Preliminary Strategic Analysis of Next Generation Fare Payment Systems for Public Transportation (2015)

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4Chapter Overview This chapter provides an overview of the policy and planning considerations involved in implementing a new transit fare payment system. It begins by offering a working definition of a “next generation transit fare payment system,” that establishes a common starting point for the discussion of new and evolving transit fare payment systems described in this report. The chapter also identifies other elements of transit agency policy and practice that can influence the design and operation of a new transit fare payment system. These include: planning considerations; alignment of goals between the transit agency and its fare payment system; and the impact of fare media and fare policy. Defining a Next Generation Transit Fare Payment System The term “next generation public transit fare payment system” has not been universally defined by the transit community. It is an aspirational, self-defining phrase that might best be described as, something better than what we have now. The next generation transit fare payment system will take advantage of innovative technologies and new business and partnership oppor- tunities. The choice of options, however, will be determined by the requirements of individual transit agencies, which may vary significantly. In that context, a transit agency that accepts cash and tokens might consider a magnetic stripe card system as its “next generation.” However, that approach ignores the advances in technology that have taken place since mag stripe cards were introduced 50 years ago; as technology contin- ues to advance, today’s “state-of-the-art” could be obsolete within ten years. As new technologies such as smart phones and mobile applications are introduced, new opportunities emerge to apply those technologies to public transit fare payment systems. A next generation transit fare payment system must be able to accommodate today’s technol- ogy while also looking beyond it. Such a transit fare payment system would have a high degree of flexibility and adaptability, so that it is better able to accommodate evolutions in technology. A next generation fare payment system must also be capable of supporting changes to the transit agency’s operational or business processes. In a transit fare payment system, what are those processes? In its simplest form, a rider boards a bus, pays the operator cash, and takes a journey. It involves a single transaction between the rider (the customer) and the transit operator (the merchant or service provider) to pay for a fare and to collect the fare. Cash serves as both payment medium and fare medium. Over time, both riders and transit operators sought to move away from cash for cost reasons and customer convenience. So, an intermediate step was added to the process. The rider would C H A P T E R 2 Planning for a Next Generation Transit Fare Payment System

Planning for a Next Generation Transit Fare Payment System 5 use a payment medium (e.g., cash, credit or debit card) to purchase a fare medium (i.e., a fare card). The passenger then used that fare medium to gain access to transit services. Why not merge those two processes back into a single transaction, in which the payment medium becomes the medium for fare collection? This is the basis for the open payment sys- tem, in which payment media issued by other organizations (e.g., credit or debit cards or mobile applications, prepaid cards) are used to pay for or grant access to transit services. Transit fare payment systems can be designed to ensure interoperability across modes, among components from different suppliers, and for compatibility with future technologies. Standards-based fare payment systems and account-based architectures can facilitate open pay- ment systems, which expand opportunities for partnering and leveraging the investments of other industries. It is from these concepts that we derive a working definition of next generation transit fare payment system. Next generation transit fare payment system: A transit fare payment system that leverages technology to improve transit agency operations across the business enterprise, while increasing customer convenience and enhancing the customer experience. Planning Considerations for New Transit Fare Payment Systems The process of implementing a new transit fare payment system for public transit can range from the very simple to the most complex. At one end of the spectrum may be a small rural transit agency operating fewer than 50 buses, which seeks to replace its aging cash only farebox with mod- ern technology. At the other end of the spectrum might be a regional transit authority that seeks to acquire a transit fare payment system that will provide seamless travel across several local transit systems using a variety of buses, subways, light rail vehicles, paratransit vans, and commuter trains. While these two scenarios may be quite different in project scope and impact, each transit agency would follow a similar planning and evaluation process to design, select and implement their new transit fare payment systems. There are several transit-specific tools and planning models available through TCRP that describe the detailed planning necessary to ensure success. The planning steps vary, but typically include: 1. Comprehensive assessment of the current fare collection system. This should consider: a. The condition and remaining service life of existing fare collection components b. The costs of operating and maintaining current fare collection equipment c. The ability of existing fare collection systems to meet regional goals d. Funding availability for a new transit fare payment system 2. Establishing transit agency goals and objectives for a new transit fare payment system; 3. Understanding transit fare payment system design and technology; 4. Weighing those options against their transit agency goals and objectives; 5. Determining the most viable approach; 6. Acquiring and implementing the new transit fare payment system. Each step itself can be quite involved, and require significant study and review. That review may involve riders and other stakeholders, such as regional transit authorities or funding transit agencies. There are also complex relationships between each step, which may require periodic reevaluation of system goals, changes in technology, or consideration of innovative funding

