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

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61 Chapter Overview This chapter draws together the information provided throughout this report, in order to pro- vide some comparisons and evaluations of different fare payment system design options. It will also identify some best practices and implementations strategies for transit agencies to consider when adopting a next generation fare payment system. Evaluating Options As identified in Chapter 4, there are four next generation transit fare payment system typolo- gies, which can be used in both single- and multiagency transit environments: • Proprietary, Card-based, Closed Payment Systems • Proprietary, Account-based, Closed Payment Systems • Standards, Account-based, Closed Payment Systems • Standards, Account-based, Open Payment Systems Each of these typologies will be evaluated according to goals and criteria discussed earlier in the report, including: how different fare payment system typologies can achieve fare payment system goals; compatibility of fare media with different fare payment systems; and the capacity of different typologies to adapt from a single transit agency to a multiagency environment Capacity to Achieve Fare System Goals As described in Chapter 2, the process of implementing a new transit fare payment system should involve a broader review of the transit agency’s strategic goals. This allows the transit agency to identify the strengths and weaknesses of its current fare payment system, which in turn can guide the selection of features and capabilities in the new system. At a minimum, the new fare payment system must replicate all of the desired functionalities of the current system: the “same model car, only newer model year” approach. Most transit agencies are likely to want to “upgrade to a better model” that incorporates new functionalities and capabilities in their next generation transit fare payment system, which meet defined customer needs and agency requirements. Will those additional capabilities come with a significant cost? If so, how will a transit agency official support and defend the decision to replace current technology with a next generation system? Table 8-1 provides a relative comparison of the four next generation fare payment system typologies and how each typology can be used to achieve the fare payment system goals identified in Chapter 2. C H A P T E R 8 Evaluating Public Transit Fare Payment System Typologies and Implementation Strategies

62 Preliminary Strategic Analysis of Next Generation Fare Payment Systems for Public Transportation Compatibility of Fare Media Another consideration is the compatibility of fare media with various fare payment system typologies. Table 8-2 lists five forms of fare media typically considered as part of a next genera- tion transit fare payment system, and indicates whether they are compatible with each of the four fare payment system typologies. • Where fare media compatibility is shown as “Yes,” the ability to use that form of fare media is inherent in the fare payment system typology. • Where fare media compatibility is shown as “Possible,” the use of that form of fare media for the given typology requires compatible front-end hardware, as well as software programming at the back end to adjust fare processing rules to ensure that the given fare media are accepted when presented to the front end. Fare Payment System Goals Pr op rie ta ry , C ar d- ba se d C lo se d Pa ym en t Pr op rie ta ry , A cc ou nt -b as ed C lo se d Pa ym en t St an da rd s, A cc ou nt -b as ed C lo se d Pa ym en t St an da rd s, A cc ou nt -b as ed O pe n Pa ym en t Increased customer convenience: Use of contactless smart cards Faster entry/exit than traditional fare media such as mag stripe More options through use of smart devices or contactless bankcards Increased customer convenience: More fare media options Fare media options limited to agency fare card or mobile tickets More fare media options such as rider owned smart devices and bankcards Achieve seamless travel across all transit modes of own system Requires use of compatible fare media across all transit modes. Achieve seamless regional travel with partner agencies Requires use of compatible fare media across all modes of multiple transit systems, or use of account-based fare system. Increase fare options and pricing flexibility Less capable for changes to rules Account-based systems allow easier changes to fare rules and pricing structure. Ensure smooth implementation of new fare payment system Proprietary systems have a successful history of fielded use. By thorough planning, testing and effective implementation Improve reliability of fare equipment Use of contactless fare payment media reduces maintenance costs. Reduce fare collection costs Proprietary systems rely upontransit agency-issued fare media Reduces fare media issuance costs by allowing use of rider owned media Reduce fare abuse and evasion Relies upon security of proprietarydevise and systems Through use of secure financial payment media as fare media Reduce use of cash Fewer options for use of non-cashfare payment media More options for use of non-cash fare payment media Increase prepayment Through use of prepaid fare media Improve revenue control and accountability Through use of automated fare collection and payment technology Improve fare revenue allocation in multi-operator system Relies upon capability of proprietary systems Through use of financial payments industry standards-based systems Improve data collection and reporting Limited capability Through use of rider-specific data made available through account-based systems Upgrade using forward-capable technology Uses existing technology Applies advancements in technology from other industries Flexibility in hardware replacement and lifecycle renewal Relies upon proprietary hardware and software Allows open source and commoditization of components Reduce system complexity Relies upon proprietary hardware and software By commoditizing front-end devices or use of COTS software Get out of payments and settlements business Transit agency must process all payments Through use of open payments Increase ridership thru improved convenience and rider experience Requires use of agency-issued fare media Allows use of fare media already in possession of rider Table 8-1. Comparison of next generation fare payment system typo logies to achieve fare payment system goals.

