much sense for me to be able to allow my customers to pay the way they want to pay. And it provides a much better experience to them.’” 

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Visa’s enthusiasm for contactless was there before the pandemic. But Covid-19 accelerated things. Visa has had over 400 projects live and 650 more in the pipeline. The push for contactless forms of payment in public transportation is becoming a global phenomenon.

“Brussels, Belgium, Bucharest, Romania, Hong Kong — this is all over the world,” said Sanford. “We’re seeing operators really look to this experience and want to mimic what we’ve seen in places like TfL in London or MTA in New York.”

For now, open-loop payment for public transportation is more prevalent in bigger, more central cities, which could indicate that while contactless pay is essentially ready for takeoff in the public transportation industry, it hasn’t left the runway just yet. Still, contactless pay players are taking steps to make it more common outside the central zones.

Visa, for instance, is partnering with tech providers to streamline open loop payments in transportation through its Visa Ready Transit Program. There’s a group called the California Integrated Travel Project that aims to get open payment in public transportation in California up and running. 

It may just be a matter of time before public transportation starts spreading into the smaller places, though, since they tend to follow the steps of the big places, said Sanford. 

“Large cities, by and large, [lead] the way because of the impact that they have,” said Sanford. “But smaller cities are definitely doing it as well and are right on the heels and following suit of those big launches.”

Still, open-loop payments may not have the green light just yet. Connectivity goes hand in hand with contactless, and not all forms of public transportation have internet connection. According to NMI’s Starai, this is often especially true for buses located in the outskirts of cities.

“If you tap to get on a bus, for example, and there’s a connection that [allows it to] go online, when the bus is on its route, it will start sending those records up to their backend system for authorization and access,” said Starai. “But if the bus doesn’t have a modem or a cellular connection, when it docks at the end of its route, you plug it in, and then it downloads all the records. So there will be some interesting challenges with internet connectivity on these buses going around. And of course if you’re using a city card or putting cash in, you don’t have [to think about that].”

Cash is also worth mentioning here. People who rely heavily on cash may not be as willing to switch payment methods. But this may just be a case of making the contactless form of pay more appealing in terms of budgeting.

“I think what you’ll see is the value proposition of being able to tap to ride will just increasingly drive more consumers to find a low cost solution for how they can move away from cash to really manage their budget on a digital form factor,” said Sanford.

Finally, there’s the matter of budgeting on the transit side of things. With the decrease in ridership that came with the increase of working from home, the public transportation industry took a big hit during the pandemic. Now, companies are trying to calculate the best step forward. Contactless is not costless. 

“The transit segment was hit as hard as any segment from the global pandemic as everybody started sheltering in place and working from home,” said Visa’s Sanford. “So I think there’s just a lot of uncertainty right now when it comes to when ridership will come back and what budget they have, how they’re dealing with deficits from the pandemic, whether or not they’re getting support from state, federal, local governments to help with their budget rules.” 

For now though ridership through open loop payment seems to be rising and that’s not likely to go away any time soon. 

“At the New York MTA subway, in terms of rides, we saw over 31 million taps since we launched that program about a year and a half ago, and we’ve been hitting all time highs every single month recently,” said Sanford. “To be determined, but I think consumers by and large rely on public transit in so many of the areas where we launched open payments. And I don’t see that going away.”  

Public transportation may be the stepping stone contactless needs to spread into other habits. As public transportation becomes once again an integral part of people’s day-to-day routine, it can make the act of tapping instead of swiping feel much more natural.

“If you ride the bus twice a day, or three times a day, five days a week, and you’re always tapping to get on the bus, then you’re more likely to tap at the gas station or tap at Nordstrom, or tap wherever you’re going to pay,” said NMI’s Starai. “[For now], a lot of consumers are still not really familiar with that behavior of tapping. So we think that the transit, which generally has a large swath of major metro areas, is a good influencer on these behaviors and could help roll out contactless market wide.”