6 Preliminary Strategic Analysis of Next Generation Fare Payment Systems for Public Transportation approaches. This report focuses on the third step, by describing the transit fare payment sys- tems or typologies currently in use and identifying technologies available that support different typologies. However, since this report is intended as a guidebook for transit agency leaders, we will identify where decision points may influence each other, thereby impacting functionality or flexibility. These relationships will be explored in depth in subsequent chapters. Align Fare Payment System Goals with Transit Agency Objectives It is important that a transit agency have the fullest knowledge about their current transit fare payment system and a clear vision for the future in order to inform the decision-making process and guide transit fare payment system design. Transit fare payment system technologies vary in their ability to support operational requirements. Consequently, a transit agency must achieve consensus across its operating departments to align policy, operating and technology strategies. Any transit agency considering a new transit fare payment system should include a review of their overall transit system, and identify the connections between strategic goals and transit fare payment system objectives, since there can be significant connections between transit fare pay- ment system choices and the transit agency’s strategic goals.2 For example, while transit agencies may want to adopt the latest transit fare payment technologies and establish partnerships with outside organizations such as financial institutions, they must ensure their transit system is able to equitably serve all their riders, particularly riders with limited access to traditional financial services (see discussion box). Discussion: Considering the Needs of Unbanked and Underbanked Riders Title VI of the Civil Rights Act of 1964 (42 U.S.C. § 2000d) requires that a transit agency receiving federal funds cannot discriminate directly or indirectly against any subset of ridership. From a practical standpoint, a transit agency must be able to provide equivalent levels of mobility for equivalent fares, often to those riders most in need of the service—and with the least ability to pay. In the transit community, these riders are typically considered to come from “unbanked” or “underbanked” households. In the 2011 National Survey of Unbanked and Underbanked Households, the Federal Deposit Insurance Corporation reported that “The highest unbanked and underbanked rates are found among non-Asian minorities, lower-income households, younger households, and unemployed households.” From a transit fare payment system perspective, Title VI considerations come into play when considering the types of fare media and payment options available to unbanked or underbanked populations. Since riders from unbanked or underbanked households are less likely to have their own credit or debit card, a transit agency can meet the needs of this rider- ship community by offering prepaid fare options, such as prepaid, reloadable fare cards; by accepting EBT (Electronic Benefit Transfer) cards; or other fare payment options that are compatible with their fare payment system’s technology. Source: Federal Deposit Insurance Corporation, “2011 National Survey of Unbanked and Underbanked Households,” Sep 2012, p. 5.

