Mobile on the MOVE
How transit agencies are offering alternative payment options to commuters
By Christine Umbrell
The widespread adoption of smartphones and mobile devices is beginning to make an impact on the way commuters pay for their travels—via subway, bus, train, and other modes of transportation. While some transportation agencies have adapted with the times and are offering mobile payment capabilities, others continue to rely on traditional legacy systems.
Unlike other sectors of the U.S. economy that have adapted quickly to alternative payments methods, “changes in transit payments in the U.S. are coming at a slower pace than changes in other industries due to the costs of infrastructure investments,” says Emily Boese, principal at First Annapolis Consulting. With each passing year, however, more transit systems are offering mobile options, and growing numbers of commuters and transportation systems are taking advantage of new ways to pay.
Mobile On the Rise
Across the United States, thousands of transit agencies use different media to capture payment, including cash, tokens, paper tickets, and magnetic strips or contactless cards. These various payments are leveraged at fare gates or via visual or electronic validation. In some areas, systems are complicated and cumbersome, requiring different payment methodologies for commuters who transfer from one mode of transportation to another.
“The changing demographics of the transportation customer base have forced transit companies to be more aggressive in expanding their mobile and digital offerings,” says John Vasilj, managing director of Accenture Transportation. “At big-city properties, all of the ‘value’ used to be ‘on the card.’ As solutions become much more pronounced, available, and secure, the systems have become a bit more open.”
Mobile ticketing apps have been adopted at several transit agencies, including those in Boston, Dallas, New York, and Portland, Oregon, says Elisa Tavilla, payment strategies industry consultant at the Federal Reserve Bank of Boston. “Based on discussions with some of these transit agencies, mobile continues to represent a growing percentage of their ticket sales and revenue, while sales through other fare channels—including ticket vending machines, fare boxes, retail outlets, and on-board cash payments—are declining.” With mobile ticketing, commuters may use credit or debit cards to purchase mobile tickets via ticketing apps or commuter prepaid cards. Mobile ticketing is processed on the back end like standard credit or debit transactions, and tickets are stored on the consumer’s mobile device. Commuters can use their iPhones or Android phones to pay for their travels.
“Given the number of transit riders in the U.S., mobile is an area where there is a lot of opportunity,” says Tavilla. “More agencies have begun to roll out apps in the past few years”—including both large and small transit systems.
Taking the mobile movement one step further, some cities are in the process of developing fare systems that accept open contactless payment, via near-field communications (NFC), while a few have already implemented open systems. For example, Chicago Transit Authority’s Ventra fare system accepts open contactless payment via NFC, says Tavilla. These “tap and board” systems enable payment via NFC mobile wallets, such as Apple Pay or Android Pay, and accept other options for payment, including contactless credit and debit cards. These systems work similarly to retail point-of-sale systems, and a fare validator calculates payments when commuters tap their NFC mobile wallets at the reader, explains Tavilla. Installing these systems, however, requires budgeting for capital expenditures and new infrastructures needed to accept payments.
Vasilj’s company offers an “Accenture Fare Management Solution,” which is currently being used in Toronto. The solution has been designed to manage fare collection and customer service across multiple transit authorities and modes of transport. It accepts most fare payment media and allows passengers to access the solution across busses, trains, ferries, tolls, and bike-sharing services. It offers a multichannel approach to allow self-service functions via web, mobile, and kiosks, allowing travelers to purchase fare products, add to payment cards, and manage account profiles and details. “It’s an exciting time, seeing how many customers are using their phones for payments and account benefits,” says Vasilj.
With the solution in place, the speed of boarding has helped services stay on schedule, asserts Vasilj. Plus, he states, “It has lowered the cost of fare collection in a very meaningful way.”
Vasilj says commuters benefit from systems like Accenture’s because they have a choice in how and when they pay for their trips. Consumers may have the opportunity to prepay on a monthly basis—giving them better budgeting data about how much they’re spending. In addition, these payment options provide multimodal flexibility.
Other transit agencies are installing similar systems, including the planned implementation of an open fare system in New York’s Metropolitan Transportation Authority (MTA). MTA rolled out its eTix App last summer, and, by late fall, nearly 1 million eTix had been sold. eTix accounted for 8 percent of all MTA tickets sold in October 2016, exceeding expectations. In October, New York Governor Andrew Cuomo announced the addition of Apple Pay and Masterpass digital wallet technology to MTA eTix, the mobile ticketing app that enables Metro-North Railroad and Long Island Rail Road customers to purchase their tickets anywhere, anytime. In its next step toward more mobile usage, MTA will roll out its New Fare Payment System in phases beginning next year. Customers will be able to bring their own contactless media, and MTA will start to phase out MetroCards.
Encouraging Consumer Acceptance
While many transit authorities are transitioning to systems that accept mobile payments, there is evidence that some commuters remain reluctant to embrace nontraditional payments.
Findings from the “2016 ACI Worldwide Mass Transit Payments Survey,” conducted by ACI Worldwide to assess the current sentiment of U.S. public transportation riders in regard to payment preferences and payment security, indicate that, while there is a high demand for alternate payment types, cash is still the most prevalent method of payment for mass transit riders. It is also currently viewed as the most secure method of payment. “Riders also indicated that there is a strong demand for alternate payments, such as credit/debit cards and mobile app payment, but the current perception is that these methods of payment are less secure than cash payments,” according to the report.
