In my previous blog, I talked about the trends in smart ticketing systems leading to account-centric and open-loop payments which I want to consider in more detail in this blog.
‘Open-loop’ is the term used for transit payment instruments which can also be used for generic payments outside of the transit system. By contrast, traditional transit payment smart cards (such as Oyster in London) have required customers to convert their money to transit-only funds stored in a transit account and used to pay for travel. Customers have been prepared to do this because of the benefits of speed of access to the transit system without having to stop to purchase tickets. However, the down-side is that they have to periodically load funds to their CTCs, such funds then being unavailable for other purposes unless a refund from the CTC is sought.
There are many payment instruments emerging, but the one which is currently most ubiquitously accepted by merchants is EMV, the smart debit and credit standard used by the large payment networks including MasterCard, Visa and American Express whose members are the banks. These Payment Schemes are currently lobbying the transit sector for their open-loop cards to be accepted as payment instruments within transit.
This approach has the obvious benefits that (i) fewer CTCs need to be issued by the transport operator, and (ii) customers can arrive in a city from anywhere in the world and travel using the bank cards in their pockets.
The leading example of open-loop payments in transit is London where all Oyster readers have accepted contactless EMV (cEMV) payment cards from across the globe since 2014. Other transit schemes already committed to rolling out acceptance of cEMV open-loop payments include the national OV-Chipkaart scheme in the Netherlands and MTA in New York.
UKCA Transit Framework Model
The country with the most practical experience of a large-scale open-loop payment transit deployment is the UK, and, in particular, Transport for London which now sees more than one million journeys per day using ‘contactless payment cards’, the generic term used to described all EMV-compliant contactless devices, including ApplePay.
The deployment in London was pioneering and occurred before any models existed for cEMV use in transit. Subsequently, a payment model framework has been developed by the UK Cards Association (UKCA) in conjunction with the transport industry. The Association’s members issue the vast majority of debit and credit cards in the UK.
UKCA has identified three models which are described below. Two of the models are ‘pay as you go’ (PAYG) and the third model assumes that a ‘travel right’ or PAYG balance has already been purchased.
The important point to understand is that UKCA models 1 and 2 exploit EMV payments and are therefore bound to EMV-issuing banks, which are communicated with via the Merchant Acquirer. These models are different from transit account-centric solutions which could accept pre-payment from any payment instrument, not just bank cards. Furthermore, the ‘token’ used to identify the passenger in the account-centric solutions can be either an open-loop (CPC) or a closed-loop (CTC) token.
This last point is important in relation to ‘unbanked’ passengers. It has been shown (e.g. Ventra in Chicago) that cEMV technology cards can be issued to the unbanked and used as smart ticketing ID tokens to access pre-purchased transit products.