Evaluating Public Transit Fare Payment System Typologies and Implementation Strategies 63 Adaptability from Single Agency to Multiagency A single transit agency seeking to replace its aging or obsolete fare payment system should consider the compatibility of its next generation fare payment system with the fare payment systems of neighboring transit authorities, in order to improve regional mobility through seam- less travel across multiple systems. To accomplish this goal, there are two approaches: (1) use of a single fare payment system by all transit agencies within the region, or (2) use of multiple fare payment systems that are compatible with one another. Consequently, the ability of a fare payment system typology to expand from a single agency system to a multiagency environment is an important consideration. As shown in Table 8-3, each of the four typologies described in Chapter 4 have different capacities to expand. The most difficult transit fare payment system to adapt from a single to a multiagency envi- ronment is the proprietary, card-based, closed payment system, since it requires that each par- ticipating transit agency must purchase the same fare payment system. This can be problematic, whether due to budgetary constraints, or individual agency preferences. Further, there is no guarantee that equipment and software purchased today will be available in three or five years, or whether a system manufactured two years ago will be compatible with a system offered today, even if from the same system provider. In contrast, a standards-based, account-based, open payments system is universally compatible with other standards-based, account-based, open payments systems. Individual agencies can con- tinue to use their own hardware and agency-issued fare media. In order to accommodate addi- tional agencies, changes are primarily made at the back end, in each agency’s central computer, to ensure that fare revenue is properly allocated for travel between two or more transit systems. Transit Fare Payment System Typology Contactless Transit Agency Fare Media Contactless Bankcard Contactless ID Card Contactless Smart Device Mobile Tickeng Applicaon Mobile Payment Applicaon Proprietary, Card-based, Closed Payment Yes No No Possible Possible No Proprietary, Account- based Closed Payment Yes No Possible Possible Possible No Standards- based, Account- based Closed Payment Yes No Possible Possible Possible Possible Standards- based, Account- based Open Payment Yes Yes Yes Yes Yes Yes Table 8-2. Compatibility of fare media with next generation fare payment system typologies.