Other highlights from the report include the following: 43 percent of travelers have a monthly transit pass, 51 percent use a preloaded card, 59 percent of riders are forced to use multiple payment types for multimodal transit, and more than two thirds of riders would like a single payments method for multimodal transit. The three most preferred payment methods are cash (51 percent), credit/debit card (31 percent), and mobile app (12 percent), according to the report. Cash is viewed as most secure, with credit/debit card payments viewed as the most secure noncash transactions.
“More than three quarters (78 percent) of mass transit riders currently trust that the payments process for mass transit in their city is secure, and nearly the same (76 percent) trust their mass transit authority is protecting their payments information. However, if their payment data was compromised (by data breach or fraud), nine out of 10 people would likely revert to using cash for mass transit payments,” says the report.
Mass transit authorities “have a long way to go to increase the overall perception of payments security,” the ACI Worldwide report concludes. “The perception that cash is the most secure method of payment among riders should be concerning for mass transit authorities,” given the costs involved in cash management when compared to the cost of alternative payments. The report recommends that authorities attempt to proactively increase the perception and importance of security of electronic payments and provide seamless payment options for riders.
Benefits of Mobile Adoption
For those commuters who are wavering in their feelings about using mobile payments to cover transportation costs, new apps and products may help ease the transition—and may provide opportunities for payments professionals.
“Mobile offers convenience for consumers, and saves them time because they don’t have to wait in lines,” says Tavilla. “It can also be less intimidating to people who are not regular transit customers, who can use their phones to figure out how to use and pay for travel” before arriving at a transit station.
Transit agencies may begin to offer mobile fare products and incentives that are comparable or more attractive than those via traditional fare media, suggests Tavilla. Incentives such as free intermodal transfers, unlimited passes, and other discounts may help motivate consumers to try new options. “Transit agencies continue to add more fare products as mobile ticketing evolves,” says Tavilla. “For example, [Dallas’s] DART offers transit fare with discounted admission to several local attractions, including the Dallas Zoo and State Fair, via GoPass.” She also notes that some agencies are trying to integrate other transportation services—such as ride-sharing and bike-sharing programs—into their transit apps, which “could help commuters access and pay for other modes of transportation to reach destinations in areas that are not covered by mass transit.”
As more commuters move past security concerns and begin to make use of expanding payments options while traveling, transit agencies stand to benefit in several ways. “Mobile payments can help reduce costs” from less cash handling and fewer proprietary fare media and ticket vending machines, says Tavilla. In addition, those transit authorities that currently offer mobile options are gaining insight into the buying habits and transportation patterns of commuters who are leveraging electronic payments. This could ultimately lead to reductions in operating costs and increased consumer satisfaction levels.
“You can’t track people who are giving you coins, but you can pull information from phones—demographic data, how often you ride, where you go—like at the grocery store,” says Linda Coven, CTP, senior analyst at Aite Group.
Vasilj says the data generated by using new systems allows for better budget planning and route mapping. The Accenture solution allows the company to “take all of the digital activity and analytics, and deliver it to help lower maintenance costs and manage assets,” he explains.
“A lot of data aggregation is ‘opt-in’ based on customers’ interest in providing information about themselves,” says Vasilj. “Transportation companies have reworked services based on data being aggregated by our solution.” In the future, data that facilitates connecting trips and real-time updates will allow for improved budgeting decisions, suggests Vasilj.
Aggregated commuter data also could lead to changes in the way transit agencies schedule rides—perhaps by cancelling a bus that is usually empty or adding a bus when the routes are too crowded, says Coven. “This doesn’t ‘just happen,’ but knowing you have the data will help drive businesses and help transit companies run the right number of busses and trains at the right times, in the right places, based on what you know about ridership. Then you’re meeting commuters’ needs and improving the user experience.”
Partnerships and Opportunities
New opportunities for partnerships between transit agencies and local retailers may arise as more commuters embrace mobile options, says Tavilla. “As commuters habitually use their smartphones to conveniently pay for their fares and conduct other daily activities during their transit ride, they will be motivated to use them to make other purchases beyond their commute.
“Transit operators are considering more customization that takes personalized travel preferences into account or makes location-based offers,” states Tavilla. “They also may choose to institute loyalty programs to further enhance customers’ experience using and paying for public transportation.”
In the increasingly mobile transportation payment climate, payments professionals can look to partner with mobile apps developers. “Transit agencies are integrating a variety of travel tools with mobile payments. Most apps include trip planning capabilities, such as transit directions, schedules, real-time arrival information, and service alerts,” says Tavilla.
Smaller payments companies should look to leverage opportunities on a smaller scale when seeking to engage in transportation payments, says Boese. “Mobile will have a massive impact—but those are big investments for transit authorities,” she says. Boese suggests that payments companies explore opportunities in smaller cities, and look to partner with software vendors and mobile app developers to provide the payments piece of transportations solutions. “As they create mobile apps, can you partner with a mobile app designer?” Partnering with smaller software vendors to offer value, such as companies that design apps that incentivize mobile commuters, may be a good option.
Vasilj offers the following advice to payments professionals: “Keep a close eye on payments trends. Watch what is going on in transit. But be sure security functionality is incorporated,” he says. “Take a close look at how to remove some costs by doing this via mobile and digital” in a way that has not traditionally been done before.
It is yet to be seen just how much mobile payments will overtake more traditional payments in transit—but it’s a good bet that the next few years will see a significant transition. “As consumers become more familiar with mobile, it will grow, and services will become more robust,” says Tavilla. For now, “education can help build awareness, create optimal user experiences, and generate early adopters.” TT
Christine Umbrell is editorial/production associate for Transaction Trends. Reach her at [email protected].