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'Open-fare' technology not embraced elsewhere Add to ...

While the Toronto Transit Commission drives ahead with its scheme to allow riders to pay by simply tapping their bank or credit card on a "contactless" reader, some of the other cities said to be keen on this next-generation fare technology appear to be far from sold on the idea.

The approach, known as "open standard-based fare payment," is part of a strategic push by the credit card industry into the huge market for small value transactions: candy bars, newspapers, take-out coffee. What's more, officials with Mastercard International - which wants to gain a toehold in the $72-billion global transit fare market - say they have had quiet discussions with the City of Toronto.

But in Chicago, the financial institutions that were once aggressively promoting just such a fare system appear to have lost some of their ardour in the aftermath of the 2008 credit meltdown. "From my perspective, I feel the jury's out in terms of interest on private side," says Leanne Redden, deputy executive director of Chicago's Regional Transportation Authority.

Her advice to Toronto officials: "It may not be bad to sit back for six to 12 months and see how it plays out, and learn from others' mistakes."

That message runs directly counter to the bullish signals coming out of the TTC in recent days, as it moves ahead with idea in defiance of Queen's Park and its Presto smart card plan. The TTC hopes to tender the project as early as the fall.

Touting "open fare" as passenger-friendly technology, TTC chair Adam Giambrone has said cities like New York, Washington, Philadelphia and Chicago are "actively pursuing" this approach, which, he predicts, will make paying fares "like shopping at a retail store."

However, interviews with those cities' transit authorities indicate that their projects are either early-stage pilots (New York/New Jersey), stuck in the request-for-proposal phase (Chicago) or stalled indefinitely due to budget cuts (Philadelphia). "We're not far along at all," says Reggie Woodruff, a spokesperson for Washington's Metro system, adding that such a scheme is "far in the future."

None of the agencies involved can provide a business plan that demonstrates clear savings to riders. A spokesperson for the South-Eastern Pennsylvania Transportation Authority, which serves Greater Philadelphia, said the estimated capital cost was about $100-million before the project was put on hold.

Officials with Mastercard International declined to specify what kind of ongoing "interchange" fees would be charged to participating transit agencies.

"We're very confident that the benefit to riders, [bank]issuers and transit will greatly outweigh any associated cost," says Cathleen Conforti, senior vice-president for Mastercard's global pay pass solutions.

Mastercard's published merchant interchange rate schedule indicates that it charges U.S. commuter or passenger rail agencies 1.5 per cent plus 10 cents per transaction. For a $3 adult ticket on the TTC, that rate structure works out to be just over 10 cents, or about 3.4 per cent on top of the regular fare price.

Paul Korczak, a Brooklyn-based consultant, was hired by the TTC in June to prepare a request for proposals. Mr. Korczak, who ran New York City's fare collection system for many years, argues that such transaction fees, plus the outlay associated with installing an open fare system (for example, the pads where riders can tap their cards, transmission equipment and the processing network) would cost less than traditional fare collection systems (printing tokens, tickets and passes, salaries, counterfeiting, cash handling).

New York's Metropolitan Transportation Authority (MTA) allocates $500-million every year to print Metrocards - a magnetic strip reloadable card introduced in the late 1990s - and collect cash fares. By contrast, the TTC spent only $67-million on its fare system in 2008, according to spokesperson Danny Nicholson.

When New York several years ago allowed riders to purchase Metrocards using credit or debit cards both inside stations or at participating retail outlets, says Mr. Korczak, the number of cash transactions fell "dramatically," leading to savings on fare collector salaries and cash handling expenses.

The move to contactless bank or gift cards - which is being tested between June and November of this year on New York's Lexington Avenue subway and select bus and commuter rail routes - takes it one step further, he adds.

MTA spokesperson Aaron Donovan predicts the cost reduction in New York could be substantial. "For every dollar we collect in fare, we spend 15 cents on fare collection. If we can reduce that by one cent or two cents, that would result in a savings of hundreds of millions per year."

For the New York/New Jersey trial, Mastercard supplied the equipment for the trial free of charge and has ensured its brand is associated with the project; Mr. Donovan said the outlay for a system-wide roll-out "has yet to be determined."

The Ontario government has been developing Presto, a smart card, for use on GO Transit, parts of the TTC and other systems. Mr. Giambrone says the project received $140-million in funding from Queen's Park, but the TTC would require more than $350-million to get it up and running system-wide. Transportation Minister Kathleen Wynne has urged the TTC to halt work on the open fare model.

The Consultant

In June, the TTC approved an untendered contract to hire long-time MTA official Paul Korczak and his business partner Dennis Marshall, a one-time investment banker who has advised the Chicago Transit Authority on private-public partnerships, to develop an open-fare business plan, write a request-for-proposal and conduct information sessions with TTC staff. Mr. Korczak says the contract is worth $1.3-million, will last for about five months and doesn't involve any other staff besides himself and Mr. Marshall.

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