64 Preliminary Strategic Analysis of Next Generation Fare Payment Systems for Public Transportation Transit Fare Payment System Typology Adaptable from Single Agency to Mul agency Considera ons and Challenges Proprietary, Card-Based Closed Payment Limited All par cipa ng transit agencies must acquire the same fare payment system (hardware and soware). This requires that each par cipa ng transit agency follow the same fare policy and fare rules. • • • • • • Fare revenue must be collected and managed by a lead agency or central transit authority and allocated among par cipa ng agencies based upon inter-agency business rules that account for travel en rely within a single transit system or between two or more transit systems. Proprietary, Account-Based, Closed Payment Limited Same as for Proprietary, Card-Based, Closed Payment systems Standards-Based, Account-Based Closed Payment Yes Par cipa ng transit agencies may acquire any standards-based fare payment system, including any compa ble hardware and soware. Fare revenue can be collected by a lead agency or central transit authority as described above (this is the most common). Alterna vely, individual transit agencies could maintain accounts for those riders that primarily use that agency’s transit system; in this case, fare revenue for travel across one or more transit systems would be distributed from the collec ng transit agency to other agencies according to inter-agency business rules. Standards-Based, Account-based Open Payment Yes Par cipa ng transit agencies may acquire any standards-based fare payment system, including any compa ble hardware and soware. Fare revenue can be collected by individual transit agencies, or by a lead agency or central transit authority. Fare revenue for travel between two or more transit systems would be allocated according to inter-agency business rules. Table 8-3. Adaptability of next generation fare payment system typologies from single agency to multiagency. Compatibility of Transit Fare Payment System Designs with Convergence Strategies Although convergence is still in its infancy, the approach is gaining interest among leaders within the transit, urban planning, and regional transportation communities. Consequently, a transit agency contemplating an upgrade to its fare payment system should consider whether their new fare payment system is able to support future implementation of a convergence strat- egy. Table 8-4 compares the fare payment system typologies identified in Chapter 4 with some common approaches of convergence. One can conclude that a next generation transit fare pay- ment system that incorporates an account-based approach that supports smartcards and mobile payment applications provides two essential building blocks upon which a transit agency can build a seamless “plan-travel-pay” environment for the 21st century transit customer. • Where compatibility is shown as “Yes,” the transit fare payment system typology is capable of supporting the convergence strategy.

Evaluating Public Transit Fare Payment System Typologies and Implementation Strategies 65 • Where compatibility is shown as “Possible,” the transit fare payment system typology could support the stated convergence strategy, but it would require close coordination between each service provider, to establish the necessary back-end business rules such as access, authoriza- tion, revenue collection and allocation, etc. Implementation Strategies and Best Practices Transit fare payment systems, as well as mobile payment technologies, are evolving rapidly, and transit agencies have many new technology options to enhance the ways that they collect fares and provide improved services to their customers. Each of the case studies presented in Chapter 7 provide good examples of innovative payment technology implementation and best practices. Other examples can be found in the United States, Canada, Europe, and elsewhere around the world, and transit managers can take advantage of these innovations and experi- ences. Other industries, such as the financial, retail and entertainment industries, are adopting innovative payment strategies and technologies, and new opportunities for collaboration with transit are emerging. Regional Fare System Development Several regional transit authorities across the U.S. are exploring various projects to more effectively integrate services across their individual local transit agencies. Each of these initia- tives cites a number of reasons, including: seamless travel across the region, lower capital costs to individual transit agencies (achieved through purchasing power of a larger project), and the greater ability to access Federal funds that emphasize regional transportation projects.103 Two initiatives underway in 2014 are listed below. • TriMet (Portland, Oregon) has initiated acquisition of a regional, open payment system, which will allow seamless transfers between its existing bus service, MAX light rail, WES commuter rail, C-TRAN and Portland Streetcar.104 • The Tampa Bay Area Regional Transportation Authority has brought together several local transit agencies (Hillsborough Area Regional Transit Authority, Pinellas Suncoast Transit Authority, Polk County Transit Services, and Lakeland Area Mass Transit District) to Table 8-4. Compatibility of transit fare payment system typologies with typical convergence strategies. Transit Fare Payment System Typology Parking with Transit Smart Card Linked Transit and Toll Program Linked Transit and Bike-Share Program Linked Smartphone Applicaon for Transit, Travel, Events Proprietary, Card-based, Closed Payment Yes No No Possible Proprietary, Account- based, Closed Payment Yes Possible Possible Possible Standards, Account- based, Closed Payment Yes Yes Possible Possible Standards, Account- based, Open Payment Yes Yes Yes Yes