Planning for a Next Generation Transit Fare Payment System 7 As transit fare payment systems have become more capable, they have become an effective tool in helping a transit agency achieve its overall system goals. Four broad transit fare payment system goals can be identified which apply to transit agencies of all sizes and scopes. • Improve customer experience • Improve technical operations • Improve financial processes • Improve overall system operation The goals for transit fare payment systems are listed in Table 2-1, along with associated char- acteristics and objectives often cited by transit agencies as reasons for implementing a new tran- sit fare payment system. These four goals can serve as helpful metrics against which to assess different elements of transit fare payment system design. Appendix B provides four examples of transit fare payment system goals established by transit agencies currently involved in fare system upgrades.3 A transit agency should have a thorough knowledge of the recent trends within transit fare payment systems, including technology; best practices for system acquisition, imple- mentation and operation. An informed understanding of their ridership base and customer preferences is also essential to design a system that meets the needs and expectations of riders. Once the decision is made to develop a new transit fare payment system, transit operators need to consider three broad areas of system design, and assess the impact of their respective GOALS Characteriscs or Objecves For Transit Fare Payment Systems Im pr ov e Cu st om er Ex pe rie nc e Im pr ov e Te ch ni ca l O pe ra o ns Im pr ov e Fi na nc ia l O pe ra o ns Im pr ov e O ve ra ll Sy st em O pe ra o n Increased customer convenience: Ease of use Increased customer convenience: More fare media opons Achieve seamless travel across all modes of own system Achieve seamless travel with partner transit agencies / regional travel Increase fare opons and pricing flexibility Ensure smooth implementaon of new fare payment system Improve reliability of fare equipment Reduce fare collecon costs Reduce fare abuse and evasion Reduce use of cash Increase prepayment Improve revenue control / accountability Improve fare revenue allocaon in a mul-operator system Improve data collecon and reporng capabilies Upgrade exisng system with forward-capable technology Flexibility in hardware replacement and lifecycle renewal Reduce system complexity Get out of the payments and se
lements business Increase ridership Table 2-1. Transit fare payment system goals.

8 Preliminary Strategic Analysis of Next Generation Fare Payment Systems for Public Transportation elements and attributes upon the new fare payment system’s ability to meet the transit agency’s goals. The three areas are: • Fare program: This represents all aspects of fare structure, transfer policy, transit fare pay- ment, fare control and fare collection. • Fare media: The type or types of “ticket” that a transit agency will accept from its riders. • Fare system typology: The classification of attributes that describes the technical design approach to the transit fare payment system. (These will be discussed in detail in Chapter 3 and Chapter 4.) The relationships between fare program, fare media, and fare system typology are represented in Figure 2-1. As the diagram shows, a transit agency’s action or decision—such as setting a particular objective for a fare program—can be driven by, or have an impact upon the other two elements. This report will identify those linkages, and describe where the most significant flexibilities or limitations exist. Fare Program: Pricing, Payment, Control, and Collection The first set of parameters in designing a transit fare payment system for public transit is the combination of policy and operational decisions that determine the cost of a particular fare, how the rider will pay that fare, and how that fare will be collected. Fare Pricing Structure Transit agencies operate under a wide, often complex variety of fare pricing structures. There can be flat fares or differential fares, reduced fares, and even free fares (see Table 2-2). This report does not address the merits of one fare structure over another. However, as will be discussed, certain transit fare payment system design choices can support a greater variety of fare structures or facilitate changes to an existing fare structure. In practice, some transit agencies may have well over a dozen published fares. Transit agencies that use a zone or distance-based fare structure may have hundreds of individual fares that are based upon a complex station-to-station or zone-to-zone fare matrix. Some transit agencies may also offer discounts or impose a convenience fee or other surcharge upon a base fare according to the type of fare medium used. Figure 2-1. Relationships of transit fare payment system design elements.

