Supplied
First there was cash, then paper transfers, then dedicated payment cards. Now Canadian transit systems are looking to turn debit cards, credit cards, smartphones and smart watches into convenient fare payment methods.
While the technology has been available for some time, having first been introduced in London, England in 2012, transit systems in Canada are finding even more reason to implement it as they look to recover from a period of reduced ridership.
“We’re about 75 per cent of [ridership compared to] where we were at in 2019,” said Mark Langmead, Director of Revenue and Compass Operations for TransLink, the authority for all transit services in British Columbia’s lower mainland.
“Over half of our operating cost is collected through fares, so it is a critical part of funding transit and funding the services that we offer.”
TransLink was able to help soften the blow from the pandemic by becoming an early adopter of an “open loop” payments system, which officially launched in 2018.
Unlike a “closed loop” system — which requires the printing, distribution and cash-loading infrastructure of dedicated payment cards — it utilizes the tap-to-pay feature already available through most debit cards, credit cards and digital wallets.
While dedicated transit payment cards were a significant step up from cash, they still created a lot of complexities and costs for transit systems, says Langmead. Those costs have only increased since the pandemic.
“Transit agencies, like many industries, have been affected by the global chip shortage, which affects all smart media, whether a ticket or a card with a chip in it,” he said. “They also had to act like a bank in that respect, because they were holding money in trust for customers, and that has its own risks and liabilities.”
Langmead says the transition to an open loop system ultimately helped enable a faster recovery for TransLink by both increasing ridership and reducing operational costs.
It also aided the region’s broader pandemic recovery by helping to make it more convenient for visitors to get around. The transit authority plans to bolster its payment options by making debit contactless available on its system later this year.
“Open loop payments are a viable alternative to pre-loaded transit passes and cash because 97 per cent of Canadians with a bank account have a debit card in their wallet or on their mobile phone,” explains Andrew Yablonovsky, Associate Vice President of Product Strategy and Growth at Interac Corp.
“Giving them an option to use their debit card to pay for transit is, in our view, a natural evolution of the consumer experience.”
Transit systems that implement an open loop payment system such as Transport for London tend to see quick adoption, notes Yablonovsky. “In mature markets open loop payments can make up as much as 60 percent of total fare revenues for transit agencies, and we see that number growing,” he says.
Yablonovsky says even before the pandemic began, the majority of transit authorities in Canada were actively looking to modernize their fare system. The need to modernize has arguably been reinforced over the last two years as the adoption of digital payment solutions has increased drastically in Canada.
Supplied
“The COVID-19 pandemic has made contactless forms of payment the preferred option for many,” adds Matthew McDonagh, Senior Director of Business Development for Cubic Transportation Systems, a systems integrator that helps transit authorities adopt open loop payments.
McDonagh explains that while open loop systems can cut costs associated with the production and distribution of cards, their primary savings typically come in the form of time. That precious resource, he adds, is often consumed by infrequent transit riders or out-of-towners that need to fumble for change in order to enter a bus or transit terminal.
“Transit systems talk about ‘dwell times,’ which happens when a bus is not in active revenue service,” he said. “When we talk about why agencies are interested in contactless debit in particular, generally it’s from an efficiency standpoint, because it’s a cash offset, and cash is incredibly slow.”
Transitioning to a system that can accept the payment methods already available on most phones and cards around the world can dramatically reduce those costly inactive periods, adds McDonagh. “We’re consistently delivering processing speeds under 200 milliseconds, so it’s much faster, which improves dwell times.”
In that fraction of a second McDonagh says the software can verify the payment method, determine whether it’s been flagged for fraud risk, and remove the fare from the cardholder’s account.
“Our system will tokenize that card so it’s secure and anonymous, and then all of the [verification] will happen in the background,” he said.
Once implemented, the open loop system can help increase ridership, reduce dwell times, lower the operational costs associated with handling cash, and help enable the system to keep pace with changing consumer expectations.
“I expect debit to be pretty game changing from a transit perspective,” he said. “A lot of the transit agencies are really excited about this, because of the operational efficiency that comes from faster forms of payments.”
Advertising feature produced by Globe Content Studio with Interac. The Globe’s editorial department was not involved.