66 Preliminary Strategic Analysis of Next Generation Fare Payment Systems for Public Transportation study the adoption of a smartcard-based, transit fare payment system that can be implemented across the region.105 • The Niagara Frontier Transportation Authority is seeking to implement a new fare payment system for travel in the Buffalo-Amherst corridor in upstate New York. “The new electronic fare system will include contactless smart cards, bar code tickets, mobile ticketing, customer and administrative web pages, as well as a retail media distribution and reload network. The successful Contractor will be responsible for the design, engineering, installation, and opera- tion the new fare system for a minimum of five years.”106 Integration with Transportation Demand and Mobility Management Programs The development of corridor and regional travel demand programs is likely to become more widespread as real-time travel information for all modes becomes more readily available. Many regions are planning integrated corridor management programs and mobility management pro- grams, which apply use of multimodal information, variable pricing and incentives to inform travelers and manage travel demand. Incentives related to transit payment systems may include measures such as discounted commuter rail fares and discounted parking.107 The use of open, account-based payment systems may facilitate implementation of these types of incentive pro- grams. Some examples of transportation demand management programs involving small and mid-sized transit markets are the following: • Atlanta Regional Commission (Georgia): “Atlanta Regional Transportation Demand Management Plan” • Puget Sound Regional Council (Washington): “TDM Action Plan” • Triangle J Council of Governments (North Carolina), “Transportation Demand Manage- ment Program” • Maricopa Association of Governments and Valley Metro (Arizona): “Transportation Demand Management Plan” Payment as a Service—an Option for Smaller Transit Authorities Payment as a Service (PAAS), or Ticketing as a Service, is a Cloud-based service delivery model that would involve a private sector organization providing transit fare payment services to one or more transit authorities. The target market for PAAS is smaller transit authorities which do not have the resources to acquire or operate payment processing software and other payment services. PAAS is modeled after Software as a Service, a software application delivery model. The organization providing the payment services would probably offer a subscription service based on transaction fees. The transit authority would implement fare collection equipment, such as contactless smart card readers, on their transit vehicles, and payment information would be sent to the PAAS provider that would operate the payment management software.108 The PAAS provider might also handle other payment functions, such as customer service and marketing. Evolutionary Implementation The evolutionary approach to transit fare payment systems development and implementation has proven to have many advantages. The evolutionary approach involves developing relatively small portions of the new system very quickly, getting user feedback, and continuing development in an incremental fashion. It allows developers to provide users with functional capabilities faster, and expand these capabilities incrementally with each iteration of development. Developers ben- efit from user feedback at each phase of development.

Evaluating Public Transit Fare Payment System Typologies and Implementation Strategies 67 A standards-based design architecture and open payments architecture facilitate use of an evolutionary approach to transit fare payment system implementation. New technology can be added as it becomes available as long as it is compliant with payment industry and contactless technology standards. Under open payments architecture, additional payment and identification media can be accepted as new marketing and partnering opportunities present themselves. Utah Transit Authority has evolved their open payments system in an evolutionary manner. UTA implemented an open, account-based system, starting with transit and employer passes that built on established relationships. Financial payment cards, Federal ID cards, mobile payments and prepaid cards were then demonstrated or implemented. As each new payment product was introduced, the transit authority gained valuable insight into user and system requirements. Demonstrations and Pilot Programs Demonstrations and pilot programs have proven to be valuable ways to try new technologies and product in the transit environment. Both demonstrations and pilots allow developers to understand user and system requirements and to determine the feasibility of full scale imple- mentation of the new capability. Demonstrations and pilot tests typically involve a relatively small number of customers and a limited set of transit vehicles or facilities. Demonstrations and pilots give visibility of the proposed innovation, and often help generate support for the funding required for development and system-wide implementation. Demon- strations (sometimes called “proof of concept” tests) also give technology and product suppliers insight into the operational requirements of the transit environment and the preferences and behavior of transit customers. Demonstrations are temporary trials of new technologies or methods, and enable the transit agency to gauge market acceptance of the new product, determine the system requirements more accurately and educate their staff about the technology being demonstrated. A pilot program typi- cally follows a demonstration project, and serves as the initial or pre-implementation phase of a new system, in order to test a system’s new operational capabilities prior to full scale implementation. Several transit agencies have demonstrated innovative payment technologies through these mechanisms. Examples include demonstrations of financial institution contactless smart cards in New York, prepaid payment cards in Utah, mobile payment technology on the Long Island Railroad, and use of Google Wallet on select NJ Transit buses. Washington Metro’s Demonstration Project for Smart Devices The Washington Metro has embarked upon a comprehensive demonstration proj- ect that will allow riders to pay for their transit fare using a wide range of smart devices and smartcards. This demonstration project is an integral step towards implementation of WMATA’s New Electronic Payment Program, which is sched- uled for full deployment by 2017 (see Specification document in Appendix 1). The demonstration project will be implemented at ten Metrorail stations and along six Metrobus routes, including several stations and routes heavily used by U.S. government employees. WMATA will install designated fare lanes and fare gates at Metrorail stations, along with special card targets on board buses and at parking facilities. These front-end devices will be able to communicate with a vari- ety of smartphones, wearable NFC devices, contactless credit and debit cards, and federal ID cards.