Planning for a Next Generation Transit Fare Payment System 9 Some choices in transit fare payment system design are better able to support certain aspects of fare policy. For example, some transit agencies and designers of transit fare payment systems report that changes in fare structure, such as implementing distance-based fares, will be easier to do with an account-based system than with a card-based system because the software modi- fications can be done relatively easily on the “back end” rather than with cards and card reading devices.4 Transfer Policy Transit agencies operating more than one type or mode of service (e.g., bus and subway, subway and commuter rail, etc.) will also evaluate whether or not to include transfers between modes. Considerations include the number of transfers to allow a rider, the time frame for the transfers, and the fare allocation structure between modes. There is also a need to consider the compatibility of fare media and fare collection practices used by different modes of service. On larger, regional transit networks that seek to provide seamless travel across multiple transit agencies, the transfer policy and fare medium compatibility are even more critical. Some transit agencies have noted that simplified fare structures should be an integral element of regional fare integration and new technology implementation efforts. This could reduce confusion among riders, simplify the software needed to manage fare computations, and potentially reduce the time to develop the system.5 Fare Type Sample Fares Flat Fare Single trip Round-trip Mul-trip Differenal Fare Distance-based (zone) Time based (peak, off-peak) Tap-On-Tap-Off Period Pass Weekly Monthly Reduced fares Seniors Students Special Needs / Disabled Discounts, Surcharges or Penales On-board purchases Different fares for users of fare cards, ckets, tokens, or cash Transfers Transfer charge Service premium Express bus Commuter Rail Bonuses Bonus value added to fare card when reloading with more than a prescribed amount in new value (e.g., a $5.00 payment gets $5.25 in value) Free fare Designated zone Designated mes Subsidies Employers, schools or universies cover full or paral cost of transit fare or pass. Tax benefits Transit subsidy programs that provide pretax benefits to employers or employees Table 2-2. Typical transit fare structures and fare programs.

10 Preliminary Strategic Analysis of Next Generation Fare Payment Systems for Public Transportation Transit Fare Payment Options In addition to basic fare pricing structures, transit agencies must select the transit fare pay- ment options that riders can use to access the transit system.6 These options include: • Prepayment: Rider purchases fare before boarding. – Single-ride – Multi-ride – Period pass – Stored value • Post payment: Rider purchases fare upon alighting, or is billed on a regular cycle, e.g., through an employer program. Fare Control and Collection Fare control and collection also influence transit fare payment system design decisions. Some fare control and collection methodologies are more prevalent in some transit modes, so changes in transit fare payment or fare media must be considered across the transit system. Fare control approaches include open (barrier-free), closed (barrier), and mixed systems, where fare control varies by mode or station. Within fare collection, there are generally four options: • Pay on Board: the rider presents his/her fare medium when boarding the transit vehicle. • Barrier: the rider pays at a turnstile, fare gate or other physical control point that allows the rider access onto a transit vehicle or into a transit station. (This also includes transit systems that collect fares upon exit, e.g., WMATA). • Conductor Validated: the rider presents a ticket that is then punched, stamped, or otherwise marked as “used.” (This also includes mobile electronic tickets that automatically “expire” in a set period of time, after being “activated” and presented to the conductor.) • Proof-of-Payment (POP): a rider presents a physical ticket or other fare medium to indicate that a fare has been paid. Discussion: Stored-Value Fare Cards Explained A stored-value card originally referred to a prepaid fare card that was programed or “loaded” with a specific dollar value that was then decremented with each use. As fare systems developed, the term took on a broader meaning to include prepaid fare options in which the “value” loaded onto the fare card may not be monetary. There are three forms of stored-value card in general use: • Value-based: contains a dollar value, • Trip-based: contains a predetermined number of trips, or • Time-based: can be used for a specific period (i.e., daily, weekly, or monthly passes). Stored-value systems can be card based or account-based, and are able to sup- port a variety of fare structures and payment options. They are also capable of simultaneously carrying both stored-value and pass options. Source: TCRP Report 10: Fare Policies, Structures, and Technologies, p.88