68 Preliminary Strategic Analysis of Next Generation Fare Payment Systems for Public Transportation Use of Commercial-Off-The-Shelf Software In many industries, software developers have found that basing development on commercial- off-the-shelf (COTS) software or other readily available commercial products is an efficient and cost-effective strategy for system development.109 Transit payment system developers and integra- tors report that this approach has benefits for the development of transit payment systems. Devel- opers claim that the software required for managing payment accounts, customer service and other functions can be cost-effectively tailored from COTS software developed for other applications. Potential benefits include faster development times, reduced development and maintenance costs, and more flexibility in modification and expansion of the system.110 Potential challenges to using COTS software include increased security risks and system integration challenges.111 Commercially available software packages enable agencies to select best-in-class software for each com- ponent of the back-end system. Replacing legacy software can help to improve and automate existing processes such as financial management and reporting, customer relationship management, clearing and settlement, and order and inventory management. Leading software packages can also be used to introduce new capabilities such as analytics and real-time asset and system monitoring. Accenture, “Accelerating the Payback from Fare Collection Investment” 112 WMATA sought 3,000 volunteers to participate in the project, and provided an on-line portal for riders to apply to participate (http://mpp.wmata.com/). In ad- dition to eliminating the need to buy a separate SmarTrip fare card, participants will also be eligible for bonus incentives. Source: “Pay for Metro with your smartphone or watch? Testing starts soon.” WMATA Press Release, September 9, 2014 Mobile Application Development: Driven by the Consumer Market The power of the marketplace is a strong driving force in mobile application development. When Apple launched its App Store in 2008, there were 500 differ- ent software programs available for users to download. Within six months, the number of apps had increased 30-fold to 15,000. By October 2013, there were over 1,000,000 apps available. Similar growth took place amongst apps designed for Google’s Android operating system since its launch in 2009, which also offers over 1,000,000 applications. Blackberry and Windows-based phones lag behind, but each operating system offers 250,000 downloadable products. There are thousands of transit applications available for download. The programs range in capability from static system maps, to more advanced travel planners that include current transit schedules, interactive system maps, and even layouts of individual stations to speed connections. Some of these applications were cre- ated by commercial developers under contract to transit agencies, while others were made by independent travel or mapping companies. Commercial develop- ers have also created fully functional mobile ticketing applications for transit agencies throughout the U.S. and around the globe. Sources: Apple, Blackberry, Google, Microsoft

Evaluating Public Transit Fare Payment System Typologies and Implementation Strategies 69 Multi-Vendor Integration According to a 2014 survey of transit agencies, the use of multiple vendors for system compo- nents (e.g., card readers, barriers, and other front-end devices) can help to reduce fare manage- ment costs up to 50 percent with a 3- to 5-year payback on the capital investment.113 Some of the issues identified by transit agencies in the 2014 survey that impact overall fare collection system cost savings were: • Size of agency: impacts scale of costs required in new system. • Current cost of fare collection: determines the degree of savings opportunity. • Speed of transition: dictates the cost and complexity of running both systems in parallel. • Labor contracts: indicates whether labor savings can be realized. • Condition of existing equipment: determines degree of capital costs avoided in pursuing a new system. Opportunities for Peer Exchange of Innovative Practices Exchanging information among transit agency peers or with other industries involved in payment systems has proven to be extremely valuable to advancing payment innovation in transit. Exchange of information about payment demonstrations and implementation projects has several benefits: • Increases awareness of and stimulates innovative approaches; • Provides insight into the challenges involved in implementation; • Provides models for design, acquisition and implementation of new payment systems; • Informs potential suppliers about transit requirements; and • Facilitates collaboration and partnerships among service providers. Opportunities for information exchange occur at several periodic industry conferences, such as those sponsored by the American Public Transit Association (APTA), the Smart Card Alli- ance (SCA) and the Transportation Research Board. The SCA Transportation Council offers additional opportunities for member organizations to collaborate on the development of white papers about innovative approaches to transportation payment. Many transit agencies have found that regional workshops and working groups have facilitated the introduction of new payment systems to their region. Workshops can increase the awareness of regional transit providers and their stakeholders of the new fare payment options available. They can also facilitate consensus building and regional collaboration. Peer exchange programs, such as those sponsored by the U.S. Department of Transportation, can provide valuable input from experienced professionals to their peers in regions considering innovation. Federal Transit Administration

70 Preliminary Strategic Analysis of Next Generation Fare Payment Systems for Public Transportation As innovative payment approaches expand more broadly throughout the transportation industry and opportunities for convergence with other modes and services emerge, additional industry organizations can be engaged to facilitate interaction with smaller transit organizations (Community Transportation Association of America, CTAA), toll authorities (International Bridge, Tunnel and Turnpike Association, IBTTA), parking providers (International Parking Institute, IPI), and providers of traveler and mobility information systems (Association for Commuter Transportation, ACT, and Shared-Use Mobility Center, SUMC) and other intel- ligent transportation systems (Intelligent Transportation Society of America, ITSA). Observations and Conclusions These comparisons suggest that a standards-based, open payment system appears to show the greatest potential for meeting a transit agency’s fare payment system long-term goals. These systems can accept a wide variety of fare payment media, including mobile payments. Standards-based, open payment systems also have significant capabilities for growth and further development, includ- ing the capability of supporting convergence strategies to improve regional travel and mobility. One area where there may be a higher level of risk associated with standards-based, open payment fare systems is in implementation. As of 2014, only a handful of account-based or open payments systems are in operation or under development, while proprietary, closed payment systems have been in operation for nearly two decades. These proprietary fare payment systems are proven, and shown to be highly capable and reliable. However, the potential risks associated with implemen- tation of a standards-based, open fare payment system can be mitigated through comprehensive planning, thoughtful design, complete and thorough testing and well-executed implementation. Chapter 8 Review • Each of the four fare payment system typologies has varying capability to support a transit agency’s fare payment system goals. • Fare media options are linked to the choice of fare payment system typology. • The potential of an individual transit agency’s fare payment system to be compatible with other fare payment systems in a multiagency fare payment environment is an important con- sideration in selecting a fare payment system typology. • Standards-based, open payments fare systems are the most capable of supporting a variety of transit convergence strategies. • Transit agencies considering an upgrade to their fare payment system should avail themselves of the experience of other agencies that have implemented new fare payment systems, to iden- tify successful implementation strategies and best practices for success. • Standards-based, open payments fare systems appear to show the greatest promise in terms of current and future capability. Proprietary, card-based fare payment systems, although less capable of future development, have shown themselves to be reliable and robust. Conse- quently, a transit agency implementing their own “next generation fare payment system” will need to carefully weigh the benefits and risks associated with each approach to fare payment system design.