Planning for a Next Generation Transit Fare Payment System 11 Historically, certain fare collection approaches have been associated with specific transit modes (see Table 2-3). Consequently, transit systems operating two or more modes will need to address fare media compatibility and interoperability. There are also customer service considerations, particularly when introducing barriers or entry gates to a once barrier-free environment. Fare Media The choice of fare media is the second factor in public transit fare payment system design. Fare media can include cash, tokens, paper tickets, magnetic stripe cards, smart cards, bank cards, mobile phones, and other electronic devices. This report focuses on the benefits of contactless smart cards, mobile phones and other electronic devices over other fare media, and does not discuss in detail the relative advantages or disadvantages between other fare media such as cash/ coin, tokens or tickets. Each fare medium and the associated devices and infrastructure used to “collect” a fare using that particular medium have their own capabilities and limitations, such as durability, reliability, interoperability, maintenance, and automation. Transit agencies may accept several different fare media across its entire transit system, though each individual mode may not accept the same variety of fare media. Allowing the use of different fare media permits riders to select the type or types of fare media that are most convenient and cost-effective to them. The use of reusable, reloadable media such as smart cards or personal mobile devices can reduce or eliminate fare media issuance costs for transit agencies. Electronic fare media provide an opportunity for integration with trip plan- ning applications and other transit information; and an opportunity to link transit payment to non-transit events, transit benefit programs and other offers. The use of electronic fare media can also simplify the transfer process between modes, by eliminating the need for different fare media and the use of paper “transfers.” There may be added costs associated with accepting multiple fare media, such as: initial capital investment in fare media readers; additional programming and audit requirements at the transit agency central computer. Ultimately, however, these costs should be offset through increased rid- ership; reduced costs associated with fare media issuance; and reduction of fraud (e.g., counterfeit fare cards, misuse of transit benefits). Table 2-3. Fare collection approaches and prevalence by mode. Approaches to Fare Collecon Prevalence by Mode Basis of Approach Collecon Method Time of Payment Equipment Bus Heavy Rail Light Rail Commuter Rail Physical Pay on Boarding Entry Agents, Farebox, Turns les Barrier Entry or Exit Farebox or Ticket Processing Unit Inspecon Conductor Validated Before Entry or On-Board by Conductor Conductor, Hand- held Readers Proof-of- Payment Before Entry or On-Board Automa c Validator, Conductor, Hand- held Readers Source: Adapted from Joel D. Anders, “Future Paths for Regional Fare Collection in Atlanta,” Atlanta: Georgia Institute of Technology, December 2012.

12 Preliminary Strategic Analysis of Next Generation Fare Payment Systems for Public Transportation Fare media will be discussed in detail in Chapter 5. Chapter 2 Review • A “Next Generation Transit Fare Payment System” is a transit fare payment system that lever- ages technology to improve transit agency operations across the business enterprise, while enhancing the customer experience. • The design and implementation of a new fare public transit payment system is a major under- taking, and should be done in concert with a thorough strategic and operational review across the business enterprise to establish fare payment system goals that support agency objectives. • Any transit fare payment system should achieve four broad objectives: – Improve customer experience, such as greater choice, faster boarding, or seamless travel across different modes or multiple systems; – Improve technical operations, such as improved equipment reliability and reduced maintenance; – Improve financial processes, such as lower operating costs or increased revenue; and, – Improve overall transit system operations, such as acquiring data to optimize schedules and routes. • Major influences of fare system design include: – Fare program: fare structure, transfer policy, transit fare payment, fare control and fare collection. – Fare media: what “tickets” or other devices that a transit agency will accept from its riders. A wide variety of transit fare media exist, with varying capabilities and limitations. – Fare system typology: the fare system design attributes (discussed in detail in in the next chapter). Discussion: Payment Media vs. Fare Media: Sometimes One-In-The-Same Payment media are the means by which riders purchase their transit fare. Pay- ment media can include cash, credit cards, debit cards, pre-paid cards, benefits cards, or mobile payment applications on smartphones or other devices. Fare media describes the various types of “tickets” that a transit agency allows a rider to use for access to the transit system. Fare media can include cash, tokens, paper tickets, magnetic stripe cards, contactless smart cards, “virtual tickets” dis- played on a mobile phone, or mobile ticketing applications (on smartphones or other devices) specifically designed for that system. Payment media become fare media when a single instrument is used to both pay for a fare and access transit services. The most common example is the use of cash: a bus passenger deposits cash into a farebox and begins a journey. A contactless credit card used in an open payments transit fare payment system is another example: the rider’s card is read at the fare barrier, the rider is allowed access into the transit system, and the fare payment transaction is initiated between the rider’s credit card company and the transit agency.